<PAGE>
- --------------------------------------------------------------------------------
MORGAN STANLEY
GLOBAL OPPORTUNITY
BOND FUND, INC.
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 1998
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
MORGAN STANLEY
GLOBAL OPPORTUNITY BOND FUND, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs
CHAIRMAN OF THE BOARD
OF DIRECTORS
Michael F. Klein
PRESIDENT AND DIRECTOR
Peter J. Chase
DIRECTOR
John W. Croghan
DIRECTOR
David B. Gill
DIRECTOR
Graham E. Jones
DIRECTOR
John A. Levin
DIRECTOR
William G. Morton, Jr.
DIRECTOR
Stefanie V. Chang
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Valerie Y. Lewis
SECRETARY
Joanna M. Haigney
TREASURER
Belinda A. Brady
ASSISTANT TREASURER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
- --------------------------------------------------------------------------------
LEGAL COUNSEL
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726.
<PAGE>
LETTER TO SHAREHOLDERS
- ---------
For the six months ended June 30, 1998, the Morgan Stanley Global Opportunity
Bond Fund, Inc. (the "Fund") had a total return, based on net asset value per
share, of -0.88% compared to 2.27% for the Fund's benchmark (described below).
For the one year ended June 30, 1998 and for the period since the Fund's
commencement of operations on May 27, 1994 through June 30, 1998, the Fund's
total return, based on net asset value per share was 2.91% and 72.25%,
respectively, compared to 6.97% and 66.19%, respectively, for the benchmark.
The Fund uses as its benchmark, for purpose of comparing its performance, a
composite comprised of 25% of the J.P. Morgan Emerging Markets Bond Plus Index,
25% of the J.P. Morgan Latin Euro Bond Index and 50% of the CS First Boston High
Yield Index. Prior to 1998, the Fund used a composite comprised of 50% of the
J.P. Morgan Emerging Markets Bond Plus Index and 50% of the CS First Boston High
Yield Index. However, the Fund's weightings in these asset classes is not
restricted and will, under normal circumstances, fluctuate depending on market
conditions. At June 30, 1998 the Fund's investments in debt instruments were
comprised of 71.6% of emerging markets debt securities and 24.4% U.S. high
yield securities.
On June 30, 1998, the closing price of the Fund's shares on the New York Stock
Exchange was $12 1/8, representing a 6.4% discount to the Fund's net asset value
per share.
The underperformance can be attributed to an overweight in Russia and Indonesian
corporates. Throughout the last two quarters the Asian region remained in the
spotlight and often dictated the tone of the market. In the first quarter
emerging market debt recovered a large portion of the losses realized in October
of 1997, however the market remained volatile during this period of spread
compression, with general market spreads oscillating within a 100 basis point
range. In December a rally spurred by Russia's improving external debt profile
and Boris Yeltsin's improving health was cut short by Asian currency volatility
and the declining economic condition of Korea and Indonesia. In January, a
market sell-off caused by Russian fiscal imbalances, historically low commodity
prices and policy inaction in Indonesia was reversed by the successful
rescheduling of Korea's short term bank debt obligations. In February, dramatic
swings in the current account positions of Thailand and Korea combined with new
evidence of Russia's commitment to prudent fiscal policy helped bolster investor
confidence, despite continued uncertainty in Indonesia. Apparent economic and
political stabilization in the region buoyed investor sentiment, causing spreads
to rally to the mid 400's. When this period of calm proved to be temporary,
spreads widened out to above 600 basis points, as the "Asian Contagion" hit
emerging markets debt yet again.
The second quarter started off uneventfully as financial markets globally
drifted sideways throughout the month of April. Relative stability in Asia and
Indonesia in particular allowed emerging market debt to rally despite political
uncertainty in Russia, Ecuador and Venezuela. This period of relative calm was
short lived as continued weakness in Asia and the forced resignation of former
President Suharto in Indonesia caused investors to reassess the risk premiums
required for all emerging market assets. Russia in particular came under
pressure. We decreased the Fund's exposure to Indonesia as the post-Suharto
political environment remained fragile with no "quick fix" in sight. Believing
that the market had overly penalized Russian debt, we shifted to an overweight
position in late May after Russian assets experienced a significant sell-off,
returning -9.90% for the month.
In the declining rate environment and a solid economy, single B rated bonds
outperformed higher quality bonds in the high yield market. Longer duration
bonds also outperformed. The lower tier and distressed sector continued to have
problems as it has for some time now. From an industry perspective,
outperformers included retail, technology and utilities while underperformers
were auto parts, energy and textiles.
The months of May and June saw the return of the kind of nervousness, investor
skepticism, and volatility in the emerging markets that we experienced during
the large sell off in 1994 and more recently in the Asian induced sell off
during the fourth quarter of 1997. The reasons for this round of volatility
are less obvious than past episodes, as there have not been the classic signs
of a decrease in global liquidity nor has this sell off been precipitated by
political/social instability in any major country. Interest rates continue to
stay low globally, there have not been large flows out of emerging market debt
mutual funds, global inflation remains quite well contained, and broadly
speaking, most emerging countries continue to pursue virtuous
2
<PAGE>
economic policies. However, the ill health of the Japanese economy and of
major Japanese banks has caused investors to adjust risk premiums higher and has
caused liquidity for most emerging countries to evaporate. Investors fear that
Japan's inability to fix its economy will continue to weaken the yen and might
eventually cause a devaluation in China. This would increase the risk of
another round of currency devaluation in Asia and might further depress
commodity prices, a large source of earnings for many emerging countries. The
good news is that markets have considerably discounted such a negative scenario.
While Asia continues to cast a dark shadow over the emerging markets, any
evidence of a turn around or stabilization in Asia should allow prices on
emerging market debt to recover substantially.
In June, Russian debt underperformed the other emerging market bonds by a wide
margin again, with the Russian subcomponent of the J.P. Morgan Emerging Markets
Bond Plus Index returning -13.85% for the month. The dramatic sell off in
Russian assets reflects investors' concerns about short term liquidity rather
than longer term solvency issues. Russia relies heavily on foreign debt and
foreign investors in its local markets to fund its budget deficit which has been
aggravated this year by poor tax collection resulting from low oil prices. As
global liquidity has become scarce, Russia has come under particular scrutiny as
it relies on the markets for constant funding. We believe that the new
administration in Moscow has developed a credible program and should survive its
current predicament. The Russians are working closely with the International
Monetary Fund and should come to terms, in the next two months, for additional
aid and an expanded program to bolster international reserves. The current
government is the most reform-minded since the collapse of communism and it is
in western governments' interest to see them succeed. Russia's deteriorating
fiscal positions is providing the impetus for the government to conclude its
negotiations with the IMF for additional aid. All of the Funds' holdings in
Russia are in U.S. dollar denominated securities and as such would not be
directly impacted by a devaluation of the ruble. We will continue to overweight
Mexico as we remain confident about the soundness of Mexico's macroeconomic
fundamentals. The Mexican economy should register growth of 5% this year and
unlike 1995, growth is more balanced now as it is being driven by both the
export sectors and the non-tradables sectors. We continue to underweight
Venezuela due to the country's declining fiscal and political condition. We will
position our high yield holdings on growth oriented companies and those that
possible Asian imports and declining commodity prices will not effect.
U.S. high-yield bonds significantly underperformed high quality bonds in the
second quarter as interest rates fell. The high-yield market has been
negatively impacted by the renewed turmoil in Asia, the developing crisis in
Russia and concern that corporate profits in the U.S. may begin to face some
pressure. Even though the emerging markets represent a small portion of the
high-yield index, the weakness in these markets has caused spreads in the
high-yield market to widen in sympathy as investors are requiring a higher risk
premium for lower rated bonds. In addition, there continued to be a substantial
supply of new issues in the period, particularly in the communications sector,
which the market had difficulty absorbing.
