<PAGE>
------------------------------------------------------------
MORGAN STANLEY
DEAN WITTER
GLOBAL OPPORTUNITY
BOND FUND, INC.
------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1999
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
INVESTMENT ADVISER
MORGAN STANLEY DEAN WITTER
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
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- -------------------------------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
- -------------------------------------------------------------------------------
CUSTODIAN
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 or visit our website at
www.msdw.com/institutional/investmentmanagement.
<PAGE>
LETTER TO SHAREHOLDERS
- ---------
For the year ended December 31, 1999, the Morgan Stanley Dean Witter Global
Opportunity Bond Fund, Inc. (the "Fund") had a total return, based on net asset
value per share, of 22.73% compared to 12.41% for the Fund's benchmark
(described below). For the period from the Fund's commencement of operations on
May 27, 1994 through December 31 1999, the Fund's total return, based on net
asset value per share, was 67.29% compared to 76.84% for the benchmark. The Fund
uses as its benchmark, for purposes of comparing its performance, a composite
comprised of 25% of the J.P. Morgan Latin Eurobond Index, 25% 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 are not restricted
and will, under normal circumstances, fluctuate depending on market conditions.
At December 31, 1999, the Fund's investments in debt instruments were comprised
of 69% emerging markets debt securities and 31% U.S. high yield securities.
On December 31, 1999, the closing price of the Fund's shares on the New York
Stock Exchange was $8 3/8, representing a 20.6% discount to the Fund's net asset
value per share.
The Fund's performance was achieved despite the Federal Reserve tightening by 75
basis points during the year and the ten year U.S. Treasury rising by over 175
basis points.
The Fund's high exposure to emerging markets debt was the major reason for the
strong performance. Emerging markets debt was, by far, the best performing asset
class in fixed income in 1999. Spreads were near historical wides at the
beginning of the year due to the debacle in Russia in 1998. As this year
progressed, investors felt more comfortable with the asset class and invested
more aggressively, driving spreads in by over 350 basis points by year-end.
The U.S. high yield market also outperformed higher quality bonds in the fourth
quarter and for the year. The Fund's high exposure to the telecommunications
sector helped the Fund as this was one of the best performing sectors within the
U.S. high yield market.
Even with the rebound we saw in the fourth quarter, spreads on global high yield
bonds remain attractive. We believe that the U.S. and global economies should
continue to do well in 2000, and that global high yield bonds should continue to
perform well.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
January 2000
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED.
- --------------------------------------------------------------------------------
DAILY NET ASSET AND MARKET VALUES, AS WELL AS MONTHLY PORTFOLIO INFORMATION FOR
THE FUND, ARE AVAILABLE ON OUR WEBSITE AT
www.msdw.com/institutional/investmentmanagement.
2
<PAGE>
Morgan Stanley Dean Witter Global Opportunity Bond Fund, Inc.
Investment Summary as of December 31, 1999 (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>
ONE YEAR 12.88% 12.88% 22.73% 22.73% 12.41% 12.41%
FIVE YEAR 38.94 6.80 78.77 12.32 80.23 12.50
SINCE INCEPTION* 32.67 5.18 67.29 9.62 76.84 10.72
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION:
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994* 1995 1996 1997 1998 1999
------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share ....... $12.25 $12.99 $14.86 $13.74 $ 9.64 $10.56
Market Value Per Share .......... $12.50 $12.50 $14.63 $13.13 $ 8.31 $ 8.38
Premium/(Discount) .............. 2.0% -3.8% -1.5% -4.4% -13.8% -20.6%
Income Dividends ................ $ 0.91 $ 1.59 $ 1.49 $ 1.30 $ 1.18 $ 1.05
Capital Gains Distributions ..... -- -- $ 0.50 $ 2.30 $ 0.06 --
Fund Total Return (2) ........... -6.42% 20.34% 31.45% 17.38% -21.57% 22.73%
Index Total Return (3) .......... -0.46% 22.37% 25.36% 12.56% -3.19% 12.41%
</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 Fund uses as its benchmark, for purpose of comparing its performance, a
composite comprised of 25% of the J.P. Morgan Latin Eurobond Index, 25% 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 December 31, 1999, the Fund's
investment in debt instruments was comprised of 69% emerging markets debt
securities and 31% U.S. high yield securities.
* The Fund commenced operations on May 27, 1994.
3
<PAGE>
Morgan Stanley Dean Witter Global Opportunity Bond Fund, Inc.
Portfolio Summary as of December 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Debt Instruments (93.8%)
Short-Term Investments (6.2%)
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
[CHART]
<TABLE>
<S> <C>
United States (29.8%)
Brazil (15.3%)
Argentina (12.4%)
Mexico (8.7%)
Russia (5.5%)
Venezuela (3.5%)
Turkey (2.9%)
Philippines (2.5%)
Bulgaria (2.4%)
Netherlands (2.4%)
Other (14.6%)
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
INVESTMENTS
-------------
<S> <C>
1. Federative Republic of Brazil `C' Bond
PIK, 8.00%, 4/15/14 (Brazil) 6.8%
2. Republic of Argentina, 11.75%,
4/7/09 (Argentina) 3.3
3. Republic of Argentina Global Bond,
11.375%, 1/30/17 (Argentina) 3.3
4. Russian Federation, 11.00%, 7/24/18
(Russia) 2.9
5. Federative Republic of Brazil Global Bond,
14.50%, 10/15/09 (Brazil) 2.9
6. Republic of Argentina 'L',
6.813%, 3/31/05 (Argentina) 2.6
7. United Mexican States Discount Bond `D',
6.903%, 12/31/19 (Mexico) 2.3
8. United Mexican States Global Bond,
11.375%, 9/15/16 (Mexico) 2.3
9. Republic of Venezuela Global Bond,
9.25%, 9/15/27 (Venezuela) 2.3
10. Federative Republic of Brazil Debt
Conversion `L' Bond, 7.00%, 4/15/12
(Brazil) 2.2
------
30.9%
------
------
</TABLE>
* Excludes short-term investments.
