<PAGE>
As filed with the Securities and Exchange Commission on July 14, 1999
Securities Act File No. 333-_____
Investment Company Act File No. 811-08044
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM N-2
Registration Statement Under The Securities Act of 1933 [x]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. __ [ ]
and/or
Registration Statement Under The Investment Company Act of 1940 [x]
Amendment No. 3 [x]
(check appropriate box or boxes)
__________________
Morgan Stanley Dean Witter
High Yield Fund, Inc.
(formerly The Morgan Stanley High Yield Fund, Inc.)
(Exact Name of Registrant as Specified in Charter)
1221 Avenue of the Americas
New York, New York 10020
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (212) 762-4000
__________________
HAROLD J. SCHAAFF, JR., ESQ.
Morgan Stanley Dean Witter High Yield Fund, Inc.
c/o Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
(Name and Address of Agent for Service)
__________________
With copies to:
LEONARD B. MACKEY, JR., ESQ.
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
(212) 878-8000
__________________
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement.
__________________
If any securities being registered on this form will be offered on a delayed
or continuous basis in reliance on Rule 415 under the Securities Act of 1933,
other than securities offered in connection with a dividend reinvestment plan,
check the following box. [X]
__________________________
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
================================================================================
<TABLE>
<CAPTION>
Proposed Proposed
Amount Maximum Registration Fee
Title of Securities Maximum Offering Price Aggregate Amount Of
Being Registered Registered Per Share(1) Offering Price(1) Regisration Fee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $.01 Par Value....................... 3,700,000 Shares $15.6875 $58,043,750 $16,136
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933. Based on the
average of the high and low sales prices reported on the New York Stock
Exchange on July 12, 1999.
____________________________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
CROSS-REFERENCE SHEET
Parts A and B of the Prospectus*
<TABLE>
<CAPTION>
Items in Parts A and B of Form N-2 Location in Prospectus
---------------------------------- ----------------------
<S> <C>
1. Outside Front Cover........................... Front Cover Page
2. Inside Front and Outside Back Cover Page...... Front Cover Page; Inside Front Cover Page; Outside Back
Cover Page
3. Fee Table and Synopsis........................ Prospectus Summary; Fee Table
4. Financial Highlights.......................... Financial Highlights
5. Plan of Distribution.......................... Cover Page; Prospectus Summary; The Offer
6. Selling Stockholders.......................... Not Applicable
7. Use of Proceeds............................... Use of Proceeds
8. General Description of the Registrant......... Cover Page; Prospectus Summary; The Fund; Investment
Restrictions; Investment Objectives and Policies; Risk
Factors and Special Considerations; Description of
Capital Stock
9. Management.................................... Prospectus Summary; Management of the Fund; Portfolio
Transactions and Brokerage; Custodians; Dividend Paying
Agent, Transfer Agent and Registrar; Description of
Capital Stock
10. Capital Stock, Long-Term Debt, and Other
Securities.................................... Description of Capital Stock; Dividends and
Distributions; Dividend Reinvestment and Cash Purchase
Plan; Taxation
11. Defaults and Arrears on Senior Securities..... Not Applicable
12. Legal Proceedings............................. Not Applicable
13. Table of Contents of the Statement of
Additional Information....................... Not Applicable
14. Cover Page.................................... Not Applicable
15. Table of Contents............................. Not Applicable
16. General Information and History............... Prospectus Summary; The Fund
17. Investment Objective and Policies............. Prospectus Summary; Investment Objectives and Polices;
Investment Restrictions
18. Management.................................... Prospectus Summary; Management of the Fund
19. Control Persons and Principal Holders of
Securities................................... Not Applicable
20. Investment Advisory and Other Services........ Prospectus Summary; Management of the Fund; Custodians;
Transfer Agent and Registrar; Dividend Paying Agent;
Experts
21. Brokerage Allocation and Other Practices...... Portfolio Transactions and Brokerage
22. Tax Status.................................... Taxation
23. Financial Statements.......................... Incorporated by reference
</TABLE>
__________
* Pursuant to Part B: Statement of Additional Information, all information
required to be set forth in Part B: Statement of Additional Information has been
included in Part A: The Prospectus.