For the U.S. high yield portion of the Fund, we continue to be overweight in
communications and non-U.S. issues where we see significant relative value. We
added to communications holdings in the second quarter, where increased new
supply presented a number of attractive opportunities. These holdings are well
diversified by business strategies, including competitive local exchange
carriers, wireless, and long distance. New investments in the sector included
Level 3 Communications, a domestic long-haul fiber network provider, and Global
Crossings, which builds undersea fiber optic cable systems.
Recent purchases in the healthcare and retail sectors as a result of bottom up
security selection have resulted in an overweighting in these sectors as well.
We purchased Tenet Healthcare, a stable, higher quality name and Oxford Health,
an HMO provider that we believe is successfully working through its recent
problems. Additions to the retail sector include Corporate Express, HMV Media
Group and Musicland. We continue to avoid U.S. cyclicals and are underweighted
in the media and entertainment, energy and metals sectors.
We have maintained an average credit quality higher than that of the CS First
Boston High Yield Index, and have balanced the opportunities in low-rated bonds
with positions in higher quality issues. Additionally, the interest rate
sensitivity of the portfolio is similar to that of the benchmark. While the
market environment has become more challenging recently, we see excellent
bottom-up investment opportunities in securities with attractive yields relative
to high quality bonds.
3
<PAGE>
Beginning with this report, we are discontinuing our practice of designating an
individual portfolio manager to sign our reports to shareholders in order to
better reflect the "Team" investment approach of the Fund's investment adviser,
Morgan Stanley Asset Management ("MSAM"). The global emerging markets team at
MSAM has general oversight of the investment management of the Fund. Paul
Ghaffari and Robert E. Angevine continue to have primary responsibility for the
day-to-day management of the Fund's assets
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
July 1998
4
<PAGE>
Morgan Stanley Global Opportunity Bond Fund, Inc.
Investment Summary as of June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION TOTAL RETURN (%)
---------------------------------------------------------------------------
MARKET VALUE(1) NET ASSET VALUE(2) INDEX(3)
------------------------ ------------------------ -----------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year to Date -2.93% -- -0.88% -- 2.27% --
One Year -5.98 -5.98% 2.91 2.91% 6.97 6.97%
Since Inception* 61.15 12.36 72.25 14.20 66.19 13.21
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION:
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED
JUNE 30,
1994* 1995 1996 1997 1998
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value Per Share . . . . . . . $ 12.25 $ 12.99 $ 14.86 $ 13.74 $ 12.96
Market Value Per Share . . . . . . . . $ 12.50 $ 12.50 $ 14.63 $ 13.13 $ 12.13
Premium/(Discount). . . . . . . . . . . 2.0% -3.8% -1.5% -4.4% -6.4%
Income Dividends. . . . . . . . . . . . $ 0.91 $ 1.59 $ 1.49 $ 1.30 $ 0.60
Capital Gains Distributions . . . . . . -- -- $ 0.50 $ 2.30 $ 0.06
Fund Total Return (2) . . . . . . . . . -6.42% 20.34% 31.45% 17.38% -0.88%
Index Total Return (3). . . . . . . . . -0.46% 22.37% 25.36% 12.56% 2.27%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
(3) The Global Opportunity Blended Composite is comprised of 25% of the J.P.
Morgan Latin Euro Bond Index, 25% of the J.P. Morgan Emerging Markets Bond
Plus Index, and 50% of the CS First Boston High Yield Index. Prior to 1998,
the Fund used a composite comprised of 50% of the J.P. Morgan Emerging
Markets Bond Plus Index and 50% of the CS First Boston High Yield Index.
However, the Fund's weighting in these asset classes is not restricted and
will, under normal circumstances, fluctuate depending on market conditions.
As of June 30, 1998, the Fund's investment in debt instruments was
comprised of 71.6% emerging markets debt securities and 24.4% U.S. high
yield securities.
* The Fund commenced operations on May 27, 1994.
5
<PAGE>
Morgan Stanley Global Opportunity Bond Fund, Inc.
Portfolio Summary as of June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<CAPTION>
<C> <S>
Debt Instruments (92.9%)
Equity Securities (0.5%)
Short-Term Investments (6.6%)
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
[CHART]
<TABLE>
<CAPTION>
<C> <S>
United States (32.0%)
Brazil (20.6%)
Russia (20.8%)
Mexico (15.2%)
Argentina (10.7%)
Turkey (4.4%)
Korea (3.6%)
Venezuela (1.4%)
Indonesia (1.3%)
Thailand (1.1%)
Other (-11.1%)
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C>
1. Ministry of Finance
11.75%, 6/10/03 (Russia) 7.4%
2. United Mexican States
11.50%, 5/15/26 (Mexico) 6.2
3. Federative Republic of Brazil 'C' Bond PIK
8.00%, 4/15/14 (Brazil) 6.1
4. Russia Principal Note, PIK
3.313%, 12/15/20 (Russia) 5.3
5. Federative Republic of Brazil 'EI-L' Bond
6.625%, 4/15/06 (Brazil) 4.9
6. Salomon Brothers Federative Republic of Brazil
Credit Linked Enhanced Note 9.00%, 1/15/99 (Brazil) 4.6
7. Federative Republic of Brazil
9.375%, 4/7/08 (Brazil) 4.2
8. Republic of Argentina
6.625%, 3/31/05 (Argentina) 4.1
9. United Mexican States Global Bond
9.875%, 1/15/07 (Mexico) 3.7
10. Republic of Argentina Global Bond
11.375%, 1/30/17 (Argentina) 3.1
----
49.6%
----
----
</TABLE>
6
<PAGE>
FINANCIAL STATEMENTS
- ------
STATEMENT OF NET ASSETS (UNAUDITED)
- ------
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
DEBT INSTRUMENTS (104.7%)
- --------------------------------------------------------------------------------
ARGENTINA (10.7%)
CORPORATE (3.2%)
(b) Acindar Industries 144A
11.555%, 11/12/98 U.S.$ 300 U.S.$ 303
CIA International Telecom 144A
10.375%, 8/1/04 ARP 1,200 990
Supercanal Holdings S.A. 144A
11.50%, 5/15/05 U.S.$ 450 433
------------
1,726
------------
SOVEREIGN (7.5%)
(b,d)Republic of Argentina
6.625%, 3/31/05 2,518 2,227
Republic of Argentina
Global Bond
9.75%, 9/19/27 130 120
(d)11.375%, 1/30/17 1,600 1,705
------------
4,052
------------
5,778
------------
- --------------------------------------------------------------------------------
AUSTRALIA (0.5%)
CORPORATE (0.5%)
Murrin Murrin Holdings Property Ltd.