4
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS
(SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
- ---------
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
DEBT INSTRUMENTS (93.8%)
- -------------------------------------------------------------------------------------------------
ALGERIA (0.5%)
SOVEREIGN (0.5%)
Algeria Loan Agreement Tranche 3
6.183%, 3/31/00 U.S.$ 200 U.S.$ 144
Algeria Loan Agreement
6.183%, 3/31/00 100 77
----------------
221
----------------
- -------------------------------------------------------------------------------------------------
ARGENTINA (12.4%)
CORPORATE (1.3%)
(d)Cablevision S.A.
13.75%, 5/1/09 100 98
CIA International Telecom
10.375%, 8/1/04 ARP 100 83
(d)CIA International Telecom
10.375%, 8/1/04 300 249
(d)Multicanal S.A.
13.125%, 4/15/09 U.S.$ 190 186
----------------
616
----------------
SOVEREIGN (11.1%)
Republic of Argentina
(b)2.868%, 4/1/07 ARP 243 168
11.75%, 4/7/09 U.S.$ 1,600 1,597
(b,e)Republic of Argentina 'L'
6.8125%, 3/31/05 1,373 1,257
(e)Republic of Argentina Global Bond
11.375%, 1/30/17 1,600 1,595
(e)Republic of Argentina Global Units (Euro)
12.125%, 2/15/19 754 797
----------------
5,414
----------------
6,030
----------------
- -------------------------------------------------------------------------------------------------
AUSTRALIA (0.3%)
CORPORATE (0.3%)
Murrin Murrin Holdings Property Ltd.
9.375%, 8/31/07 160 143
----------------
- -------------------------------------------------------------------------------------------------
BRAZIL (15.3%)
SOVEREIGN (15.3%)
(e)Federative Republic of Brazil 'C' Bond PIK
8.00%, 4/15/14 4,432 3,335
(e)Federative Republic of Brazil Global Bond
10.125%, 5/15/27 650 566
(b)Federative Republic of Brazil Debt
Conversion 'L' Bond 7.00%, 4/15/12 U.S.$ 1,430 U.S.$ 1,062
(b)Federative Republic of Brazil Debt Conversion Bond
7.00%, 4/15/12 260 193
Federative Republic of Brazil Global Bond
14.50%, 10/15/09 1,260 1,399
(b)Federative Republic of Brazil New Money 'L' Bond
7.00%, 4/15/09 1,060 854
(b)Federative Republic of Brazil New Money Bond
7.00%, 4/15/09 30 24
----------------
7,433
----------------
- -------------------------------------------------------------------------------------------------
BULGARIA (2.4%)
SOVEREIGN (2.4%)
(b)Republic of Bulgaria Discount Bond `A' 6.50%, 7/28/24 640 514
(c)Republic of Bulgaria 'A' Front Loaded Interest
Reduction Bond 2.75%, 7/28/12 350 253
(b)Republic of Bulgaria Past Due Interest Bond 6.50%, 7/28/11 480 380
----------------
1,147
----------------
- -------------------------------------------------------------------------------------------------
CHILE (0.9%)
CORPORATE (0.9%)
(d)Embotelladora Arica S.A. `A'
9.875%, 3/15/06 325 340
Endesa
7.75%, 7/15/08 120 114
----------------
454
----------------
- -------------------------------------------------------------------------------------------------
COLOMBIA (0.9%)
CORPORATE (0.6%)
(c,d)Occidente y Caribe
0.00%, 3/15/04 550 302
----------------
SOVEREIGN (0.3%)
Republic of Colombia Global Bond
8.375%, 2/15/27 200 155
----------------
457
----------------
- -------------------------------------------------------------------------------------------------
ECUADOR (0.4%)
SOVEREIGN (0.4%)
(b,f)Republic of Ecuador Discount Bond
6.75%, 2/28/25 510 198
----------------
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
GERMANY (0.5%)
CORPORATE (0.5%)
(c)RSL Communications plc
0.00%, 6/15/08 EUR 256 U.S.$ 164
(d)Sirona Dental Systems
9.125%, 7/15/08 U.S.$ 89 69
----------------
233
----------------
- -------------------------------------------------------------------------------------------------
INDONESIA (0.8%)
CORPORATE (0.8%)
Indah Kiat International Finance 'B'
11.875%, 6/15/02 100 89
Tjiwi Kimia International Global Bond
13.25%, 8/1/01 350 312
----------------
401
----------------
- -------------------------------------------------------------------------------------------------
JORDAN (0.8%)
SOVEREIGN (0.8%)
Jordan Discount Bond
(b)7.00%, 12/23/23 368 264
(b,d)7.00%, 12/23/23 155 111
----------------
375
----------------
- -------------------------------------------------------------------------------------------------
LUXEMBOURG (0.4%)
CORPORATE (0.4%)
(d)PTC International Finance II S.A.