<PAGE>
Subject to Completion Dated July 14, 1999
PROSPECTUS
Morgan Stanley Dean Witter High Yield Fund, Inc.
(formerly The Morgan Stanley High Yield Fund, Inc.)
-------------------------
2,960,000 Shares of Common Stock
Issuable Upon Exercise of
Rights to Subscribe for Such Shares
-------------------------
Morgan Stanley Dean Witter High Yield Fund, Inc. is issuing
non-transferable rights to its stockholders. You will receive one right for each
share of common stock you own on the record date, which is _______, 1999. These
rights entitle you to subscribe for shares of the Fund's common stock. You may
purchase one new share of common stock for every three rights you receive.
Record date stockholders who receive less than three rights will be entitled to
purchase one share. Record date stockholders who exercise all their rights may
purchase the shares not acquired by other record date stockholders in this
rights offering, subject to the limitations as discussed in this Prospectus. The
Fund may increase the number of shares that may be subscribed for in this offer
by up to 25% of the primary subscription (as defined in this Prospectus) or an
additional 740,000 shares, to honor record date stockholder requests to purchase
more shares.
The rights are non-transferable and, therefore, may not be purchased or
sold. The rights will not be admitted for trading on the New York Stock Exchange
or any other securities exchange. The Fund's shares of common stock are listed
and the shares issued in this offer will be listed on the New York Stock
Exchange under the symbol "MSY," subject to notice of issuance. On _________,
1999, the last reported net asset value per share of the Fund's common stock was
$____ and the last reported sales price of a share on the New York Stock
Exchange was $____.
The subscription price per share will be ______________. This offer
will expire at 5:00 P.M., New York City time, on ________, 1999 unless the Fund
extends the offering as described in this Prospectus.
-------------------------
Per Share Total
--------- -----
Estimated Subscription Price $ $
Sales Load................. $ $
Proceeds to Fund*.......... $ $
*Before deduction of expenses incurred by the Fund related to the
offering estimated at $__________.
-------------------------
The Fund is a non-diversified, closed-end management investment
company. The Fund seeks a high level of current income as its primary investment
objective and capital appreciation as a secondary objective. In seeking to
achieve these objectives, the Fund invests primarily in a portfolio of high
yield securities. There can be no assurance that the Fund will achieve its
investment objectives. Morgan Stanley Dean Witter Investment Management Inc.
(formerly Morgan Stanley Asset Management Inc.) has served as the Fund's
investment manager since the Fund's inception in 1993.
The Fund's investments in high yield, high risk securities and its
leveraged capital structure involve special risks. See the "Risk Factors and
Special Considerations" section on page _____ of this Prospectus for a more
comprehensive discussion of risks.
Stockholders who do not exercise their rights should expect that they
will, at the completion of this offer, own a smaller proportional interest in
the Fund than would otherwise be the case. Also, stockholders should note that
because the subscription price per share may be less than the net asset value
per share on the expiration date and because the Fund will incur expenses
related to the offering, record date stockholders may experience an immediate
dilution, which could be substantial, of the aggregate net asset value of their
shares of common stock as a result of this offer. The Fund cannot state
precisely the extent of this dilution at this time because the Fund does not
know what the net asset value per share will be at the expiration of this offer
or what proportion of the shares will be subscribed.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor ought to know before investing. Investors are
advised to read and retain it for future reference.