9.375%, 8/31/07 300 296
------------
- --------------------------------------------------------------------------------
BRAZIL (16.1%)
CORPORATE (0.9%)
(c) Compania Energetica
Sao Paulo 144A
9.125%, 6/26/07 100 90
Globopar 144A
10.50%, 12/20/06 80 73
10.625%, 12/5/08 400 356
------------
519
------------
SOVEREIGN (15.2%)
(d,e)Federative Republic of Brazil
'C' Bond PIK
8.00%, 4/15/14 4,478 3,300
(b,d,e)Federative Republic of Brazil
'EI-L' Bond
6.625%, 4/15/06 3,250 2,676
(d) Federative Republic of Brazil
9.375%, 4/7/08 2,500 2,248
------------
8,224
------------
8,743
------------
- --------------------------------------------------------------------------------
BULGARIA (0.9%)
SOVEREIGN (0.9%)
(c,e)Republic of Bulgaria
Front Loaded Interest
Reduction Bond
2.25%, 7/28/12 U.S.$ 50 U.S.$ 31
(b,e)Republic of Bulgaria
Past Due Interest Bond
6.563%, 7/28/11 600 430
------------
461
------------
- --------------------------------------------------------------------------------
COLOMBIA (0.7%)
SOVEREIGN (0.7%)
Republic of Colombia
7.625%, 2/15/07 430 388
------------
- --------------------------------------------------------------------------------
ECUADOR (0.9%)
CORPORATE (0.9%)
Conecel 144A
14.00%, 5/1/02 500 500
------------
- --------------------------------------------------------------------------------
INDONESIA (1.3%)
CORPORATE (1.3%)
Hermes Europe Railtel B.V.
11.50%, 8/15/07 140 158
Tjiwi Kimia International
Global Bond
13.25%, 8/1/01 675 537
------------
695
------------
- --------------------------------------------------------------------------------
IVORY COAST (0.2%)
SOVEREIGN (0.2%)
(e) Republic of Ivory Coast
Front Loaded Interest
Reduction Bond
2.00%, 3/29/18 FRF 2,000 100
------------
- --------------------------------------------------------------------------------
JAMAICA (0.9%)
CORPORATE (0.9%)
Mechala Group Jamaica, Ltd. 'B'
12.75%, 12/30/99 U.S.$ 500 460
------------
- --------------------------------------------------------------------------------
KOREA (3.6%)
SOVEREIGN (3.6%)
Export-Import Bank of Korea
6.50%, 10/6/99 1,400 1,322
Korea Development Bank
7.125%, 9/17/01 700 619
------------
1,941
------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
MEXICO (15.2%)
CORPORATE (2.6%)
Empresas ICA Sociedad Controladora 144A
11.875%, 5/30/01 U.S.$ 1,000 U.S.$ 1,065
Innova 144A
12.875%, 4/1/07 350 359
------------
1,424
------------
SOVEREIGN (12.6%)
(b,e)United Mexican States
Discount Bond 'B'
6.477%, 12/31/19 250 225
(e)United Mexican States
Discount Bond 'D'
6.602%, 12/31/19 300 270
National Financiera
17.00%, 2/26/99 ZAR 4,000 662
(d)United Mexican States
11.50%, 5/15/26 U.S.$ 2,950 3,353
United Mexican States
Global Bond
(d) 9.875%, 1/15/07 1,900 1,977
11.375%, 9/15/16 300 335
------------
6,822
------------
8,246
------------
- --------------------------------------------------------------------------------
PERU (0.7%)
SOVEREIGN (0.7%)
(c,e)Republic of Peru Front Loaded
Interest Reduction Bond
3.25%, 3/7/17, 144A 350 196
3.25%, 3/7/17 350 195
------------
391
------------
- --------------------------------------------------------------------------------
RUSSIA (20.8%)
CORPORATE (1.6%)
(c) PTC International Finance B.V.
0.00%, 7/1/07 300 206
Unexim International Finance 144A
9.875%, 8/1/00 850 647
------------
853
------------
SOVEREIGN (19.2%)
(b,e)Russia Principal Note, PIK
3.313%, 12/15/20 6,000 2,850
Ministry of Finance
11.75%, 6/10/03 144A 3,060 2,708
11.75%, 6/10/03 1,500 1,328
10.00%, 6/26/07 1,220 923
12.75%, 6/24/28 144A 1,410 1,260
14.00%, 5/19/99 1,100 931
Ministry of Finance, Series IV
3.00%, 5/14/03 450 259
(b) Russia Interest Arrears Notes
6.625%, 12/15/15 U.S.$ 285 U.S.$ 158
------------
10,417
------------
11,270
------------
- --------------------------------------------------------------------------------
THAILAND (1.1%)
SOVEREIGN (1.1%)
Kingdom of Thailand
8.70%, 8/1/99 600 602
------------
- --------------------------------------------------------------------------------
TURKEY (1.4%)
SOVEREIGN (1.4%)
Pera Financial Services 144A
9.375%, 10/15/02 850 759
------------
- --------------------------------------------------------------------------------
UNITED KINGDOM (0.3%)
CORPORATE (0.3%)
(c) Dolphin Telecommunications plc
144A 0.00%, 6/1/08 200 114
Esprit Telecommunications
Group plc 144A
11.00%, 6/15/08 DEM 135 75
------------
189
------------
- --------------------------------------------------------------------------------
UNITED STATES (28.0%)
ASSET - BACKED SECURITIES (2.6%)
Aircraft Lease Portfolio
Securitization Ltd. 1996-1
P1D 12.75%, 6/15/06 U.S.$ 374 374
CFS 1997-5 'A1' 144A
7.72%, 6/15/05 259 260
DR Securitized Lease Trust
1994-K1 A1 7.60%, 8/15/07 443 437
1993-K1 A1 6.66%, 8/15/10 153 143
First Home Mortgage Acceptance
Corp., 1996-B Class C 144A
7.929%, 11/1/18 243 220
------------
1,434
------------
CORPORATE (25.0%)
Advanced Micro Devices, Inc.
11.00%, 8/1/03 120 127
AES Corp.
8.50%, 11/1/07 215 218
American Cellular Corp. 144A
10.50%, 5/15/08 160 161
American Mobile Satelite Corp.
12.25%, 4/1/08 180 169
American Standard Cos., Inc.
7.375%, 2/1/08 200 196
CA FM Lease Trust 144A
8.50%, 7/15/17 241 253
CB Richard Ellis Service
8.875%, 6/1/06 110 109
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
UNITED STATES (CONTINUED)
Chesapeake Energy Corp. 144A
9.625%, 5/1/05 U.S.$ 220 U.S.$ 221
Columbia/HCA Healthcare
6.91%, 6/15/05 300 290
7.00%, 7/1/07 90 86
7.69%, 6/15/25 350 336
Comcast Cellular Holdings 'B'
9.50%, 5/1/07 330 344
CSC Holdings, Inc.
9.875%, 5/15/06 300 330
7.875%, 12/15/07 175 184
EES Coke Battery Co., Inc. 144A
9.382%, 4/15/07 100 105
Fresenius Medical Care AG 144A
7.875%, 2/1/08 130 127
Globalstar LP
11.375%, 2/15/04 165 161
Grand Casinos
10.125%, 12/1/03 400 432
HMC Acquisition Properties
9.00%, 12/15/07 350 386
(c) Intermedia Communications, Inc. 'B'
0.00%, 7/15/07 565 412
ISP Holdings, Inc. 'B'
9.00%, 10/15/03 195 203
IXC Communications, Inc. 144A
9.00%, 4/15/08 205 206
IXC Communications, Inc. 'B' PIK
0.00%, 8/15/09 --(w) 5
Jet Equipment Trust 'C1' 144A
11.79%, 6/15/13 175 238
K Mart Funding Corp. 'F'
8.80%, 7/1/10 100 103
Lenfest Communications
8.375%, 11/1/05 335 356
Level 3 Communications, Inc. 144A
9.125%, 5/1/08 240 233
Musicland Group, Inc. 'B'
9.875%, 3/15/08 175 174
Navistar Financial Corp. 'B'
9.00%, 6/1/02 65 68
(c) Nextel Communications, Inc.