11.25%, 12/1/09 EUR 185 183
----------------
- -------------------------------------------------------------------------------------------------
MEXICO (8.7%)
CORPORATE (1.5%)
(d)Nuevo Grupo Iusacell S.A.
14.25%, 12/1/06 U.S.$ 150 156
(d)Sanluis Corp. S.A.
8.875%, 3/18/08 350 314
(d)TV Azteca 'B'
10.50%, 2/15/07 300 262
----------------
732
----------------
SOVEREIGN (7.2%)
(b)United Mexican States Discount Bond 'A'
6.933%, 12/31/19 260 243
(b)United Mexican States Discount Bond 'B'
6.943%, 12/31/19 250 234
(b)United Mexican States Discount Bond 'C'
6.836%, 12/31/19 100 94
(b)United Mexican States Discount Bond 'D'
6.903%, 12/31/19 1,200 1,123
(e)United Mexican States Euro Bond
10.375%, 2/17/09 650 695
(e)United Mexican States Global Bond
11.375%, 9/15/16 U.S.$ 975 U.S.$ 1,106
----------------
3,495
----------------
4,227
----------------
- -------------------------------------------------------------------------------------------------
MOROCCO (1.7%)
SOVEREIGN (1.7%)
(b)Morocco R&C 'A'
0.00%, 1/1/09 883 806
----------------
- -------------------------------------------------------------------------------------------------
NETHERLANDS (2.3%)
CORPORATE (2.3%)
Hermes Europe Railtel B.V.
11.50%, 8/15/07 190 196
Netia Holdings II B.V.
13.50%, 6/15/09 EUR 375 391
Tele1 Europe B.V.
13.00%, 5/15/09 175 187
(d)United Pan-Europe Communications NV
10.875%, 8/1/09 U.S.$ 350 354
----------------
1,128
----------------
- -------------------------------------------------------------------------------------------------
PANAMA (0.4%)
SOVEREIGN (0.4%)
Republic of Panama Global Bond
8.875%, 9/30/27 150 127
(b)Republic of Panama Past Due Interest Bond PIK
6.50%, 7/17/16 108 85
----------------
212
----------------
- -------------------------------------------------------------------------------------------------
PERU (1.8%)
SOVEREIGN (1.8%)
Republic of Peru Front Loaded Interest Reduction Bond
(c)3.75%, 3/7/17 250 155
(c)3.75%, 3/7/17 450 280
(c)Republic of Peru Past Due Interest Bond
4.50%, 3/7/17 670 467
----------------
902
----------------
- -------------------------------------------------------------------------------------------------
PHILIPPINES (2.5%)
CORPORATE (1.9%)
(d)Bayan Telecommunications
13.50%, 7/15/06 800 704
(d)Globe Telecom
13.00%, 8/1/09 200 209
----------------
913
----------------
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
PHILIPPINES (CONTINUED)
SOVEREIGN (0.6%)
Republic of Philippines
9.875%, 1/15/19 U.S.$ 300 U.S.$ 298
----------------
1,211
----------------
- -------------------------------------------------------------------------------------------------
POLAND (0.2%)
CORPORATE (0.2%)
(d)PTC International Finance II SA
11.25%, 12/1/09 100 98
----------------
- -------------------------------------------------------------------------------------------------
RUSSIA (5.5%)
SOVEREIGN (5.5%)
(b)Russia Interest Arrears Notes
6.906%, 12/15/15 350 64
(b)Russia Principal Note PIK
6.906%, 12/15/20 5,335 864
Russian Federation
(d)8.75%, 7/24/05 250 156
10.00%, 6/26/07 300 183
(d)11.00%, 7/24/18 2,360 1,428
----------------
2,695
----------------
- -------------------------------------------------------------------------------------------------
SOUTH KOREA (0.4%)
SOVEREIGN (0.4%)
Republic of Korea
8.875%, 4/15/08 200 211
----------------
- -------------------------------------------------------------------------------------------------
TURKEY (0.7%)
CORPORATE (0.7%)
(d)Cellco Finance NV
15.00%, 8/1/05 320 347
----------------
- -------------------------------------------------------------------------------------------------
UNITED KINGDOM (1.7%)
CORPORATE (1.7%)
Colt Telecommunications Group plc
7.625%, 7/31/08 EUR 171 172
(c,d)Dolphin Telecommunication plc
0.00%, 6/1/08 190 95
(c)Dolphin Telecommunication plc
0.00%, 5/15/09 U.S.$ 275 128
(c)Esprit Telecommunications Group plc
11.00%, 6/15/08 EUR 233 236
(d)HMV Media Group plc
10.875%, 5/15/08 GBP 125 185
----------------
816
----------------
- -------------------------------------------------------------------------------------------------
UNITED STATES (28.8%)
ASSET BACKED SECURITIES (2.3%)
(d)Aircraft Lease Portfolio Securitization
Ltd. 1996-1 P1D 12.75%, 6/15/06 U.S.$ 322 U.S.$ 322
(g)CFS 1997-5 'A1'
7.72%, 6/15/05 248 62
DR Securitized Lease Trust
6.66%, 8/15/10 78 68
7.60%, 8/15/07 403 377
Federal Home Mortgage Acceptance Corp.,
1996-B, Class C
7.929%, 11/15/18 243 85
Jet Equipment Trust 'C1'
11.79%, 6/15/13 175 202
----------------
1,116
----------------
CORPORATE (26.5%)
Adelphia Communications Corp. 'B'
(d)7.50%, 1/15/04 55 52
7.75%, 1/15/09 100 90
(d)8.375%, 2/1/08 160 149
(d)9.875%, 3/1/07 150 152
(d)American Cellular Corp.
