<PAGE>
THE MORGAN STANLEY HIGH YIELD FUND, INC.
---------------------------------------------
OFFICERS AND DIRECTORS
Peter A. Nadosy Harold J. Schaaff, Jr.
CHAIRMAN OF THE BOARD VICE PRESIDENT
OF DIRECTORS Joseph P. Stadler
Warren J. Olsen VICE PRESIDENT
PRESIDENT AND DIRECTOR Valerie Y. Lewis
Elliott S. Jaffe SECRETARY
DIRECTOR Hilary D. Toole
Gerard E. Jones ASSISTANT SECRETARY
DIRECTOR James R. Rooney
Peter E. de Svastich TREASURER
DIRECTOR Timothy F. Osborne
James W. Grisham ASSISTANT TREASURER
VICE PRESIDENT
---------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
---------------------------------------------------------
ADMINISTRATOR
The United States Trust Company of New York
73 Tremont Street
Boston, Massachusetts 02108
---------------------------------------------------------
CUSTODIANS
The United States Trust Company of New York
770 Broadway
New York, New York 10003
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
---------------------------------------------------------
SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
---------------------------------------------------------
LEGAL COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
---------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
---------------------------------------------------------
[LOGO]
THE
MORGAN STANLEY
HIGH YIELD
FUND, INC.
[LOGO]
FIRST QUARTER REPORT
MARCH 31, 1995
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- - --------
The high yield market was strong in the first quarter of 1995. A strong Treasury
market and a firm equity market underpinned the good results in high yield
securities. Ten year Treasury bond yields declined over sixty basis points
(0.6%) to 7.2% and the S&P 500 returned 9.7%. Technical factors in the high
yield market were also favorable. New issues were light and mutual fund cash
flows returned to positive territory after experiencing outflows in 1994. By the
end of the quarter, the CS First Boston High Yield Index (Index) spread to
Treasuries stood at 429 basis points, nearly fifty basis points higher than at
the beginning of the year. For the first quarter of 1995, the total return of
the Fund based on net asset value per share was 7.40% compared with 4.71% for
the Index.
At the end of 1994, the casino sector was oversold and we added to our exposure.
This turned out to be a good move as it was the best performing sector in the
market for the first quarter. We currently have about a 5% weighting in the
sector. We also have a meaningful position in the cable television and
broadcasting sector. Pricing re-regulation is behind the cable industry and we
like the powerful cash flow these companies generate. Furthermore, we believe
the cable companies are well positioned in the emerging marketplace for video
and telephone services. This sector has been strong recently, as there continue
to be rumors of alliances between the cable companies and the regional Bell
companies.
Several IPOs also buoyed the market during the quarter. Two of the large LBOs of
the 1980s, Fort Howard and American Standard, finally returned to the public
markets. In addition, Bell and Howell announced its intention to sell equity to
the public. Investors began to differentiate sector bets within the cyclicals.
For example, while paper companies performed well in the marketplace, steel
credits have weakened. Investors grew concerned that the steel industry had
peaked when Nucor announced price reductions on certain product lines. The
biggest news in the market occurred after the end of the quarter when the McCaw
family announced its intention to invest $1 billion in Nextel, a high yield
credit. Nextel and other technology bonds rallied sharply on this news and
helped highlight some of the asset values that exist in the high yield market.
The strong recent quarter and the conflicting economic signals make us somewhat
cautious looking forward. Also, the calendar for new issues seems to be building
rapidly. More of a barbelled strategy may be appropriate at this time. That is
to say, the Fund will underweight the medium quality sector that may feel
pressure from new issue pricing and a softer economy, and overweight those
higher quality issues that can better withstand an economic slowdown, while
selectively picking lower quality credits that will respond to other events. We
believe this will give us a good blend of portfolio stability while not
sacrificing the potential for appreciation.
Sincerely,
[SIG]
Peter A. Nadosy
CHAIRMAN
[SIG]
Robert E. Angevine
PORTFOLIO MANAGER
April 18, 1995
2
<PAGE>
INVESTMENTS (UNAUDITED)
(Showing Percentage of Total Value of Investments)
- - ---------
MARCH 31, 1995
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- - ---------------------------------------------------------
- - ------------
<S> <C> <C>
CORPORATE BONDS AND NOTES (91.1%)
- - --------------------------------------------------
- - ----------
AEROSPACE & DEFENSE (1.2%)
Sabreliner Corp. 12.50%,
4/15/03 $ 2,000 $ 1,740
------------
BROADCAST -- RADIO & TELEVISION (9.9%)
Ackerley Communications,
Inc. `A' 10.75%, 10/1/03 3,500 3,509
ACT III Broadcasting, Inc.
9.625%, 12/15/03 500 484
Benedek Broadcasting Corp.
11.875%, 3/1/05 1,000 1,001
Cablevision Systems Corp.