0.00%, 8/15/04 485 470
(c) NEXTLINK Communications 144A
0.00%, 4/15/08 375 230
Niagara Mohawk Power 'G'
7.75%, 10/1/08 48 49
(c) Niagara Mohawk Power 'H'
0.00%, 7/1/10 86 59
(c) Norcal Waste Systems, Inc.
13.50%, 11/15/05 250 287
NSM Steel Ltd.
12.25%, 2/1/08 U.S.$ 100 U.S.$ 88
Onepoint Communications Corp.
14.50%, 6/1/08 145 136
Outdoor Systems, Inc.
8.875%, 6/15/07 410 427
Oxford Health Plans 144A
11.00%, 5/15/05 105 108
Primus Telecommunications Group 144A
9.875%, 5/15/08 145 142
PSINet, Inc. 'B'
10.00%, 2/15/05 110 112
Qwest Communications International, Inc.
10.875%, 4/1/07 135 156
(c) 0.00%, 10/15/07 485 364
(c) RCN Corp.
0.00%, 10/15/07 725 468
Revlon, Inc.
8.125%, 2/1/06 165 165
(c) Rhythms Netconnections
0.00%, 5/15/08 400 194
Rogers Cablesystems 'B'
10.00%, 3/15/05 425 472
Rogers Communications, Inc.
9.125%, 1/15/06 90 91
RSL Communications, Ltd. 144A
9.125%, 3/1/08 315 306
Samsung Electronics America
9.75%, 5/1/03 144A 400 359
(c) SB Treasury Co. LLC 144A
9.40%, 12/29/49 100 100
SD Warren Co. 'B'
12.00%, 12/15/04 215 238
Sinclair Broadcast Group
9.00%, 7/15/07 475 489
Smithfield Foods, Inc. 144A
7.625%, 2/15/08 95 95
Snyder Oil Corp.
8.75%, 6/15/07 175 177
Southland Corp.
5.00%, 12/15/03 215 187
TCI Satellite Entertainment, Inc.
0.00%, 2/15/07 275 186
(c) Teleport Communications
0.00%, 7/1/07 200 172
Tenet Healthcare Corp.
8.625%, 1/15/07 405 418
Vencor, Inc. 144A
9.875%, 5/1/05 250 246
(c) Viatel, Inc. 144A
0.00%, 4/15/08 105 63
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
UNITED STATES (CONTINUED)
(c) Wam ! Net, Inc.
0.00%, 3/1/05 U.S.$ 200 U.S.$ 127
Western Financial Bank
8.875%, 8/1/07 120 113
------------
13,527
------------
Collateralized Mortgage Obligation (0.4%)
Long Beach Auto 1997-1, 'B' 144A
14.22%, 10/26/03 233 233
------------
15,194
------------
- --------------------------------------------------------------------------------
VENEZUELA (1.4%)
SOVEREIGN (1.4%)
(b,d,e)Republic of Venezuela
Debt Conversion Bond 'DL'
6.625%, 12/18/07 905 741
- --------------------------------------------------------------------------------
TOTAL DEBT INSTRUMENTS
(Cost U.S.$59,972) 56,754
------------
- --------------------------------------------------------------------------------
STRUCTURED INVESTMENT (4.5%)
- --------------------------------------------------------------------------------
BRAZIL (4.5%)
SOVEREIGN (4.5%)
Salomon Brothers Federative
Republic of Brazil Credit
Linked Enhanced Note
9.00%, 1/15/99
(Cost U.S.$2,500) 2,500 2,467
------------
- --------------------------------------------------------------------------------
<CAPTION>
NO. OF
WARRANTS
- --------------------------------------------------------------------------------
<S> <C> <C>
WARRANTS (0.0%)
- --------------------------------------------------------------------------------
NIGERIA (0.0%)
(a) Central Bank of Nigeria,
expiring 11/15/20
(Cost U.S.$0) 250 --@
------------
- --------------------------------------------------------------------------------
<CAPTION>
SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK (0.6%)
- --------------------------------------------------------------------------------
UNITED STATES (0.6%)
(a) Time Warner, Inc., Series 'M' 10.25%
(Cost U.S.$351) 315 350
------------
- --------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (6.4%)
- --------------------------------------------------------------------------------
TURKEY (3.0%)
BILLS
Turkey Treasury Bill
Zero Coupon, 8/19/98 TRL 263,900,000 U.S.$ 902
Zero Coupon, 9/2/98 218,550,000 730
------------
1,632
------------
- --------------------------------------------------------------------------------
UNITED STATES (3.4%)
REPURCHASE AGREEMENT
Chase Securities, Inc. 5.40%,
dated 6/30/98, due
7/1/98, to be repurchased
at U.S.$1,835, collateralized
by U.S.$1,145, United
States Treasury Bonds,
11.25%, due 2/15/15,
valued at U.S.$1,883 U.S.$ 1,835 1,835
------------
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost U.S.$3,630) 3,467
------------
- --------------------------------------------------------------------------------
FOREIGN CURRENCY ON DEPOSIT WITH
CUSTODIAN (1.4%)
Argentine Peso ARP 6 6
French Franc FRF 4,007 663
German Mark DEM 118 65
------------
(Cost U.S.$716) 734
------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (117.6%)
(Cost U.S.$67,169) 63,772
------------
- --------------------------------------------------------------------------------
OTHER ASSETS (9.9%)
Cash U.S.$ 2,470
Receivable for Investments Sold 1,503
Interest Receivable 1,257
Net Unrealized Gain on Foreign
Currency Exchange Contracts 108
Deferred Organization Costs 5
Dividends Receivable 2
Other Assets 13 5,358
--------------- ------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
LIABILITIES (-27.5%)
Payable For:
Reverse Repurchase Agreement U.S.$ (9,305)
Investments Purchased (3,102)
Dividends and Distributions Declared (1,471)
Investment Advisory Fees (47)
Directors' Fees and Expenses (41)
Custodian Fees (41)
Professional Fees (39)
Shareholder Reporting Expenses (35)
Administrative Fees (13)
Deferred Country Tax (4)
Other Liabilities (822) U.S.$(14,920)
-------------- ------------
- --------------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 4,181,325, issued and
outstanding U.S.$0.01 par value shares
(100,000,000 shares authorized) U.S.$ 54,210
------------
------------
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 12.96
------------
------------
- --------------------------------------------------------------------------------
AT JUNE 30, 1998, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Common Stock U.S.$ 42
Capital Surplus 58,157
Undistributed Net Investment Income 307
Accumulated Net Realized Loss (999)
Unrealized Depreciation on Investments
and Foreign Currency Translations (3,297)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 54,210
------------
------------
- --------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing
(b) -- Variable/floating rate security -- rate disclosed is as of June 30,
1998.
(c) -- Step Bond -- coupon rate increases in increments to maturity. Rate
disclosed is as of June 30, 1998. Maturity date disclosed is the
ultimate maturity.
(d) -- Denotes all or a portion of securities subject to repurchase under
Reverse Repurchase Agreements as of June 30, 1998 -- see note A-4 to
financial statements.
(e) -- Security is a Brady Bond, created through the debt restructuring
exchange of commercial bank loans to foreign entities for new fixed
income obligations. These bonds may be collateralized and are actively
traded in the over-the-counter secondary market.
(w) -- Amount is less than U.S.$500.
@ -- Value is less than U.S.$500.
144A -- Certain conditions for public sale may exist.
PIK -- Payment-in-Kind. Income may be paid in additional securities or cash
at the discretion of the issuer.