10.50%, 5/15/08 180 198
AMSC Acquisition Co., Inc. 'B'
12.25%, 4/1/08 180 141
(d)CA FM Lease Trust
8.50%, 7/15/17 229 213
Chancellor Media Corp. 'B'
8.125%, 12/15/07 315 313
CMS Energy Corp.
7.50%, 1/15/09 235 214
Columbia/HCA Healthcare Corp.
6.91%, 6/15/05 295 269
7.58%, 9/15/25 130 105
7.69%, 6/15/25 350 286
D.R. Horton, Inc.
8.00%, 2/1/09 150 138
Dobson Communications Corp.
11.75%, 4/15/07 170 196
(d)Echostar DBS Corp.
9.375%, 2/1/09 190 191
(d)EES Coke Battery Co., Inc.
9.382%, 4/15/07 100 96
Global Crossing Holdings Ltd.
9.625%, 5/15/08 340 339
Globalstar LP
11.375%, 2/15/04 150 99
11.50%, 6/1/05 30 19
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
CORPORATE (CONTINUED)
Harrahs Operating Co., Inc.
7.875%, 12/15/05 U.S.$ 265 U.S.$ 255
(d)Hayes Lemmerz International, Inc.
8.25%, 12/15/08 280 257
Hilton Hotels
7.95%, 4/15/07 185 174
HMH Properties 'A'
7.875%, 8/1/05 355 330
(d)Horseshoe Gaming Holdings
8.625%, 5/15/09 210 202
(d)Huntsman ICI Chemicals
10.125%, 7/1/09 EUR 225 234
10.125%, 7/1/09 U.S.$ 225 232
(c)Intermedia Communications, Inc. 'B'
0.00%, 7/15/07 625 466
(d,f)Iridium LLC/Capital Corp.
13.00%, 7/15/05 155 7
Level 3 Communications, Inc.
9.125%, 5/1/08 805 763
Long Beach Auto 1997-1, 'B'
14.22%, 10/26/03 75 74
Lyondell Chemical Co.
9.625%, 5/1/07 160 164
Musicland Group, Inc.
9.00%, 6/15/03 100 97
Musicland Group, Inc. 'B'
9.875%, 3/15/08 175 159
National Steel Corp. 'D'
9.875%, 3/1/09 225 231
Nextel Communications, Inc.
(c,h)0.00%, 9/15/07 775 581
(c) 0.00%, 2/15/08 300 211
9.75%, 8/15/04 150 155
(c)NEXTLINK Communications, Inc.
0.00%, 4/15/08 720 472
(d,f,g)NSM Steel, Inc.
12.25%, 2/1/08 100 --@
(c)NTL, Inc. 'B'
0.00%, 4/1/08 GBP 330 356
(d)Onepoint Communications Corp. `B'
14.50%, 6/1/08 U.S.$ 145 95
(d)Paiton Energy Funding BV
9.34%, 2/15/14 225 45
Park Place Entertainment
7.875%, 12/15/05 U.S.$ 195 U.S.$ 186
Primus Telecommunications Group, Inc.
11.25%, 1/5/09 100 97
(d)Primus Telecommunications Group,
Inc. 'B' 9.875%, 5/15/08 145 133
(d)PSINet, Inc.
11.00%, 8/1/09 350 357
PSINet, Inc. 'B'
10.00%, 2/15/05 110 109
(d)RAS Laffan Liquid Natural Gas
8.294%, 3/15/14 80 75
(c)RCN Corp. 'B'
0.00%, 10/15/07 275 196
(c)RCN Corp. 0.00%, 2/15/08 225 147
(c)Rhythms Netconnections 'B'
0.00%, 5/15/08 400 216
RSL Communications plc
9.125%, 3/1/08 330 294
SD Warren Co. 'B'
12.00%, 12/15/04 215 225
Snyder Oil Corp.
8.75%, 6/15/07 200 199
(d)Station Casinos, Inc.
8.875%, 12/1/08 150 144
10.125%, 3/15/06 205 209
Tenet Healthcare Corp.
8.625%, 1/15/07 405 391
(d)Tenneco, Inc.
11.625%, 10/15/09 175 179
(c)Viatel, Inc.
0.00%, 4/15/08 380 239
Vintage Petroleum
8.625%, 2/1/09 110 106
(c)WAM! Net Inc. 'B'
0.00%, 3/1/05 365 219
Waste Management, Inc.