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is _____________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY................................................................................... 3
FEE TABLE............................................................................................ 9
FINANCIAL HIGHLIGHTS................................................................................. 10
CAPITALIZATION AT JUNE 30, 1999...................................................................... 11
TRADING AND NET ASSET VALUE INFORMATION.............................................................. 11
THE FUND ............................................................................................ 12
THE OFFER............................................................................................ 12
USE OF PROCEEDS...................................................................................... 21
RISK FACTORS AND SPECIAL CONSIDERATIONS.............................................................. 21
INVESTMENT OBJECTIVES AND POLICIES................................................................... 26
INVESTMENT RESTRICTIONS.............................................................................. 33
MANAGEMENT OF THE FUND............................................................................... 35
PORTFOLIO TRANSACTIONS AND BROKERAGE................................................................. 42
NET ASSET VALUE...................................................................................... 43
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN............................ 43
TAXATION ............................................................................................ 45
DESCRIPTION OF CAPITAL STOCK......................................................................... 50
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR.................................................. 53
CUSTODIANS........................................................................................... 53
EXPERTS ............................................................................................. 54
LEGAL MATTERS........................................................................................ 54
ADDITIONAL INFORMATION............................................................................... 54
APPENDIX A........................................................................................... A-1
APPENDIX B........................................................................................... B-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some information from this Prospectus. It may not
contain all of the information that is important to you. To understand the offer
fully, you should read the entire Prospectus carefully, including the risk
factors.
Purpose of the Offer The Board of Directors of the Fund
has determined that it would be in
the best interests of the Fund and
its stockholders to increase the
assets of the Fund so the Fund may be
in a better position to take
advantage of investment
opportunities. The Fund's investment
manager believes, as a result of
recent events in the financial
markets, that there are a number of
attractive investment opportunities
in the high-yield, high risk bond
market.
The Board also believes that the
Fund's expense ratio may be reduced
as a result of this offer. This is
because the Fund's fixed costs can be
spread over a larger asset base. The
issuance of additional shares also
may enhance the liquidity of the
Fund's shares on the New York Stock
Exchange.
The Board also considered that this
rights offering would give record
date stockholders the opportunity to
purchase shares at a price below
market price and/or net asset value,
and might increase the level of
market interest in the Fund. The
Board considered the proposed terms
of the offer, the expenses of the
offer, and its dilutive effect on
exercising and non-exercising record
date stockholders.
The Board of Directors has considered
the impact of the offer on its
ability to maintain, subject to
market conditions, the Fund's current
level of distributions. Based on
current market conditions and
available leverage opportunities, the
Board believes that the offer will
not result in a change in the Fund's
current level of dividends for the
foreseeable future.
Important Terms of the Offer
Aggregate number of shares offered 2,960,000 (not including up to
740,000 additional shares the Fund
may issue to cover over-subscription
requests).
Number of non-transferable rights One right for each whole share owned
issued to each stockholder on the record date.
Subscription ratio One share for every three rights (1-
for-3)
Subscription Price per share _________
<TABLE>
<CAPTION>
Important Dates to Remember Event Date
<S> <C> <C>
Record Date................................ ___________, 1999
Subscription Period........................ ___________, 1999 to
___________, 1999 *
Expiration Date............................ ___________, 1999 *
Subscription Certificates and
Payment for Shares Due +................... ____________, 1999 *
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Notice of Guaranteed Delivery Due +........
_____________, 1999 *
Payments and Subscription
Certificates for Guarantees of
Delivery Due............................... _____________, 1999 *
Confirmation Mailed to Participants........
_____________, 1999 *
* Unless the offer is extended.
+ A stockholder exercising rights must deliver either (i) a
subscription certificate and payment for shares or (ii) a notice of
guaranteed delivery by __________, 1999, unless the offer is
extended.
The first regular monthly dividend to be paid on shares acquired
upon exercise of rights will be the first monthly dividend, the
record date for which occurs after the issuance of the shares. It
is the Fund's present policy to pay dividends on the 15/th/ day of
each month to stockholders of record on the last day of the
previous month. Assuming the subscription period is not extended,
it is expected that the first dividend received by stockholders
acquiring shares in the offer will be paid on the 15/th/ day of
________, 1999.
Over-Subscription Privilege Record date stockholders who fully exercise all of the rights
issued to them are entitled to subscribe for those shares that were
not subscribed for by other record date stockholders. If these
requests for shares exceed the shares available, the Fund may
determine after the expiration of the offer, in the discretion of
the Board of Directors, to issue up to an additional 25% of the
shares available pursuant to the offer (up to an additional 740,000
shares), in order to cover these requests. Regardless of whether
the Fund issues such additional shares, to the extent shares are
not available to honor all requests, the available shares will be
allocated pro rata among those record date stockholders who
over-subscribe based on the number of rights originally issued to
them by the Fund.