9.875%, 2/15/13 1,000 961
Comcast Corp. 9.50%, 1/15/08 1,000 943
Continental Cablevision,
Inc. 9.50%, 8/1/13 3,500 3,334
Groupe Videotron Ltee
10.625%, 2/15/05 750 763
Heritage Media Corp. 11.00%,
10/1/02 1,250 1,281
Katz Corp. 12.75%, 11/15/02 700 725
Rogers Cablesystems of
America 10.00%, 3/15/05 1,000 995
------------
13,996
------------
BUSINESS SERVICES (4.0%)
ADT Operations 9.25%, 8/1/03 2,500 2,428
Petro PSC Properties 12.50%,
6/1/02 500 500
Primeco, Inc. 12.75%, 3/1/05 750 759
Scotsman Group, Inc. 9.50%,
12/15/00 2,000 1,895
------------
5,582
------------
CHEMICALS (16.3%)
Agricultural Minerals &
Chemicals, Inc. 10.75%,
9/30/03 2,000 2,050
Arcadian Partners, L.P.
10.75%, 5/1/05 4,000 3,940
Foamex L.P. 9.50%, 6/1/00 3,000 2,918
Freeport-McMoran Resource
Partners L.P. 8.75%,
2/15/04 1,500 1,397
Harris Chemical North
America 10.75%, 10/15/03 2,050 1,968
IMC Global, Inc. 9.25%,
10/1/00 500 503
IMC Global, Inc. 10.125%,
6/15/01 2,000 2,075
IMC Global, Inc. 9.45%,
12/15/11 3,000 2,932
Plastic Specialties &
Technologies, Inc. 11.25%,
12/1/03 2,000 1,793
Sherritt, Inc. 9.75%, 4/1/03 3,475 3,405
------------
22,981
------------
- - ----------------------------------------------------------
- - -------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- - ----------------------------------------------------------
- - -------------
COAL, GAS & OIL (3.2%)
MAXUS Energy Corp. 9.875%,
10/15/02 $ 2,000 $ 1,735
Triton Energy Corp. 0% to
12/15/96, 9.75% to
12/15/00 3,500 2,813
------------
4,548
------------
DIVERSIFIED (2.1%)
Primark Corp. 8.75%,
10/15/00 1,250 1,197
Valcor Inc. 9.625%, 11/1/03 2,000 1,805
------------
3,002
------------
ELECTRONICS (4.1%)
Protection One, Inc. 12.00%,
11/1/03 1,100 1,023
Tracor, Inc. 10.875%,
8/15/01 4,750 4,762
------------
5,785
------------
ENTERTAINMENT & LEISURE (1.3%)
Marvel III Holdings, Inc.
9.125%, 2/15/98 2,000 1,785
------------
ENVIRONMENTAL CONTROLS (1.7%)
Envirosource, Inc. 9.75%,
6/15/03 2,000 1,762
Envirotest Systems Corp.
9.125%, 3/15/01 750 600
------------
2,362
------------
FINANCIAL SERVICES (6.3%)
Delaware Management Holdings
10.25%, 3/15/04 4,750 5,094
Imperial Credit Industries,
Inc. 9.75%, 1/15/04 3,500 2,756
Tiphook Finance 8.00%,
3/15/00 1,188 903
Tiphook Finance 10.75%,
11/1/02 137 110
------------
8,863
------------
FOOD (1.9%)
Pilgrim's Pride Corp.
10.875%, 8/1/03 2,900 2,632
------------
FOOD SERVICE & LODGING (2.0%)
Flagstar Corp. 10.75%,
9/15/01 1,000 955
La Quinta Inns, Inc. 9.25%,
5/15/03 2,000 1,875
------------
2,830
------------
- - ----------------------------------------------------------
- - -------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- - ---------------------------------------------------------
- - ------------
<S> <C> <C>
FOREST PRODUCTS & PAPER (3.0%)
Repap Wisconsin, Inc. 9.25%,
2/1/02 $ 1,500 $ 1,406
Repap Wisconsin, Inc.
9.875%, 5/1/06 1,500 1,369
Stone Consolidated 10.25%,
12/15/00 1,500 1,522
------------
4,297
------------
GAMING & LODGING (2.4%)
Aztar Corp. 11.00%, 10/1/02 3,000 2,873
Casino America, Inc. 11.50%,
11/15/01 500 486
------------
3,359
------------
HEALTH CARE SUPPLIES & SERVICES (6.7%)
Charter Medical Corp.
11.25%, 4/15/04 750 785
Healthtrust, Inc. 8.75%,
3/15/05 5,000 5,119
McGaw, Inc. 10.375%, 4/1/99 3,400 3,468
------------
9,372
------------
INSURANCE (1.5%)
Nacolah Holding Corp. 9.50%,
12/1/03 500 451
Reliance Group Holdings,
Inc. 9.00%, 11/15/00 1,700 1,585
------------
2,036
------------
METALS (1.9%)
ACME Metals, Inc. 12.50%,
8/1/02 1,000 1,000
Armco, Inc. 9.375%, 11/1/00 1,250 1,147
Ucar Global Enterprises
12.00%, 1/15/05 500 525
------------
2,672
------------
MULTI-INDUSTRY (0.3%)
American Standard Companies,
Inc.