(d)6.875%, 5/15/09 35 30
7.00%, 10/15/06 125 111
7.125%, 10/1/07 190 166
7.125%, 12/15/17 40 31
7.65%, 3/15/11 50 43
----------------
12,922
----------------
14,038
----------------
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
VENEZUELA (3.5%)
SOVEREIGN (3.5%)
(b)Republic of Venezuela Debt Conversion Bond 'DL'
7.00%, 12/18/07 U.S.$ 762 U.S.$ 602
(e)Republic of Venezuela Global Bond
9.25%, 9/15/27 1,650 1,105
----------------
1,707
----------------
- -------------------------------------------------------------------------------------------------
TOTAL DEBT INSTRUMENTS
(Cost U.S.$43,850) 45,673
----------------
- -------------------------------------------------------------------------------------------------
<CAPTION>
NO. OF
WARRANTS
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
WARRANTS (0.2%)
- -------------------------------------------------------------------------------------------------
ARGENTINA (0.0%)
(a)Republic of Argentina, expiring 2/25/00 1,800 4
----------------
- -------------------------------------------------------------------------------------------------
COLOMBIA (0.1%)
(a,d)Occidente y Caribe, expiring 3/15/04 21,790 33
----------------
- -------------------------------------------------------------------------------------------------
NETHERLANDS (0.1%)
(a,d)Tele1 Europe B.V., expiring 05/15/09 1,750 30
----------------
- -------------------------------------------------------------------------------------------------
UNITED STATES (0.0%)
(a,d)American Mobile Satellite Corp., expiring 4/1/08 1,800 7
(a,d)NSM Steel, Inc., expiring 2/1/08 633,090 1
(a,d)Onepoint Communications Corp., expiring 6/1/08 1,450 --@
(a,d)WAM! Net, Inc., expiring 3/1/05 6,000 13
----------------
21
----------------
- -------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost U.S.$14) 88
----------------
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK (1.0%)
- -------------------------------------------------------------------------------------------------
UNITED STATES (1.0%)
Concentric Network Corp. 'B', 13.50% 1,182 U.S.$ 117
IXC Communications, Inc. 'B', 12.50% 129 143
Kmart Financing, 7.75% 1,550 68
Paxson Communications Corp., 13.25% 1,706 175
-----------------
- -------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost U.S.$410) 503
-----------------
- -------------------------------------------------------------------------------------------------
<CAPTION>
NO. OF
RIGHTS
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
RIGHTS (0.0%)
- -------------------------------------------------------------------------------------------------
MEXICO (0.0%)
(a)United Mexican States Value Recovery
Rights, expiring 6/30/03 2,784,000 --@
----------------
- -------------------------------------------------------------------------------------------------
TOTAL RIGHTS
(Cost U.S.$--) --@
----------------
- -------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.0%)
- ------------------------------------------------------------------------------------------------
TURKEY (2.2%)
BILLS
Turkish Treasury Bills
0.00%, 2/9/00 TRL 339,911,000 577
0.00%, 3/15/00 266,626,000 432
0.00%, 3/15/00 32,551,000 53
----------------
1,062
----------------
- -------------------------------------------------------------------------------------------------
UNITED STATES (2.8%)
REPURCHASE AGREEMENT
Chase Securities Inc. 2.60%,
dated 12/31/99, due 1/3/00,
to be repurchased at U.S.$1,361,
collateralized by U.S.$1,395
United States Treasury Notes,
6.125%, due 12/31/01, valued at
U.S.$1,392 U.S.$ 1,361 1,361
----------------
- -------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost U.S.$2,716) 2,423
----------------
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.0%)
Argentine Peso
(Cost U.S.$2) ARP 2 U.S.$ 2
----------------
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost U.S.$46,992) 48,689
----------------
- -------------------------------------------------------------------------------------------------
ASSETS
Cash U.S.$ 137
Interest Receivable 1,205
Due from Broker 37
Receivable for Investments Sold 29
Net Unrealized Gain on Foreign
Currency Exchange Contracts 18
Foreign Withholding Tax Reclaim Receivable 5
Other Assets 3 1,434
--------------------- ----------------
- -------------------------------------------------------------------------------------------------
LIABILITIES
Payable For:
Reverse Repurchase Agreements (4,586)
Dividends Declared (1,127)
Professional Fees (52)
Directors' Fees and Expenses (51)
Shareholder Reporting Expenses (38)
Foreign Tax Expense (39)
Investment Advisory Fees (34)
Administrative Fees (14)
Custodian Fees (9)
Other Liabilities (9) (5,959)
---------------------- ----------------
- -------------------------------------------------------------------------------------------------
NET ASSETS
Applicable to 4,180,704, issued and
outstanding U.S.$0.01 par value shares
(100,000,000 shares authorized) U.S.$ 44,164
----------------
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 10.56
-----------------
- -------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1999, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------
Common Stock U.S.$ 42
Capital Surplus 58,140
Undistributed Net Investment Income 190
Accumulated Net Realized Loss (15,866)
Unrealized Appreciation on Investments,
Foreign Currency Translation and
Futures Contracts 1,658
- -------------------------------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 44,164
----------------
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing.
(b) -- Variable/floating rate security--rate disclosed is as of
December 31, 1999.
(c) -- Step Bond--coupon rate increases in increments to maturity. Rate
disclosed is as of December 31, 1999. Maturity date disclosed is
the ultimate maturity.
(d) -- 144A Security--certain conditions for public sale may exist.
(e) -- Denotes all or a portion of securities subject to repurchase under
Reverse Repurchase Agreements as of December 31,1999. See note A-4
to financial statements.
(f) -- Security in default.
(g) -- Security valued at fair value--see note A-1 to financial statements.
(h) -- A portion of these securities was pledged to cover margin
requirements for futures contracts.
@ -- Value is less than U.S. $500.
PIK -- Payment-in-Kind. Income may be paid in additional securities or
cash at the discretion of the issuer.