Method for Exercising Rights If you wish to exercise your rights, you may do so in the following
ways:
(1) Complete and sign the subscription certificate. Mail it in
the envelope provided or deliver the completed and signed
subscription certificate with payment in full to American Stock
Transfer & Trust Company at the address indicated on the
subscription certificate. Your completed and signed subscription
certificate and payment must be received by _________, 1999, unless
the offer is extended.
(2) Contact your broker, banker or trust company, which can
arrange, on your behalf, to guarantee delivery of payment and
delivery of a properly completed and executed subscription
certificate pursuant to a notice of guaranteed delivery by the
close of business on the third business day after the expiration
date of the offer. A fee may be charged for this service. The
notice of guaranteed delivery must be received on or before
</TABLE>
4
<PAGE>
the expiration date of the offer.
Non-Transferability of Rights The rights are non-transferable and,
therefore, may not be purchased or sold.
The rights will not be listed for trading
on the New York Stock Exchange or any
other securities exchange. However, the
shares to be issued pursuant to the offer
will be listed for trading on the New York
Stock Exchange, subject to notice of
issuance.
Offering Fees and Expenses The Fund has agreed to pay broker-dealers
that have executed and delivered a
soliciting dealer agreement and have
solicited the exercise of rights,
solicitation fees equal to 1.75% of the
subscription price per share for each
share issued pursuant to the exercise of
rights as a result of their soliciting
efforts. Other offering expenses incurred
by the Fund are estimated at $___________.
Foreign Restrictions Subscription certificates will not be
mailed to record date stockholders whose
record addresses are outside the United
States. Foreign record date stockholders
will receive written notice of the offer.
The rights to which such subscription
certificates relate will be held by the
subscription agent for such foreign record
date stockholders' accounts until
instructions are received to exercise the
rights. If no instructions have been
received by the expiration date, the
rights of those foreign record date
stockholders will expire.
Use of Proceeds The estimated net proceeds of the offer
are approximately $______. This figure is
based on the estimated subscription price
of $______ per share and assumes all
2,960,000 shares offered in the primary
subscription are sold and that offering
expenses estimated at approximately $_____
are paid. If, as described above, the Fund
increases the number of shares subject to
subscription by 25% in order to satisfy
over-subscription requests, the additional
net proceeds will be approximated $_____.
The Fund's investment manager anticipates
that the Fund will take up to 30 days to
invest or employ these proceeds in
accordance with the Fund's investment
objectives and policies under current
market conditions. This process will not
take longer than six months. The proceeds
of the offer will be held in U.S.
Government securities and other high-
quality, short-term money market
instruments until they are invested. While
the proceeds are invested in U.S.
Government securities and other high-
quality, short-term money market
instruments, the proceeds will not be
invested in securities consistent with the
Fund's primary objective of high current
income.
Information Agent Please direct all questions or inquiries
relating to the offer to the Fund's
information agent as follows:
Shareholder Communications Corporation
17 State Street
New York, NY 10005
Stockholders call toll free:
(800) 603-1720
Banks and Brokers call: (212) 805-7113
Stockholders may also contact their
brokers or nominees for
5
<PAGE>
information with respect to the
offer.
The Fund The Fund is a non-diversified,
closed-end management investment
company designed for investors
desiring to invest a portion of their
assets in high yield securities.
Investment Objectives
and Policies The Fund's primary investment
objective is to seek a high level of
current income. As a secondary
objective, the Fund seeks capital
appreciation. Under normal market
conditions, at least 65% of the
Fund's total assets will be invested
in high yield securities issued by
U.S. corporations. Under current
market conditions, the Fund expects
that at least 80% of its total assets
will be invested in such securities.
In addition, the Fund may invest up
to 35% of its total assets in high
yield securities issued by non-U.S.
corporations and by government and
government-related issuers located in
developing countries, provided that
no more than 20% of the Fund's total
assets may be invested in high yield
securities issued by government or
government-related issuers in
developing countries.
