<PAGE>
THE MORGAN STANLEY HIGH YIELD FUND, INC.
- ---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Barton M. Biggs John A. Levin
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS William G. Morton, Jr.
Frederick B. Whittemore DIRECTOR
VICE-CHAIRMAN OF THE BOARD James W. Grisham
OF DIRECTORS VICE PRESIDENT
Warren J. Olsen Harold J. Schaaff, Jr.
PRESIDENT AND DIRECTOR VICE PRESIDENT
Peter J. Chase Joseph P. Stadler
DIRECTOR VICE PRESIDENT
John W. Croghan Valerie Y. Lewis
DIRECTOR SECRETARY
David B. Gill James R. Rooney
DIRECTOR TREASURER
Graham E. Jones Joanna M. Haigney
DIRECTOR ASSISTANT TREASURER
</TABLE>
- ---------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- ---------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, Massachusetts 02108
- ---------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company (International)
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank, N.A. (Domestic)
770 Broadway
New York, New York 10003
- ---------------------------------------------------------
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
- ---------------------------------------------------------
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.
----------
THE
MORGAN STANLEY
HIGH YIELD
FUND, INC.
----------
FIRST QUARTER REPORT
MARCH 31, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the three months ended March 31, 1996, The Morgan Stanley High Yield Fund,
Inc. had a total return, based on net asset value per share, of 2.36% compared
to 2.16% for the First Boston High Yield Index. For the period since the Fund's
commencement of operations on November 30, 1993, the Fund's total return based
on net asset value per share is 21.92% compared with 20.25% for the Index. On
March 29, 1996, the closing price of the Fund's shares on the New York Stock
Exchange was $13.25 representing a 2.6% discount to the Fund's net asset value
per share.
The high yield market performed well in the face of a sharp rise in Treasury
yields during the first quarter of 1996. Once again, this performance
demonstrates the high yield market's resiliency and that it does not correlate
well with general interest rate movements. The latter points out the
diversification benefits and value-added that high yield bonds can provide an
investor.
While the quarter was good for high yield, some pressure became evident by
mid-March. Mutual fund inflows began to slow a bit yet new issuance continued at
a strong pace. Spreads had narrowed considerably through February as ten-year
Treasury bonds had already risen fifty basis points since the beginning of the
year, on their way to a seventy basis point widening by the end of the quarter.
This rate rise finally caused a negative return for the month of March but still
less than the loss incurred by the Treasury market. At the end of March, the
spread of the First Boston High Yield Index was 418 basis points over Treasuries
versus a spread of 484 basis points at the beginning of the year.
Lower rated credits, traditionally less interest rate sensitive than better
quality bonds, did best in this environment. The spread between BB and B rated
bonds narrowed at least twenty basis points. Even lower rated bonds tightened to
a greater extent.
Gaming continued to be a strong sector. Earnings momentum in the casinos is good
and enabled Donald Trump to consolidate and refinance two of his Atlantic City
properties.
The restaurant sector also performed well. A few distressed issues rallied
sharply and others held their price while accruing interest at very high levels.
Underperformers tended to be longer duration, better quality bonds. Fitting into
this category were airlines, utilities and media bonds.
Looking forward, we see value in some of the cyclical issues in the marketplace.
Issuers in the steel, paper and auto sectors represent intriguing opportunities.
While the earnings outlook in these sectors is either poor or at best uncertain,
bond prices reflect much if not more than the anticipated problems. We also
continue to like the cable and communications sectors and will maintain an
exposure to emerging markets
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Robert Angevine
PORTFOLIO MANAGER
April 29, 1996
2
<PAGE>
The Morgan Stanley High Yield Fund, Inc.
Investment Summary as of March 31, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION (UNAUDITED)
TOTAL RETURN (%)
----------------------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (1)(3)
---------------------------- ---------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
<S> <C> <C> <C> <C> <C> <C>
---------------------------- ---------------------------- ----------------------------
FISCAL YEAR TO DATE 5.50% -- 2.36% -- 2.16% --
ONE YEAR 23.33 23.33% 20.16 20.16% 14.53 14.53%
SINCE INCEPTION* 18.69 7.62 21.92 8.86 20.25 8.22
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
A BAR CHART REFLECTING THE DATA BELOW IS REFLECTED HERE.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31: THREE MONTHS
1993* 1994 1995 ENDED 3/31/96 (UNAUDITED)
<S> <C> <C> <C> <C>
Net Asset Value Per Share $ 14.10 $ 11.96 $ 13.63 $ 13.61
Market Value Per Share $14.75 $11.38 $12.88 $13.25
Premium/(Discount) 4.6% -4.8% -5.5% -2.6%
Income Dividends - $1.37 $1.27 $0.34
Fund Total Return (2) 0.00% -5.53% 26.07% 2.36%
Index Total Return
(1)(3)** 1.26% -0.98% 17.39% 2.16%
</TABLE>
(1)Assumes dividends and distributions, if any, were reinvested.