- --------------------------------------------------------------------------------
FUTURES CONTRACTS:
At December 31 1999, the following futures contracts were open:
<TABLE>
<CAPTION>
NET
NUMBER NOTIONAL UNREALIZED
OF VALUE EXPIRATION GAIN
CONTRACTS (000) DATE (000)
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
SHORT:
Gilt 2 U.S.$362 March-00 U.S.$ 9
-------- ---------
-------- ---------
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999 EXCHANGE RATES:
- --------------------------------------------------------
<S> <C> <C> <C>
ARP Argentine Peso 1.000 = U.S.$1.00
EUR Euro 0.992 = U.S.$1.00
GBP British Pound 0.614 = U.S.$1.00
- --------------------------------------------------------
</TABLE>
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts
open at December 31, 1999, the Fund is obligated to deliver foreign currency
in exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- ----------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
EUR 375 U.S.$ 379 01/26/00 U.S.$ 387 U.S.$ 387 U.S.$ 8
EUR 1,000 1,011 01/31/00 1023 1,023 12
EUR 180 182 01/31/00 184 184 2
GBP 375 606 02/03/00 599 599 (7)
EUR 175 177 02/10/00 180 180 3
---------- ---------- -----------
U.S.$2,355 U.S.$2,373 U.S.$ 18
---------- ---------- -----------
---------- ---------- -----------
- -----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
- -------------------------------------------------------------------------------
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY --
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
COUNTRY (000) ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C>
Algeria U.S.$ 221 0.5%
Argentina 6,034 12.4
Australia 143 0.3
Brazil 7,433 15.3
Bulgaria 1,147 2.4
Chile 454 0.9
Colombia 490 1.0
Ecuador 198 0.4
Germany 233 0.5
Indonesia 401 0.8
Jordan 375 0.8
Luxembourg 183 0.4
Mexico 4,227 8.7
Morocco 806 1.7
Netherlands 1,158 2.4
Panama 212 0.4
Peru 902 1.8
Philippines 1,211 2.5
Poland 98 0.2
Russia 2,695 5.5
South Korea 211 0.4
Turkey 1,409 2.9
United Kingdom 816 1.7
United States 14,562 29.8
Venezuela 1,707 3.5
Other 1,363 2.8
------------ -----
U.S.$ 48,689 100.0%
------------ -----
------------ -----
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY
CLASSIFICATION -- DECEMBER 31, 1999
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C>
Sovereign & Emerging Markets U.S.$ 26,335 54.1%
Asset Backed Securities 221 0.5
Automotive 257 0.5
Cable 374 0.8
Capital Equipment 314 0.6
Chemicals 630 1.3
Coal, Gas & Oil 181 0.4
Energy 199 0.4
Financial 617 1.3
Foreign Government & Agency Obligations 362 0.7
Gaming & Lodging 996 2.0
Health Care Supplies & Services 760 1.6
Hotel & Lodging 504 1.0
Industrial 648 1.3
Media & Entertainment 940 1.9
Metals 478 1.0
Multi-Industry 806 1.7
Packaging 536 1.1
Real Estate 138 0.3
Retail 886 1.8
Supermarkets 213 0.4
Technology 466 1.0
Telecommunications 9,883 20.3
Transportation 322 0.7
Utilities 260 0.5
Other 1,363 2.8
------------ -----
U.S.$ 48,689 100.0%
------------ -----
------------ -----
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
STATEMENT OF OPERATIONS (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Interest ..................................................................................... U.S.$ 5,912
Dividends .................................................................................... 1
- ---------------------------------------------------------------------------------------------------------------------------
Total Income ............................................................................... 5,913
- ---------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees ..................................................................... 416
Interest Expense on Borrowings ............................................................... 217
Administrative Fees .......................................................................... 142
Professional Fees ............................................................................ 77
Shareholder Reporting Expenses ............................................................... 74
Directors' Fees and Expenses ................................................................. 37
Custodian Fees ............................................................................... 32
Annual Meeting and Proxy Expenses ............................................................ 26
Transfer Agent Fees .......................................................................... 22
Amortization of Organization Costs ........................................................... 2
Other Expenses ............................................................................... 43
- ---------------------------------------------------------------------------------------------------------------------------
Total Expenses ............................................................................. 1,088
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income .................................................................... 4,825
- ---------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold ................................................................... 266
Foreign Currency Transactions ................................................................ (311)
Futures Contracts ............................................................................ 35
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized Loss .......................................................................... (10)
- ---------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments .................................................................. 3,383
Appreciation on Foreign Currency Translations ................................................ 8
Appreciation on Futures Contracts ............................................................ 25
- ---------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation ............................................. 3,416
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized Loss and Change in Unrealized Appreciation/Depreciation ............................... 3,406
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......................................... U.S.$ 8,231
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income ........................................................... U.S.$ 4,825 U.S.$ 5,159
Net Realized Loss ............................................................... (10) (15,859)
Change in Unrealized Appreciation/Depreciation .................................. 3,416 (1,230)
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations ................. 8,231 (11,930)
- ---------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income ........................................................... (4,387) (4,917)
In Excess of Net Realized Gains ................................................. -- (261)
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions ............................................................. (4,387) (5,178)
- ---------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Reinvestment of Distributions (2,622 and 24,590 shares, respectively) ........... 26 333
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Capital Share Transactions ............ 26 333
- ---------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) ....................................................... 3,870 (16,775)
Net Assets:
Beginning of Period ............................................................. 40,294 57,069
- ---------------------------------------------------------------------------------------------------------------------------
End of Period (including undistributed net investment income of U.S.$190 and