The high yield securities in which
the Fund will invest include debt
obligations (e.g., bonds, debentures,
notes, equipment lease certificates,
equipment trust certificates,
conditional sales contracts and
commercial paper) and preferred
stock. Such securities generally will
be rated, at the time of investment,
below investment grade (that is,
rated "Ba" or lower by Moody's
Investors Service, Inc. or "BB" or
lower by Standard & Poor's Ratings
Group) or, if not rated, determined
by the investment manager to be of
comparable quality. There is no
minimum rating requirement for the
securities in which the Fund invests.
However, the Fund anticipates that
under normal market conditions, no
more than 25% of the Fund's total
assets will be rated, at the time of
investment, below "B" by Moody's or
S&P, or will be unrated and of
comparable quality. Yields on these
securities generally, at the time of
investment exceed yields on higher-
rated securities. A description of
the ratings used by Moody's and S&P
is set forth in Appendix A to this
Prospectus.
The Fund is authorized to borrow or
issue shares of preferred stock or
short-term debt securities in an
amount up to 33 1/3% of the
Fund's total assets (including the
amount obtained from leverage) for
investment purposes to increase the
opportunity for greater returns.
Investment Manager Morgan Stanley Dean Witter Investment
Management Inc. (formerly Morgan
Stanley Asset Management Inc.), a
wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., has served
as investment manager to the Fund
since its inception pursuant to an
investment advisory and management
agreement with the Fund. As of
_______, 1999, the investment manager
and its institutional investment
management affiliates had
approximately $______ billion of
combined assets under management
(including assets under fiduciary
advisory control), of which
approximately $_____ million was
invested in high yield securities.
The investment manager is a
registered investment advisor under
the U.S. Investment Advisers Act of
1940.
6
<PAGE>
The Fund pays the investment manager
a fee, computed weekly and payable
monthly, at the annual rate of 0.70%
of the Fund's average weekly net
assets. The Fund's investment manager
will benefit from an increase in the
Fund's assets resulting from the
offer.
Risk Factors and
Special Considerations The following summarizes some of the
matters that you should consider
before investing in the Fund in
connection with this offer.
Dilution. Stockholders who do not
fully exercise their rights should
expect that they will, at the
completion of the offer, own a
smaller proportional interest in the
Fund than would otherwise be the
case. Furthermore, the subscription
price per share for the offer may be
lower than the Fund's net asset value
per share. Any rights offering priced
at a discount to the Fund's net asset
value per share and involving payment
of expenses by the Fund entails some
dilution in net asset value. The
offer may result in a dilution of net
asset value for all stockholders,
which will disproportionately affect
stockholders who do not exercise
their rights. The Fund cannot state
precisely the extent of this dilution
at this time because the Fund does
not know what the net asset value per
share will be at the expiration of
the offer or what proportion of the
shares will be subscribed.
High Yield, High Risk Investments. At
any one time, a substantial portion
of the Fund's assets will be invested
in securities that are rated below
investment grade as determined by
recognized rating services, such as
Moody's and S&P, or if unrated, of
comparable quality, as determined by
the investment manager. Debt or fixed
income securities rated below
investment grade (e.g., rated "Ba" or
lower by Moody's or "BB" or lower by
S&P) are commonly referred to as
"junk bonds" and are considered to be
speculative. Investment in securities
rated below investment grade
typically involves risks not
associated with higher rated
securities, including overall greater
risk of timely and ultimate payment
of interest and principal,
potentially greater sensitivity to
general economic conditions and
changes in interest rates, greater
market price volatility and limited
secondary market trading. Certain of
the Fund's investments may be
considered to have extremely poor
prospects of ever attaining any real
investment standing, to have a
current identifiable vulnerability to
default and to be unlikely to have
the capacity to pay interest and
repay principal when due in the event
of adverse business, financial or
economic conditions, or may be in
default or not current in the payment
of interest or principal. In
addition, the secondary market for
high yield securities, may not be as
liquid as the secondary market for
more highly rated securities because
it is concentrated in relatively few
market makers.
Risk of Leverage. The Fund's use of
leverage poses certain risks for
holders of common stock, including
the possibility of higher volatility
of both the net asset value and
market value of the common stock and
the risk that fluctuations in
interest rates on borrowings or in
the dividend rates on any preferred
stock may affect the yield to holders
of common stock. There can be no
assurance that the Fund will be able
to realize a higher return on
7
<PAGE>
its investment portfolio through the
use of leverage.