(2)Total investment return based on per share net asset value 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)First Boston High Yield Index.
* The Fund commenced operations on November 30, 1993.
** Unaudited.
3
<PAGE>
The Morgan Stanley High Yield Fund, Inc.
Investment Summary as of March 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Debt Securities 98.0%
Short-Term Investments 2.0%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Broadcast -- Radio & Television 17.2%
Chemicals 12.1%
Diversified 3.1%
Financial Services 5.1%
Food Service & Lodging 5.0%
Foreign Government Bonds 3.6%
Multi-Industry 8.5%
Retail - General 3.4%
Telecommunications 5.2%
Utilities 3.9%
Other 32.9%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
INVESTMENTS
---------------
<C> <S> <C>
1. IMC Global, Inc., 9.45%, 12/15/11 4.4%
2. Ackerley Communications, Inc., 'A'
10.75%, 10/1/03 2.7
3. Sherritt-Gordon, Inc., 9.75%,
4/1/03 2.6
4. Southland Corp., 5.00%, 12/15/03 2.4
5. Lenfest Communications 8.375%,
11/1/05 2.3
<CAPTION>
PERCENT OF
TOTAL
INVESTMENTS
---------------
<C> <S> <C>
6. First PV Funding Lease Obligation
Bonds 10.15%, 1/15/16 2.3%
7. La Quinta Inns, Inc., 9.25%,
5/15/03 2.3
8. Six Flags Theme Parks, Inc.,
12.25%, 6/15/05 2.2
9. Heritage Media Services 11.00%,
10/1/02 2.1
10. Continental Cablevision, Inc.,
9.5%, 8/1/13 2.0
---
25.3%
---
---
</TABLE>
4
<PAGE>
INVESTMENTS (UNAUDITED)
(SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
- ------------
MARCH 31, 1996
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
CORPORATE BONDS AND NOTES (91.6%)
- --------------------------------------------------
- ----------
AEROSPACE & DEFENSE (1.4%)
Airplanes Pass Through Trust 10.875%,
3/15/19 U.S.$ 750 U.S.$ 765
Jet Equipment Trust
11.44%, 11/1/14 1,100 1,209
--------------
1,974
--------------
BROADCAST -- RADIO & TELEVISION (17.1%)
Ackerley Comm., Inc., 'A' 10.75%,
10/1/03 3,500 3,710
Cablevision Systems Corp. 9.875%,
2/15/13 1,000 1,040
Cablevision Systems Corp. 10.75%,
4/1/04 1,500 1,566
Century Comm. Corp. 9.50%, 8/15/00 1,000 1,025
Comcast Corp.,
9.50%, 1/15/08 1,000 1,020
Continental Cablevision, Inc., 9.50%,
8/1/13 2,500 2,787
Heritage Media Services 11.00%,
10/1/02 2,675 2,862
Lenfest Communications 8.375%, 11/1/05 3,325 3,209
Marcus Cable Co.
Zero Coupon, 12/15/05 3,800 2,465
New World Comm. Group,
Holding Corp., 'B' Zero Coupon,
6/15/99 2,500 1,809
Rogers Cablesystems of America 11.00%,
12/1/15 950 1,021
Viacom Inc., 8.00%, 7/7/06 1,000 948
--------------
23,462
--------------
BUSINESS SERVICES (1.9%)
ADT Operations
9.25%, 8/1/03 2,500 2,619
--------------
CAPITAL GOODS/CONSTRUCTION (1.5%)
GS Technologies Inds., Inc. 12.25%,
10/1/05 1,000 1,007
International Wire Group, Inc.,
11.75%, 6/1/05 1,000 978
--------------
1,985
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
CHEMICALS (12.1%)
Foamex L.P., 9.50%, 6/1/00 U.S.$ 1,500 U.S.$ 1,446
APS Inc. 11.875%, 1/15/06 600 617
Freeport-McMoran Resource Partners
L.P., 8.75%, 2/15/04 1,500 1,526
Harris Chemical SR Secured Disc. Note
10.25%, 7/15/01 1,250 1,231
IMC Global, Inc.,
9.45%, 12/15/11 3,000 3,281
9.25%, 10/1/00 500 530
10.125%, 6/15/01 2,000 2,202
Plastic Specialties & Technologies,
Inc. 11.25%, 12/1/03 2,250 2,093
Sherritt-Gordon, Inc., 9.75%, 4/1/03 3,475 3,588
--------------
16,514
--------------
COAL, GAS & OIL (0.7%)
Gulf Canada Resources (Yankee) 9.25%,
1/15/04 875 894
--------------
COMPUTERS (1.8%)
Unisys Corp., 12.00%, 4/15/03 2,490 2,478
--------------
DIVERSIFIED (3.1%)
Primark Corp., 8.75%, 10/15/00 2,300 2,323
Valcor Inc., 9.625%, 11/1/03 2,000 1,870
--------------
4,193
--------------
ENERGY (2.4%)
Maxus Energy Corp., 11.50%, 11/15/15 1,000 1,027
OPI Int'l. 12.875%, 7/15/02 2,000 2,257
--------------
3,284
--------------
ENTERTAINMENT & LEISURE (2.2%)
Kloster Cruise Ltd.,