U.S.$55, respectively) ........................................................ U.S.$44,164 U.S.$ 40,294
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
STATEMENT OF CASH FLOWS (000)
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM INVESTING AND OPERATING ACTIVITIES:
Proceeds from Sales of Investments ............................................................. U.S.$ 56,288
Purchases of Investments ....................................................................... (57,235)
Purchases of Foreign Currency .................................................................. (2)
Net Increase in Short-Term Investments ......................................................... (1,044)
Net Realized Loss on Foreign Currency Transactions ............................................. (311)
Investment Income .............................................................................. 3,874
Interest Expense Paid .......................................................................... (210)
Net Operating Expenses Paid .................................................................... (849)
---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided for Investing and Operating Activities ....................................... 511
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Received from Reverse Repurchase Agreements - Net ......................................... 3,616
Cash Distributions Paid (net of reinvestments of U.S.$26) ...................................... (4,390)
---------------------------------------------------------------------------------------------------------------------------
Net Cash Used for Financing Activities ......................................................... (774)
---------------------------------------------------------------------------------------------------------------------------
Net Decrease in Cash ........................................................................... (263)
CASH AT BEGINNING OF PERIOD ........................................................................ 400
---------------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD .............................................................................. U.S.$ 137
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY INVESTING AND OPERATING ACTIVITIES
---------------------------------------------------------------------------------------------------------------------------
Net Investment Income .......................................................................... U.S.$ 4,825
Proceeds from Sales of Investments ............................................................. 56,288
Purchases of Investments ....................................................................... (57,235)
Purchases of Foreign Currency .................................................................. (2)
Net Increase in Short-Term Investments ......................................................... (1,044)
Net Realized Loss on Foreign Currency Transactions ............................................. (311)
Net Increase in Receivables Related to Operations .............................................. (299)
Net Increase in Payables Related to Operations ................................................. 25
Accretion/Amortization of Discounts and Premiums ............................................... (1,736)
---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Investing and Operating Activities ........................................ U.S.$ 511
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS: 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................... U.S.$9.64 U.S.$13.74 U.S.$14.86 U.S.$12.99 U.S.$12.25
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income .................................. 1.15 1.23 1.29 1.71 1.61
Net Realized and Unrealized Gain (Loss) on Investments . 0.82 (4.09) 1.19 2.15 0.72
- -----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations ................... 1.97 (2.86) 2.48 3.86 2.33
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income ................................ (1.05) (1.18) (1.29) (1.49) (1.59)
In Excess of Net Investment Income ................... -- -- (0.01) -- --
Net Realized Gain .................................... -- -- (2.25) (0.50) --
In Excess of Net Realized Gains ...................... -- (0.06) (0.05) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions ................................ (1.05) (1.24) (3.60) (1.99) (1.59)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ......................... U.S.$10.56 U.S.$9.64 U.S.$13.74 U.S.$14.86 U.S.$12.99
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD .................. U.S.$8.38 U.S.$8.31 U.S.$13.13 U.S.$14.63 U.S.$12.50
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value ......................................... 12.88% (29.20)% 13.93% 34.44% 13.49%
Net Asset Value (1) .................................. 22.73% (21.57)% 17.38% 31.45% 20.34%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS) .................. U.S.$44,164 U.S.$40,294 U.S.$57,069 U.S.$61,591 U.S.$53,847
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets ................ 2.60% 2.59% 1.86% 2.00% 2.06%
Ratio of Expenses Excluding Interest Expenses to Average
Net Assets ........................................... 2.08% 2.03% 1.75% 1.81% 1.95%
Ratio of Net Investment Income to Average Net Assets ... 11.53% 10.13% 8.15% 12.17% 13.07%
Portfolio Turnover Rate ................................ 125% 266% 333% 280% 160%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- -----------
Morgan Stanley Dean Witter Global Opportunity Bond Fund, Inc. (formerly 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. The prices provided by a pricing service take into
account broker dealer market price quotations for institutional size
trading in similar groups of securities, security quality, maturity, coupon
and other security characteristics as well as any developments related to
the specific securities. 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 under procedures
approved by the Board of Directors 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: The Fund may enter into repurchase agreements under
which the Fund lends excess cash and takes possession of securities with an
agreement that the counterparty will repurchase such securities. In
connection with transactions in repurchase agreements, a bank as custodian
for the Fund takes possession of the underlying securities (collateral),
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 counterparty to the agreement, realization and/or retention of the
collateral or proceeds may be subject to legal proceedings.
4. REVERSE REPURCHASE AGREEMENTS: 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. Reverse repurchase
agreements also involve credit risk with the counterparty to the extent
that the value of securities subject to repurchase exceed the Fund's
liability under the reverse repurchase agreement. Securities subject to
repurchase under reverse repurchase agreements, if any, are designated as
such in the Statement of Net Assets.
At December 31, 1999, the Fund had reverse repurchase agreements
outstanding with Lehman Brothers as follows:
MATURITY IN
LESS THAN
365 DAYS
-------------
Value of Securities Subject to
Repurchase.............................. $ 5,999,000
Liability Under Reverse
Repurchase Agreement.................... $ 4,586,000
Interest Rate............................ 6.31%
The average weekly balance of reverse repurchase agreements outstanding
during the year ended De-
15
<PAGE>
cember 31, 1999 was approximately $3,879,000 at a weighted average interest
rate of 4.97%.