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30,
1998, the Fund is obligated to deliver or is to receive foreign currency
in exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN
(000) (000) DATE (000) (000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ZAR 4,113 U.S.$ 693 07/07/98 U.S.$ 800 U.S.$ 800 U.S.$ 107
DEM 135 75 09/24/98 U.S.$ 76 76 1
---------- ---------- -----------
U.S.$ 768 U.S.$ 876 U.S.$ 108
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
- --------------------------------------------------------------------------------
JUNE 30, 1998 EXCHANGE RATES:
- --------------------------------------------------------------------------------
ARP Argentine Peso 1.000 = U.S. $1.00
DEM German Mark 1.804 = U.S. $1.00
FRF French Franc 6.048 = U.S. $1.00
TRL Turkey Lira 266,600.000 = U.S. $1.00
ZAR South African Rand 5.919 = U.S. $1.00
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY
CLASSIFICATION -- JUNE 30, 1998
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C>
Aerospace & Defense U.S.$ 238 0.4%
Asset-Backed Securities 1,435 2.6
Automobiles 105 0.2
Banking 1,434 2.6
Broadcast -- Radio & Television 2,534 4.7
Building Materials & Components 196 0.4
Business Services 427 0.8
Coal, Gas & Oil 398 0.7
Collateralized Mortgage Obligations 233 0.4
Computers 127 0.2
Construction 1,361 2.5
Consumer Staples 103 0.2
Diversified 350 0.6
Electronics 359 0.7
Energy 91 0.1
Entertaiment & Leisure 169 0.3
Environmental Controls 288 0.5
Finance 1,399 2.6
Food 95 0.2
Foreign Government & Agency Obligations 39,515 72.9
Gaming & Lodging 432 0.8
Health Care Supplies & Services 1,238 2.3
Loan Agreements 111 0.2
Metals -- Steel 88 0.2
Multi-Industry 1,654 3.1
Real Estate 495 0.9
Repurchase Agreements 1,835 3.4
Retail -- General 361 0.7
Soaps & Toiletries 165 0.3
Telecommunications 5,318 9.8
Transportation 158 0.3
Utilities 326 0.6
Other 734 1.4
------------- -----
U.S.$ 63,772 117.6%
------------- -----
------------- -----
- --------------------------------------------------------------------------------
</TABLE>
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY --
JUNE 30, 1998
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
COUNTRY (000) ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C>
Argentina U.S.$ 5,778 10.7%
Austalia 296 0.5%
Brazil 11,210 20.6
Bulgaria 461 0.9
Colombia 388 0.7
Ecuador 500 0.9
Indonesia 695 1.3
Ivory Coast 100 0.2
Jamaica 460 0.9
Korea 1,941 3.6
Mexico 8,246 15.2
Peru 391 0.7
Russia 11,270 20.8
Thailand 602 1.1
Turkey 2,391 4.4
United Kingdom 189 0.3
United States 17,379 32.0
Venezuela 741 1.4
Other 734 1.4
------------- -----
U.S.$ 63,772 117.6%
------------- -----
------------- -----
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ 15
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,566
- ------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,581
- ------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201
Administrative Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Professional Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Custodian Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Shareholder Reporting Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Directors' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
- ------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747
- ------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,834
- ------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (564)
Investment Securities Sold Short . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Written Option Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Foreign Currency Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
- ------------------------------------------------------------------------------------------------------------------
Net Realized Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (533)
- ------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Depreciation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,893)
Appreciation on Foreign Currency Translations . . . . . . . . . . . . . . . . . . . . . . 124
- ------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation . . . . . . . . . . . . . . . . . . . . (2,769)
- ------------------------------------------------------------------------------------------------------------------
Net Realized Loss and Change in Unrealized Appreciation/Depreciation . . . . . . . . . . . . . (3,302)
- ------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . . U.S.$ (468)
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ 2,834 U.S.$ 5,362
Net Realized Gain (Loss). . . . . . . . . . . . . . . . . . . . . . . (533) 8,685
Change in Unrealized Appreciation/Depreciation. . . . . . . . . . . . (2,769) (3,739)
- ------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations . . . (468) 10,308
- ------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . (2,508) (5,362)
In Excess of Net Investment Income. . . . . . . . . . . . . . . . . . - (19)
Net Realized Gain . . . . . . . . . . . . . . . . . . . . . . . . . . (261) (9,362)
In Excess of Net Realized Gains . . . . . . . . . . . . . . . . . . . - (205)
- ------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . (2,769) (14,948)
- ------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Reinvestment of Distributions
(27,833 and 7,493 shares, respectively) . . . . . . . . . . . . . . 378 118
- ------------------------------------------------------------------------------------------------------------------
Total Decrease. . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,859) (4,522)
Net Assets:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . 57,069 61,591
- ------------------------------------------------------------------------------------------------------------------
End of Period (including undistributed (distributions
in excess of) net investment income of U.S.$307 and
U.S.$(19), respectively). . . . . . . . . . . . . . . . . . . . . . U.S.$ 54,210 U.S.$ 57,069
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998
(UNAUDITED)
STATEMENT OF CASH FLOWS (000)
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM INVESTING AND OPERATING ACTIVITIES:
Proceeds from Sales of Investments. . . . . . . . . . . . . . . . . . . . . . . . . . U.S. $ 106,494
Purchases of Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (101,782)
Net Decrease in Short-Term Investments. . . . . . . . . . . . . . . . . . . . . . . . 2,303
Net Cash from Foreign Currency Transactions . . . . . . . . . . . . . . . . . . . . . (91)
Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,922
Interest Expense Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (201)
Net Operating Expenses Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301
- ------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Investing and Operating Activities . . . . . . . . . . . . . . . 9,946
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Received for Reverse Repurchase Agreements . . . . . . . . . . . . . . . . . . . 3,272
Cash Distributions Paid (net of reinvestments of $378). . . . . . . . . . . . . . . . (10,890)
- ------------------------------------------------------------------------------------------------------------------
Net Cash Used for Financing Activities. . . . . . . . . . . . . . . . . . . . . . . . (7,618)
- ------------------------------------------------------------------------------------------------------------------
Net Increase in Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,328
CASH AT BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
- ------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. $ 2,470
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY INVESTING
AND OPERATING ACTIVITIES
- ------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. $ 2,834
Proceeds from Sales of Investments. . . . . . . . . . . . . . . . . . . . . . . . . . 106,494
Purchases of Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (101,782)
Net Decrease in Short-Term Investments. . . . . . . . . . . . . . . . . . . . . . . . 2,303
Net Cash from Foreign Currency Transactions . . . . . . . . . . . . . . . . . . . . . (91)
Net Decrease in Receivables Related to Operations . . . . . . . . . . . . . . . . . . 180
Net Increase in Payables Related to Operations. . . . . . . . . . . . . . . . . . . . 847
Amortization of Organization Costs. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Accretion/Amortization of Discounts and Premiums. . . . . . . . . . . . . . . . . . . (842)
- ------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Investing and Operating Activities . . . . . . . . . . . . . . . U.S. $ 9,946
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31, PERIOD FROM
JUNE 30,1998 --------------------------------------------- MAY 27, 1994* TO
(UNAUDITED) 1997 1996 1995 DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA AND RATIOS:
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD . . . . U.S.$ 13.74 U.S.$ 14.86 U.S.$ 12.99 U.S.$ 12.25 U.S.$ 14.10
- ------------------------------------------------------------------------------------------------------------------------------------
Offering Costs . . . . . . . . . . . . . . . -- -- -- -- (0.17)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . 0.68 1.29 1.71 1.61 0.95
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . (0.80) 1.19 2.15 0.72 (1.72)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations . . (0.12) 2.48 3.86 2.33 (0.77)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions: . . . . . . . . . . . . . . .