0% to 6/1/98, 10.50% to
6/1/05 550 374
------------
PACKAGING & CONTAINER (4.6%)
Owens-Illinois, Inc. 10.50%,
6/15/02 1,000 1,018
Owens-Illinois, Inc. 10.00%,
8/1/02 2,500 2,488
Stone Container Corp.
11.875%, 12/1/98 500 529
Stone Container Corp.
9.875%, 2/1/01 1,500 1,453
Stone Container Corp.
10.75%, 4/1/02 100 100
Stone Container Corp.
10.75%, 10/1/02 900 934
------------
6,522
------------
RETAIL -- GENERAL (6.1%)
Ann Taylor, Inc. 8.75%,
6/15/00 2,000 1,955
Penn Traffic Co. 8.625%,
12/15/03 2,000 1,825
Penn Traffic Co. 9.625%,
4/15/05 3,000 2,771
Southland Corp. 5.00%,
12/15/03 3,000 2,115
------------
8,666
------------
- - ----------------------------------------------------------
- - -------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- - ---------------------------------------------------------
- - ------------
TELECOMMUNICATIONS (1.8%)
Allnet Communication
Services 9.00%, 5/15/03 $ 1,250 $ 1,197
Telefonica de Argentina
11.875%, 11/1/04 1,500 1,331
------------
2,528
------------
TEXTILES & APPAREL (5.3%)
Dominion Textile (USA), Inc.
8.875%, 11/1/03 4,000 3,780
Polysindo Eka Perkasa
13.00%, 6/15/01 1,000 920
Synthetic Industries, Inc.
12.75%, 12/1/02 1,000 973
Westpoint Stevens, Inc.
9.375%, 12/15/05 2,000 1,835
------------
7,508
------------
UTILITIES (3.5%)
AES Corp. 9.75%, 6/15/00 900 884
Beaver Valley II Funding
Lease Obligation Bonds
9.00%, 6/1/17 1,477 1,130
First PV Funding Lease
Obligation Bonds 10.15%,
1/15/16 3,000 2,959
------------
4,973
------------
- - ----------------------------------------------------------
- - -------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $134,368) 128,413
------------
- - ----------------------------------------------------------
- - -------------
FOREIGN GOVERNMENT BOND (0.6%)
- - ----------------------------------------------------------
- - -------------
+++Republic of Argentina 'B'
7.3125%, 3/31/05 (Cost
$1,057) 1,500 808
------------
- - ----------------------------------------------------------
- - -------------
<CAPTION>
NO. OF
UNITS
(000)
<S> <C> <C>
- - ---------------------------------------------------------
- - ------------
UNITS (3.9%)
- - ----------------------------------------------------------
- - -------------
GAMING & LODGING (2.2%)
Trump Taj Mahal PIK (Bond +
1 Taj Mahal Holding Corp.
'B' Common Stock) 11.35%,
11/15/99 4,065 3,079
------------
METALS (1.7%)
Sheffield Steel Corp. (1st
Mtg. Bond + 5 Common Stock
Warrants) 12.00%, 11/1/01 2,500 2,450
------------
- - ----------------------------------------------------------
- - -------------
TOTAL UNITS
(Cost $6,613) 5,529
------------
- - ----------------------------------------------------------
- - -------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NO. OF VALUE
WARRANTS (000)
- - ---------------------------------------------------------
- - ------------
<S> <C> <C>
WARRANTS (0.0%)
- - ----------------------------------------------------------
- - -------------
AEROSPACE & DEFENSE (0.0%)
Sabreliner Corp., expiring
4/15/03 2,000 $ 20
------------
BUSINESS SERVICES (0.0%)
Petro PSC Properties,
expiring 6/1/97 500 17
------------
- - ----------------------------------------------------------
- - -------------
TOTAL WARRANTS
(Cost $56) 37
------------
- - ----------------------------------------------------------
- - -------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- - ---------------------------------------------------------
- - ------------
SHORT TERM INVESTMENTS (4.4%)
- - ----------------------------------------------------------
- - -------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (4.4%)
Federal Home Loan Mortgage Corporation
4/3/95 $ 4,313 4,312
4/4/95 1,887 1,886
------------
(Cost $6,198) 6,198
------------
- - ----------------------------------------------------------
- - -------------
TOTAL INVESTMENTS (100.0%)
(Cost $148,292) 140,985
------------
- - ----------------------------------------------------------
- - -------------
<CAPTION>
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- - ---------------------------------------------------------
- - ------------
OTHER ASSETS AND LIABILITIES
Other Assets $ 5,783
Liabilities (37,549) $ (31,766)
----------- ------------
- - ----------------------------------------------------------
- - -------------
NET ASSETS
Applicable to 8,720,431
issued and outstanding
$.01 par value shares
(100,000,000 shares
authorized) $ 109,219
-------------
- - ----------------------------------------------------------
- - -------------
NET ASSET VALUE PER SHARE $ 12.52
-------------
- - ----------------------------------------------------------
- - -------------
<FN>
+++ -- Variable/floating rate security -- rate disclosed
is as of March 31, 1995
PIK -- Payment-in-Kind
</TABLE>
5