13.00%, 5/1/03 135 103
Six Flags Theme Parks, Inc., 12.25%,
6/15/05 3,600 2,952
--------------
3,055
--------------
ENVIRONMENTAL CONTROLS (2.5%)
Envirosource, Inc.,
9.75%, 6/15/03 2,000 1,765
Norcal Waste Systems, Inc., 12.50%,
11/15/05 1,600 1,652
--------------
3,417
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
FINANCIAL SERVICES (5.1%)
APP International Finance 11.75%,
10/1/05 U.S.$ 1,960 U.S.$ 1,931
Imperial Credit Inds., Inc., 9.75%,
1/15/04 2,250 1,974
Terra Nova Hldgs.
10.75%, 7/1/05 750 832
Tiphook Finance Corp.,
8.00%, 3/15/00 2,263 1,669
United Meridian
10.375%, 10/15/05 500 525
--------------
6,931
--------------
FOOD SERVICE & LODGING (5.0%)
Host Marriott Travel
9.50%, 5/15/05 1,000 970
La Quinta Inns, Inc.,
9.25%, 5/15/03 2,920 3,110
Pilgrim's Pride Corp. 10.875%, 8/1/03 2,900 2,748
--------------
6,828
--------------
GAMING & LODGING (1.0%)
Casino America, Inc.
11.50%, 11/15/01 1,000 1,000
Louisiana Casino Cruise, 11.50%,
12/1/98 335 323
--------------
1,323
--------------
HEALTH CARE SUPPLIES & SERVICES (0.8%)
Tenet Healthcare Corp., 10.125%,
3/1/05 1,000 1,076
--------------
INSURANCE (2.6%)
Life Partners Group, Inc., 12.75%,
7/15/02 1,400 1,533
Reliance Group Hldgs., Inc., 9.00%,
11/15/00 1,990 2,020
--------------
3,553
--------------
METALS (1.7%)
Algoma Steel, Inc.
12.375%, 7/15/05 1,000 984
Kaiser Aluminum
12.75%, 2/1/03 1,000 1,060
Ucar Global Enterprises, Inc. 'B'
12.375%, 1/15/05 265 305
--------------
2,349
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
MULTI-INDUSTRY (8.4%)
AMF Group, Inc.
Zero Coupon, 3/15/06 U.S.$ 1,465 U.S.$ 802
Beverly Enterprises, Inc. 9.00%,
2/15/06 895 861
Crown Paper 11.00%, 9/1/05 1,445 1,337
Echostar Satellite Broadcast 0%,
3/15/04 2,415 1,455
Howmet Corp.,
10.00%, 12/1/03 250 263
MFS Communications
0%, 1/15/06 1,990 1,244
RJR Nabisco 8.75%, 8/15/05 2,040 1,989
Riverwood International 10.25%, 4/1/06 735 738
SD Warren Company 12.00%, 12/15/04 1,575 1,665
TLC Beatrice 11.50%, 10/1/05 1,195 1,213
--------------
11,567
--------------
PACKAGING & CONTAINER (3.0%)
Owens-Illinois Inc.,
10.50%, 6/15/02 2,500 2,613
Stone Container Corp., 11.875%,
12/1/98 500 515
10.75%, 10/1/02 1,000 1,000
--------------
4,128
--------------
PROFESSIONAL SERVICES (1.2%)
United Savings Texas
8.55%, 5/15/98 1,585 1,586
--------------
REAL ESTATE (0.7%)
HMC Acquisition Properties 9.00%,
12/15/07 1,000 955
--------------
RETAIL -- GENERAL (3.4%)
Revlon Worldwide Corp.,
Zero Coupon, 3/15/98 1,775 1,396
Southland Corp.,
5.00%, 12/15/03 4,000 3,220
--------------
4,616
--------------
TELECOMMUNICATIONS (5.2%)
Dial Call Communications
0%, 4/15/04 2,500 1,575
Nextel Communications
0%, 8/15/04 3,000 1,755
Rogers Communications 10.875%, 4/15/04 1,000 1,040
Telefonica de Argentina, (Yankee)
11.875%, 11/1/04 1,500 1,568
Telewest plc Zero Coupon, 10/1/07 1,990 1,203
--------------
7,141
--------------
TEXTILES & APPAREL (2.2%)
Polysindo Eka Perkasa
(Yankee) 13.00%, 6/15/01 1,000 1,055
Westpoint Stevens Inc.,
9.375%, 12/15/05 2,000 1,990
--------------
3,045
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
TRANSPORTATION (0.7%)
Stena AB (Yankee) 10.50%, 12/15/05 U.S.$ 1,000 U.S.$ 1,010
--------------
UTILITIES (3.9%)
Beaver Valley II Funding Corp. Lease
Obligation Bonds 9.00%, 6/1/17 1,477 1,244
California Energy
9.875%, 6/30/03 1,000 1,025
First PV Funding Lease Obligation
Bonds 10.15%, 1/15/16 3,000 3,128
--------------
5,397
--------------
- ---------------------------------------------------------
- ------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $123,742) 125,380
--------------
- ---------------------------------------------------------
- ------------
COLLATERALIZED MORTGAGE OBLIGATIONS (1.2%)
- ---------------------------------------------------------
- ------------
GE Capital Management Services, Inc.