Net Investment Income . . . . . . . . . . (0.60) (1.29) (1.49) (1.59) (0.91)
In Excess of Net Investment Income . . . -- (0.01) -- -- --
Net Realized Gain . . . . . . . . . . . . (0.06) (2.25) (0.50) -- --
In Excess of Net Realized Gains . . . . . -- (0.05) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . (0.66) (3.60) (1.99) (1.59) (0.91)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . U.S.$ 12.96 U.S.$ 13.74 U.S.$ 14.86 U.S.$ 12.99 U.S.$ 12.25
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD . . . U.S.$ 12.13 U.S.$ 13.13 U.S.$ 14.63 U.S.$ 12.50 U.S.$ 12.50
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN: . . . . . . . . . .
Market Value . . . . . . . . . . . . . . (2.93)% 13.93% 34.44% 13.49% (4.51)%
Net Asset Value (1) . . . . . . . . . . . (0.88)% 17.38% 31.45% 20.34% (6.42)%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA: . . . . . . . . .
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS). . . . U.S.$ 54,210 U.S.$ 57,069 U.S.$ 61,591 U.S.$ 53,847 U.S.$ 50,607
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses Excluding Interest
Expense to Average Net Assets . . . . . . 1.85%** 1.75% 1.81% 1.95% 1.75%**
Ratio of Total Expenses to Average
Net Assets. . . . . . . . . . . . . . . . 2.58%** 1.86% 2.00% 2.06% 2.97%**
Ratio of Net Investment Income to
Average Net Assets. . . . . . . . . . . . 9.80%** 8.15% 12.17% 13.07% 11.90%**
Portfolio Turnover Rate . . . . . . . . . . 169% 333% 280% 160% 86%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. This percentage is not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
- -----------
The Morgan Stanley Global Opportunity Bond Fund, Inc. (the "Fund"), was
incorporated in Maryland on March 31, 1994, and is registered as a
non-diversified, closed-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's primary objective is to produce high
current income and as a secondary objective to seek capital appreciation through
investments primarily in high yield bonds.
A. The following significant accounting policies, which are in conformity with
generally accepted accounting principles for investment companies, are
consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results may differ from those estimates.
1. SECURITY VALUATION: In valuing the Fund's assets, all listed securities for
which market quotations are readily available are valued at the last sale
price on the valuation date, or if there was no sale on such date, at the
mean between the current bid and asked prices or the bid price if only bid
quotations are available. Securities which are traded over-the-counter are
valued at the average of the mean of the current bid and asked prices
obtained from reputable brokers. Securities may be valued by independent
pricing services which use prices provided by market-makers or estimates of
market values obtained from yield data relating to investments or
securities with similar characteristics. Certain securities may be valued
on the basis of bid prices provided by one principal market maker.
Short-term securities which mature in 60 days or less are valued at
amortized cost. All other securities and assets for which market values are
not readily available (including investments which are subject to
limitations as to their sale) are valued at fair value as determined in
good faith by the Board of Directors (the "Board") although the actual
calculations may be done by others.
2. TAXES: It is the Fund's intention to continue to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly,
no provision for U.S. Federal income taxes is required in the financial
statements.
The Fund may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on either income or gains earned or
repatriated. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized appreciation as such income and/or gains
are earned.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, with a market value at least equal to the amount of
the repurchase transaction, including principal and accrued interest. To
the extent that any repurchase transaction exceeds one business day, the
value of the collateral is marked-to-market on a daily basis to determine
the adequacy of the collateral. In the event of default on the obligation
to repurchase, the Fund has the right to liquidate the collateral and apply
the proceeds in satisfaction of the obligation. In the event of default or
bankruptcy by the counter-party to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal
proceedings.
4. REVERSE REPURCHASE AGREEMENTS: In order to leverage the Fund, the Fund may
enter into reverse repurchase agreements with institutions that the Fund's
investment adviser has determined are creditworthy. Under a reverse
repurchase agreement, the Fund sells securities and agrees to repurchase
them at a mutually agreed upon date and price. Reverse repurchase
agreements involve the risk that the market value of the securities
purchased with the proceeds from the sale of securities received by the
Fund may decline below the price of the securities the Fund is obligated to
repurchase. Securities subject to repurchase under reverse repurchase
agreements, if any, are designated as such in the Statement of Net Assets.
At June 30, 1998, the Fund had reverse repurchase agreements outstanding as
follows:
<TABLE>
<CAPTION>
MATURITY IN
LESS THAN
365 DAYS
-----------
<S> <C>
Value of Securities Subject to
Repurchase. . . . . . . . . . . . . . . . . . . . . . $ 9,925,000
Liability Under Reverse
Repurchase Agreement. . . . . . . . . . . . . . . . . $ 9,305,000
Weighted Average Interest Rate . . . . . . . . . . . . 5.09%
</TABLE>
The average weekly balance of reverse repurchase agreements outstanding
during the six months ended June 30, 1998 was approximately $7,776,000 at a
weighted average interest rate of 4.80%.
5. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars at the mean of the bid and asked prices of such currencies
against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
16
<PAGE>
- investment transactions and investment income at the prevailing rates
of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the period, the Fund does not
isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of the securities held at period end.
Similarly, the Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market
prices of securities sold during the period. Accordingly, realized and
unrealized foreign currency gains (losses) are included in the reported net
realized and unrealized gains (losses) on investment transactions and
balances.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of foreign
currency exchange contracts, disposition of foreign currencies, currency
gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid. Net
unrealized currency gains (losses) from valuing foreign currency
denominated assets and liabilities at period end exchange rates are
reflected as a component of unrealized appreciation (depreciation) on
investments and foreign currency translations in the Statement of Net
Assets. The change in net unrealized currency gains (losses) for the period
is reflected in the Statement of Operations.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S. dollar
denominated transactions as a result of, among other factors, the
possibility of lower levels of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
The Fund intends to use derivatives more actively than it has in the past. The
Fund intends to engage in transactions in futures contracts on foreign
currencies, stock indices, as well as in options, swaps and structured notes.
Consistent with the Fund's investment objectives and policies, the Fund intends
to use derivatives for non-hedging as well as hedging purposes.
Following is a description of derivative instruments and their associated risks
that the Fund intends to utilize:
6. PURCHASED OPTIONS: The Fund may purchase call and put options on listed
securities or securities traded over the counter. The Fund may purchase
call options on securities to protect against an increase in the price
of the underlying security. The Fund may purchase put options on securities
to protect against a decline in the value of the underlying security. Risks
may arise from an imperfect correlation between the change in market value
of the securities held by the Portfolio and the prices of options relating
to the securities purchased or sold by the Portfolio and from the possible
lack of a liquid secondary market for an option. Possible losses from
purchased options cannot exceed the total amount invested. Realized gains
or losses on purchased options are included with net gain (loss) on
investment securities sold in the financial statements.
7. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into foreign
currency exchange contracts generally to attempt to protect securities and
related receivables and payables against changes in future foreign exchange
rates and, in certain situations, to gain exposure to a foreign currency. A
foreign currency exchange contract is an agreement between two parties to
buy or sell currency at a set price on a future date. The market value of
the contract will fluctuate with changes in currency exchange rates. The
contract is marked-to-market daily and the change in market value is
recorded by the Fund as unrealized gain or loss. The Fund records realized
gains or losses when the contract is closed equal to the difference between
the value of the contract at the time it was opened and the value at the
time it was closed. Risk may arise upon entering into these contracts from
the potential inability of counterparties to meet the terms of their
contracts and is generally limited to the amount of unrealized gain on the
contracts, if any, at the date of default. Risks may also arise from
unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
8. LOAN AGREEMENTS: The Fund may invest in fixed and floating rate loans
("Loans") arranged through private negotiations between an issuer of
sovereign debt obligations and one or more financial institutions
("Lenders") deemed to be creditworthy by the investment adviser. The Fund's
investments in Loans may be in the form of participations in Loans
("Participations") or assignments of all or a portion of Loans
("Assignments") from third parties. The Fund's investment in Participations
typically results in the Fund having a contractual relationship with only
the Lender and not with the borrower. The Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the Lender selling the Participation and only upon receipt by the
Lender of the payments from the borrower. The Fund generally has no right
to enforce compliance by the borrower with the terms of the loan agreement.
As a result, the Fund may be subject to the credit risk of both the
borrower and the Lender that is selling the Participation. When the Fund
purchases Assign-
17
<PAGE>
ments from Lenders it acquires direct rights against the borrower on the
Loan. Because Assignments are arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations
acquired by the Fund as the purchaser of an Assignment may differ from, and
be more limited than, those held by the assigning Lender.
9. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The Fund
may make forward commitments to purchase or sell securities. Payment and
delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not to exceed 120 days)
after the date of the transaction. Additionally, the Fund may purchase
securities on a when-issued or delayed delivery basis. Securities purchased
on a when-issued or delayed delivery basis are purchased for delivery
beyond the normal settlement date at a stated price and yield, and no
income accrues to the Fund on such securities prior to delivery. When the
Fund enters into a purchase transaction on a when-issued or delayed
delivery basis, it either establishes a segregated account in which it
maintains liquid assets in an amount at least equal in value to the Fund's
commitments to purchase such securities or denotes such securities on the
custody statement for its regular custody account. Purchasing securities on
a forward commitment or when-issued or delayed-delivery basis may involve a
risk that the market price at the time of delivery may be lower than the
agreed upon purchase price, in which case there could be an unrealized loss
at the time of delivery.
10. SECURITIES SOLD SHORT: The Fund may sell securities short. A short sale is
a transaction in which the Fund sells securities it may or may not own, but
has borrowed, in anticipation of a decline in the market price of the
securities. The Fund is obligated to replace the borrowed securities at
their market price at the time of replacement. The Fund may have to pay a
premium to borrow the securities as well as pay any dividends or interest
payable on the securities until they are replaced. The Fund's obligation to
replace the securities borrowed in connection with a short sale will
generally be secured by collateral deposited with the broker that consists
of cash, U.S. government securities or other liquid, high grade debt
obligations. In addition, the Fund will either place in a segregated
account with its custodian or denote on its custody records an amount of
cash, U.S. government securities or other liquid high grade debt
obligations equal to the difference, if any, between (1) the market value
of the securities sold at the time they were sold short and (2) any cash,
U.S. government securities or other liquid high grade debt obligations
deposited as collateral with the broker in connection with the short sale
(not including the proceeds of the short sale). Short sales by the Fund
involve certain risks and special considerations. Possible losses from
short sales differ from losses that could be incurred from a purchase of a
security because losses from short sales may be unlimited, whereas losses
from purchases cannot exceed the total amount invested.
11. WRITTEN OPTIONS: The Fund may write covered call options in an attempt to
increase the Fund's total return. The Fund will receive premiums that are
recorded as liabilities and subsequently adjusted to the current value of
the options written. Premiums received from writing options which expire
are treated as realized gains. Premiums received from writing options which
are exercised or are closed are added to or offset against the proceeds or
amount paid on the transaction to determine the net realized gain or loss.
By writing a covered call option, the Fund forgoes in exchange for the
premium the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase.
12. SWAP AGREEMENTS: The Fund may enter into swap agreements to exchange the
return generated by one security, instrument or basket of instruments for
the return generated by another security, instrument or basket of
instruments. The following summarizes swaps which may be entered into by
the Fund:
INTEREST RATE SWAPS: Interest rate swaps involve the exchange of
commitments to pay and receive interest based on a notional principal
amount. Net periodic interest payments to be received or paid are accrued
daily and are recorded in the Statement of Operations as an adjustment to
interest income. Interest rate swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized appreciation or depreciation in the Statement of Operations.
TOTAL RETURN SWAPS: Total return swaps involve commitments to pay interest
in exchange for a market-linked return based on a notional amount. To the
extent the total return of the security, instrument or basket of
instruments underlying the transaction exceeds or falls short of the
offsetting interest obligation, the Fund will receive a payment from or
make a payment to the counterparty, respectively. Total return swaps are
marked-to-market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gains or losses in the Statement
of Operations. Periodic payments received or made at the end of each
measurement period, but prior to termination, are recorded as realized
gains or losses in the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and
total return swaps are presented in the Statement of Operations. Because
there is no organized market for these swap agreements, the value
18
<PAGE>
reported in the Statement of Net Assets may differ from that which would be
realized in the event the Fund terminated its position in the agreement.
Risks may arise upon entering into these agreements from the potential
inability of the counterparties to meet the terms of the agreements and are
generally limited to the amount of net interest payments to be received
and/or favorable movements in the value of the underlying security,
instrument or basket of instruments, if any, at the date of default.
13. STRUCTURED SECURITIES: The Fund may invest in interests in entities
organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations. This type of
restructuring involves the deposit with or purchase by an entity of
specified instruments and the issuance by that entity of one or more
classes of securities ("Structured Securities") backed by, or representing
interests in, the underlying instruments. Structured Securities generally
will expose the Fund to credit risks of the underlying instruments as well
as of the issuer of the structured security. Structured Securities are
typically sold in private placement transactions with no active trading
market. Investments in structured securities may be more volatile than
their underlying instruments, however, any loss is limited to the amount of
the original investment.
14. OVER-THE-COUNTER TRADING: Derivative instruments that may be purchased or
sold by the Fund are expected to regularly consist of instruments not
traded on an exchange. The risk of nonperformance by the obligor on such an
instrument may be greater, and the ease with which the Fund can dispose of
or enter into closing transactions with respect to such an instrument may
be less, than in the case of an exchange-traded instrument. In addition,
significant disparities may exist between bid and asked prices for
derivative instruments that are not traded on an exchange. Derivative
instruments not traded on exchanges are also not subject to the same type
of government regulation as exchange traded instruments, and many of the
protections afforded to participants in a regulated environment may not be
available in connection with such transactions.
15. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Interest
income is recognized on the accrual basis and discounts and premiums on
investments purchased are accreted or amortized in accordance with the
effective yield method over their respective lives, except where collection
is in doubt. Distributions to shareholders are recorded on the ex-date. The
amount and character of income and capital gain distributions to be paid
are determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatments for foreign currency
transactions and the timing of the recognition of losses on securities.
Permanent book and tax basis differences relating to shareholder
distributions may result in reclassifications to undistributed net
investment income (loss), accumulated net realized gain (loss) and capital
surplus.
Adjustments for permanent book-tax differences, if any, are not reflected
in ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
B. Morgan Stanley Asset Management Inc. (the "Adviser"), provides investment
advisory services to the Fund under the terms of an Investment Advisory and
Management Agreement (the "Agreement"). Under the Agreement, the Adviser is paid
a fee computed weekly and payable monthly at an annual rate of 1.00% of the
Fund's average weekly net assets.