Discount from Net Asset Value. Shares
of closed-end funds frequently trade
at a market price that is less than
the value of the net assets
attributable to those shares. The
Fund's shares have traded in the
market above, at, and below net asset
value since the commencement of the
Fund's operations. Since March 1999,
the Fund's shares have consistently
traded above net asset value.
Dividends and Distributions. Based on
information provided by the Fund's
investment manager on current market
conditions in the high yield bond
market, the Board of Directors
believes that the offer will not
result in a change in the Fund's
current level of dividends per share
for the foreseeable future. However,
there can be no assurance that the
Fund will be able to maintain its
current level of dividends per share,
and the Board of Directors may, in
its sole discretion, change the
Fund's current dividend policy or its
current level of dividend per share
in response to market or other
conditions.
Year 2000. The investment advisory
services provided to the Fund by the
investment manager depend on the
smooth operation of its computer
systems. Many computer and software
systems in use today cannot recognize
the year 2000, but revert to 1900 or
some other date, due to the manner in
which dates were encoded and
calculated. That failure could have a
negative impact on the handling of
securities trades, pricing and
account services. The investment
manager has been actively working on
necessary changes to its own computer
systems to deal with the year 2000
problem and expects that its systems
will be adapted before that date.
There can be no assurance, however,
that the investment manager will be
successful. In addition, other
unaffiliated service providers may be
faced with similar problems. The
investment manager is monitoring
their remedial efforts, but there can
be no assurance that they and the
services they provide will not be
adversely affected.
In addition, it is possible that the
markets for securities in which the
Fund invests may be detrimentally
affected by computer failures
throughout the financial services
industry beginning January 1, 2000.
Improperly functioning trading
systems may result in settlement
problems and liquidity issues. In
addition, corporate and governmental
data processing errors may result in
production problems for individual
companies and overall economic
uncertainties. Earnings of individual
issuers will be affected by
remediation costs, which may be
substantial and may be reported
inconsistently in U.S. and foreign
financial statements. Accordingly,
the Fund's investments may be
adversely affected.
You should carefully consider your
ability to assume the foregoing risks
before making an investment in the
Fund. An investment in shares of the
Fund is not appropriate for all
investors.
8
<PAGE>
FEE TABLE
Stockholder Transaction Expenses:
Sales Load (as a percentage of offering price)(1)................ 1.75%
Annual Expenses (as a percentage of net assets):
Management Fees.................................................. 0.70%
Interest Expense(2).............................................. ___%
Other Expenses(2)............... ................................ ___%
Total Annual Expenses............................................ ___%
(1) The Fund has agreed to pay broker-dealers who have executed and delivered
a soliciting dealer agreement and have solicited the exercise of rights,
solicitation fees equal to 1.75% of the subscription price per share for
each share issued pursuant to the exercise of rights as a result of their
soliciting efforts.
(2) Amounts are based on estimated amounts for the Fund's current fiscal year
after giving effect to the anticipated net proceeds of the offer, assuming
that all of the rights are exercised.
Example:
<TABLE>
<CAPTION>
Cumulative Expenses Paid for the
Period of:
----------------------------------------------------------
1 year 3 years 5 years 10 years
----------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000 $ $ $ $
investment, assuming a 5% annual return throughout the
periods indicated
</TABLE>
The foregoing fee table and example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly.
The Example set forth above assumes payment by an investor of the 1.75% sales
load, reinvestment of all dividends and distributions at net asset value and an
annual expense ratio of _____%. The tables above and the assumption in the
Example of a 5% annual return are required by Securities and Exchange Commission
regulations applicable to all investment companies. The Example should not be
considered as a representation of past or future expenses or annual rates of
return. Actual expenses or annual rates of return may be more or less than
those assumed for purposes of the Example. In addition, while the Example
assumes reinvestment of all dividends and distributions at net asset value,
participants in the Fund's Dividend Reinvestment and Cash Purchase Plan may
receive shares purchased or issued at a price or value different from net asset
value. See "Dividends and Distributions; Dividend Reinvestment and Cash
Purchase Plan."