1995-12 B3
7.911%, 8/25/25 656 513
Prudential Home Mortgage
Securities 1996-4 B3 6.50%, 4/25/26 725 542
PNC Mortgage Securities Corp.
1995-2 B4 7.50%, 9/25/25 727 568
- ---------------------------------------------------------
- ------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $1,665) 1,623
--------------
- ---------------------------------------------------------
- ------------
FOREIGN GOVERNMENT BONDS (3.6%)
- ---------------------------------------------------------
- ------------
ARGENTINA (1.7%)
+Argentina Par Ser L-GP 5.00%, 3/31/23 2,480 1,288
Republic of Argentina 'L', 6.813%,
3/31/05 1,485 1,071
--------------
2,359
--------------
- ---------------------------------------------------------
- ------------
BRAZIL (1.9%)
Federative Republic of Brazil 'Z-L'
4.25%, 4/15/24 5,050 2,569
--------------
- ---------------------------------------------------------
- ------------
TOTAL FOREIGN GOVERNMENT BONDS
(Cost $4,717) 4,928
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
NO. OF
UNITS
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
UNITS (1.6%)
- ---------------------------------------------------------
- ------------
METALS (1.6%)
Sheffield Steel Corp. (1st Mtg. Bond +
5 Common Stock Warrants) 12.00%,
11/1/01 (Cost $2,502) 2,500 2,238
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
NO. OF VALUE
WARRANTS (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
WARRANTS (0.0%)
- ---------------------------------------------------------
- ------------
AEROSPACE & DEFENSE (0.0%)
Sabreliner Corp.,
expiring 4/15/03 2,000 U.S.$ 10
--------------
FOOD SERVICE & LODGING (0.0%)
Petro PSC Properties,
expiring 6/1/97 500 17
--------------
GAMING & LODGING (0.0%)
Louisiana Casino Cruises,
expiring 12/1/98 1,108 11
--------------
TELECOMMUNICATIONS (0.0%)
American Telecasting,
expiring 8/10/00 500 17
Dial Page Communications, expiring
4/25/99 2,500 --
--------------
17
--------------
- ---------------------------------------------------------
- ------------
TOTAL WARRANTS
(Cost $68) 55
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
SHORT-TERM INVESTMENT (2.0%)
- ---------------------------------------------------------
- ------------
REPURCHASE AGREEMENT (2.0%)
The Chase Manhattan Bank, N.A., 5.15%,
dated 3/29/96, due 4/1/96, to be
repurchased at U.S.$2,785,
collateralized by U.S.$1,870 United
States Treasury Bonds, 11.25% due
2/15/15, valued at U.S.$2,845
(Cost $2,784) U.S.$ 2,784 2,784
--------------
- ---------------------------------------------------------
- ------------
TOTAL INVESTMENTS (100.0%)
(Cost $135,478) 137,008
--------------
- ---------------------------------------------------------
- ------------
OTHER ASSETS AND LIABILITIES
Other Assets 9,421
Liabilities (27,747) (18,326)
--------------- --------------
- ---------------------------------------------------------
- ------------
NET ASSETS
Applicable to 8,720,544, issued and outstanding $0.01
par value shares (100,000,000 shares authorized) U.S.$ 118,682
--------------
--------------
- ---------------------------------------------------------
- ------------
NET ASSET VALUE PER SHARE U.S.$ $13.61
--------------
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
+ -- Variable/floating rate security-rate disclosed is as of March 31, 1996.
7