C. The Chase Manhattan Bank, through its corporate affiliate Chase Global
Funds Services Company (the "Administrator"), provides administrative services
to the Fund under an Administration Agreement. Under the Administration
Agreement, the Administrator is paid a fee computed weekly and payable monthly
at an annual rate of 0.08% of the Fund's average weekly net assets, plus
$100,000 per annum. In addition, the Fund is charged certain out-of-pocket
expenses by the Administrator. The Chase Manhattan Bank acts as custodian for
the Fund's assets held in the United States.
D. Morgan Stanley Trust Company (the "International Custodian"), an affiliate
of the Adviser, acts as custodian for the Fund's assets held outside the United
States in accordance with a Custody Agreement. Custodian fees are payable
monthly based on assets under custody, investment purchase and sale activity, an
account maintenance fee, plus reimbursement for certain out-of-pocket expenses.
Investment transaction fees vary by country and security type. For the six
months ended June 30, 1998, the Fund incurred International Custodian fees of
$29,000, of which that amount was payable to the International Custodian at
June 30, 1998. In addition, for the six months ended June 30, 1998, the Fund
has earned interest income of $2,000 and incurred interest expense of $11,000 on
balances with the International Custodian.
E. For the six months ended June 30, 1998, the Fund made purchases and sales
totaling $104,574,000 and $107,895,000, respectively, of investments other than
long-term U.S. Government securities and short-term investments. There were no
purchases and sales of long-term U.S. Government securities. At June 30, 1998,
the U.S. Federal income tax cost basis of securities was $66,453,000 and,
accordingly, net unrealized depreciation for U.S. Fed-
19
<PAGE>
eral income tax purposes was $3,415,000 of which $637,000 related to appreciated
securities and $4,052,000 related to depreciated securities. For the year ended
December 31, 1997, the Fund intends to elect to defer to January 1, 1998 for
U.S. Federal income tax purposes, post-October currency losses of $8,000.
F. During the six months ended June 30, 1998, the Fund's written covered call
option activity was as follows:
<TABLE>
<CAPTION>
FACE PREMIUM
AMOUNT (000) (000)
------------ --------
<S> <C> <C>
Options outstanding at
January 1, 1998 . . . . . . . . . . . . . . . $ -- $ --
Options written during the
year. . . . . . . . . . . . . . . . . . . . . 1,700 14
Options closed during the
year. . . . . . . . . . . . . . . . . . . . . (1,700) (14)
------------ --------
Options outstanding at
June 30, 1998 . . . . . . . . . . . . . . . . $ -- $ --
------------ --------
------------ --------
</TABLE>
G. In connection with its organization and initial public offering of shares,
the Fund incurred $30,000 and $714,000 of organization and offering costs,
respectively. The organization costs are being amortized on a straight-line
basis over a five year period beginning May 27, 1994, the date the Fund
commenced operations. The offering costs were charged to capital.
H. At June 30, 1998, approximately 28% of the Fund's total investments consist
of high yield securities rated below investment grade. Investments in high yield
securities are accompanied by a greater degree of credit risk and the risk tends
to be more sensitive to economic conditions than higher-rated securities. These
investments are often traded by one market maker who may also be utilized by the
Fund to provide pricing information used to value such securities. The amounts
which will be realized upon disposition of the securities may differ from the
value reflected on the statement of net assets and the differences could be
material.
I. Each Director of the Fund who is not an officer of the Fund or an
affiliated person as defined under the Investment Company Act of 1940, as
amended, may elect to participate in the Directors' Deferred Compensation Plan
(the "Plan"). Under the Plan, such Directors may elect to defer payment of a
percentage of their total fees earned as a Director of the Fund. These deferred
portions are treated, based on an election by the Director, as if they were
either invested in the Fund's shares or invested in U.S. Treasury Bills, as
defined under the Plan. The deferred fees payable, under the Plan, at June 30,
1998 totaled $33,000 and are included in Payable for Directors' Fees and
Expenses on the Statement of Net Assets.
J. During June 1998, the Board declared distributions of $0.30 and $0.06 per
share, derived from net investment income and net realized gains, respectively,
payable on July 15, 1998, to shareholders of record on June 30, 1998. Also in
June, the Board of Directors amended your Fund's by-laws to require advance
notice of any proposals to be made at stockholders' meetings. For annual
meetings the notice must be given to the Fund's secretary at least 60 days
before the anniversary date of the previous year's annual meeting. This year's
annual meeting of stockholders was held on June 24. This provision was adopted
to permit the Fund's stockholders and Directors to consider every stockholder
proposal on an informed basis and in an organized fashion, taking into account
the interests of all affected constituencies.
K. Supplemental Proxy Information
The Annual Meeting of the Stockholders of the Morgan Stanley Global Opportunity
Bond Fund, Inc. was held on June 24, 1998. The following is a summary of each
proposal presented and the total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES AUTHORITY VOTES
PROPOSAL: FAVOR OF AGAINST WITHHELD ABSTAINED
- -------- --------- ------- --------- ---------
<S> <C> <C> <C> <C>
1. To elect the following Directors: Michael F. Klein. . . . . . . 3,853,330 -- 30,440 --
Barton M. Biggs. . . . . . . 3,854,973 -- 28,797 --
John A. Levin. . . . . . . . 3,854,973 -- 28,797 --
William G. Morton, Jr. . . . 3,854,973 -- 28,797 --
2. To ratify the selection of PricewaterhouseCoopers LLP as
independent accountants of the Fund . . . . . . . . . . . . . . 3,853,623 17,034 -- 13,113
</TABLE>
20
<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
each shareholder may elect by providing written instructions to American Stock
Transfer & Trust Company (the "Plan Agent") to have all distributions
automatically reinvested in Fund shares. Participants in the Plan have the
option of making additional voluntary cash payments to the Plan Agent, annually,
in any amount from $100 to $3,000, for investment in Fund shares.
Dividend and capital gain distributions will be reinvested on the
reinvestment date in full and fractional shares. If the market price per share
equals or exceeds net asset value per share on the reinvestment date, the Fund
will issue shares to participants at net asset value. If net asset value is less
than 95% of the market price on the reinvestment date, shares will be issued at
95% of the market price. If net asset value exceeds the market price on the
reinvestment date, participants will receive shares valued at market price. The
Fund may purchase shares of its Common Stock in the open market in connection
with dividend reinvestment requirements at the discretion of the Board of
Directors. Should the Fund declare a dividend or capital gain distribution
payable only in cash, the Plan Agent will purchase Fund shares for participants
in the open market as agent for the participants.
The Plan Agent's fees for the reinvestment of dividends and distributions
will be paid by the Fund. However, each participant's account will be charged a
pro rata share of brokerage commissions incurred on any open market purchases
effected on such participant's behalf. A participant will also pay brokerage
commissions incurred on purchases made by voluntary cash payments. Although
shareholders in the Plan may receive no cash distributions, participation in the
Plan will not relieve participants of any income tax which may be payable on
such dividends or distributions.
In the case of shareholders, such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are participating in the
Plan.
Shareholders who do not wish to have distributions automatically reinvested
should notify the Plan Agent in writing. There is no penalty for
non-participation or withdrawal from the Plan, and shareholders who have
previously withdrawn from the Plan may rejoin at any time. Requests for
additional information or any correspondence concerning the Plan should be
directed to the Plan Agent at:
Morgan Stanley Global Opportunity Bond Fund, Inc.
American Stock Transfer & Trust Company
Dividend Reinvestment and Cash Purchase Plan
40 Wall Street
New York, NY 10005
1-800-278-4353
21