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;
- 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) due to securities transactions
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) on foreign
currency translations 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 may use derivatives to achieve its investment objectives. The Fund may
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 may use derivatives for
non-hedging as well as hedging purposes.
Following is a description of derivative instruments that the Fund may utilize
and their associated risks:
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 ("Par-
16
<PAGE>
ticipations") 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 and any intermediaries between
the Lender and the Fund. When the Fund purchases Assignments 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 assets as
segregated on the Fund's records. 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
17
<PAGE>
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 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.
Risks also arise from potential losses from adverse market movements, and
such losses could exceed the related amounts shown in the Statement of Net
Assets.
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. FUTURES: The Fund may purchase and sell futures contracts. Futures
contracts provide for the sale by one party and purchase by another party
of a specified amount of a specified security, index, instrument or basket
of instruments. Futures contracts (secured by cash, government or other
liquid securities deposited with brokers or custodians as "initial margin")
are valued based upon their quoted daily settlement prices; changes in
initial settlement value (represented by cash paid to or received from
brokers as "variation margin") are accounted for as unrealized appreciation
(depreciation). When futures contracts are closed, the difference between
the opening value at the date of purchase and the value at closing is
recorded as realized gains or losses in the Statement of Operations.
The Fund may use futures contracts in order to manage its exposure to the
stock and bond markets, to hedge against unfavorable changes in the value
of securities or to remain fully invested and to reduce transaction costs.
Futures contract involve market risk in excess of the amounts recognized in
the Statement of Net Assets. Risks arise from the possible movements in
security values underlying these instruments. The change in value of
futures contracts primarily corresponds with the value of their underlying
instruments, which may not correlate with the change in value of the hedged
investments. In addition, there is the risk that the Fund may not be able
to enter into a closing transaction because of an illiquid secondary
market.
15. OVER-THE-COUNTER TRADING: Securities and other 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.
The Fund did not sell securities short or write options nor did the Fund invest
in Purchased Options, Swap Agreements or Structured Securities during the year
ended December 31, 1999.
16. 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-dividend
date.
The amount and character of income and capital gain distributions to be
paid by the Fund are determined in accordance with Federal income tax
regulations, which may differ from generally accepted account-
18
<PAGE>
ing principles. The book/tax differences are either considered temporary or
permanent in nature.
Temporary differences are attributable to differing book and tax treatments
for the timing of the recognition of gains and losses on certain investment
transactions and the timing of the deductibility of certain expenses.
Permanent book and tax basis differences may result in reclassifications
among undistributed net investment income (loss), accumulated net realized
gain (loss) and paid in capital.
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 Dean Witter Investment 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.
D. The Chase Manhattan Bank serves as custodian for the Fund. Custody fees are
payable monthly based on assets held in custody, investment purchase and sales
activity and account maintenance fees, plus reimbursement for certain
out-of-pocket expenses.
E. For the year ended December 31, 1999, the Fund made purchases and sales
totaling $56,836,000 and $54,262,000, respectively, of investments other than
long-term U.S. Government securities and short-term investments. There were no
purchases or sales of long-term U.S. Government securities. At December 31,
1999, the U.S. Federal income tax cost basis of securities was $47,559,000 and,
accordingly, net unrealized appreciation for U.S. Federal income tax purposes
was $1,128,000 of which $3,147,000 related to appreciated securities and
$2,019,000 related to depreciated securities. At December 31, 1999, the Fund had
a capital loss carryforward for U.S. Federal income tax purposes of
approximately $15,296,000 to offset against future capital gains of which
$13,340,000 will expire on December 31, 2006 and $1,956,000 will expire on
December 31, 2007. To the extent that capital gains are offset, such gains will
not be distributed to shareholders.
F. A significant portion of the Fund's net assets consist of securities of
issuers located in emerging markets or which are denominated in foreign
currencies. Changes in currency exchange rates will affect the value of and
investment income from such securities. Emerging market securities are often
subject to greater price volatility, limited capitalization and liquidity, and
higher rates of inflation than U.S. securities. In addition, emerging market
securities may be subject to substantial governmental involvement in the economy
and greater social, economic and political uncertainty.
At December 31, 1999, approximately 29% of the Fund's total investments consist
of U.S. 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.
Emerging market and high yield 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.
G. 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. At December 31, 1999, the deferred fees payable, under
the Plan, totaled $51,000 and are included in Payable for Directors' Fees and
Expenses on the Statement of Net Assets.
H. During December 1999, the Board of Directors declared a dividend
distribution of $0.27 per share, derived from net investment income, payable on
January 14, 2000, to shareholders of record on December 21, 1999.
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ------------
To the Shareholders and Board of Directors of Morgan Stanley Dean Witter Global
Opportunity Bond Fund, Inc. (formerly, Morgan Stanley Global Opportunity Bond
Fund, Inc.)
In our opinion, the accompanying statement of net assets and the related
statements of operations, of changes in net assets and of cash flows and the
financial highlights present fairly, in all material respects, the financial
position of Morgan Stanley Dean Witter Global Opportunity Bond Fund, Inc. (the
"Fund") at December 31, 1999, the results of its operations and its cash flows
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 18, 2000
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. 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, that 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 Dean Witter 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