9
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share of common stock of the Fund outstanding throughout each period)
The table below sets forth certain specified information for a share of
common stock of the Fund outstanding throughout each period presented. The
financial highlights for each of the five years ended December 31, 1998 have
been audited by PricewaterhouseCoopers LLP, the Fund's independent accountants,
whose report thereon was unqualified. The information should be read in
conjunction with the financial statements and notes thereto, which are
incorporated herein by reference, in the Fund's Annual Report as of December 31,
1998 and the Fund's Semi-Annual Report (unaudited) as of June 30, 1999, which
are available without charge by contacting the Fund's dividend paying agent,
transfer agent and registrar, American Stock Transfer & Trust Company, 40 Wall
Street, New York, New York 10005, toll free (800) 278-4353.
<TABLE>
<CAPTION>
Six Months Ended Nov. 30, 1993*
SELECTED PER SHARE DATA June 30,1999 Year Ended December 31, to
------------------ ----------------------------------------------------
AND RATIOS: (Unaudited) 1998 1997 1996 1995 1994 Dec. 31, 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $ 15.19 $ 14.45 $ 13.63 $ 11.96 $ 14.10 $ 14.10
- ----------------------------------------------------------------------------------------------------------------------------------
Offering Costs....................... -- -- -- -- (0.01) (0.05)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income................ 1.34 1.37 1.35 1.34 1.32 0.04
Net Realized and Unrealized Gain
(Loss) on Investments................ (0.66) 1.21 0.89 1.60 (2.08) 0.01
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.68 2.58 2.24 2.94 (0.76) 0.05
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income............. (1.40) (1.36) (1.42) (1.27) (1.36) --
In Excess of Net Investment Income (0.02) -- -- -- (0.01) --
Net Realized Gain................. (0.76) (0.48) -- -- -- --
In Excess of net Realized Gain.... (0.07) -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions................ (2.25) (1.84) (1.42) (1.27) (1.37) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period....... $ 13.62 $ 15.19 $ 14.45 $ 13.63 $ 11.96 $ 14.10
==================================================================================================================================
Per Share Market Value, End of
Period.............................. $ 15.38 $ 16.06 $ 14.63 $ 12.88 $ 11.38 $ 14.75
==================================================================================================================================
TOTAL INVESTMENT RETURN:
Market Value....................... 11.15% 23.79% 25.92% 25.21% (14.11)% 4.61%
Net Asset Value (1)................ 4.12% 18.48% 17.52% 26.07% ( 5.53)% 0.00%
==================================================================================================================================
RATIOS, SUPPLEMENTAL
DATA:
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period
(Thousands)......................... $119,940 $133,050 $126,330 $118,863 $ 104,260 $ 122,781
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses Before Interest
Expense to Average Net Assets... 1.10% 1.06% 1.12% 1.11% 1.12% 1.46%**
Ratio of Expenses After Interest
Expense to Average Net Assets... 2.23% 2.76% 2.46% 2.79% 2.78% 1.46%**
Ratio of Net Investment Income
to Average Net Assets........... 9.00% 8.98% 9.82% 10.29% 10.18% 3.76%**
Portfolio Turnover Rate............. 78% 94% 136% 84% 32% 0%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
** Annualized.
(1) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund
during each period, and assumes dividends and distributions, if any, were
reinvested. This percentage is not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset
value per share of the Fund.
10
<PAGE>
CAPITALIZATION AT JUNE 30, 1999
<TABLE>
<CAPTION>
Amount Outstanding Amount Held
Exclusive of Amount by the Fund
Held by the Fund or for
Title of Class Amount Authorized or for its Account its Account
-------------- ----------------- ------------------ -----------
<S> <C> <C> <C>
Common Stock, $0.01 par value 100,000,000 shares 8,841,985 shares - 0 - shares
</TABLE>
TRADING AND NET ASSET VALUE INFORMATION
In the past, the Fund's shares have traded both at a premium and at a
discount in relation to net asset value. Although the Fund's shares recently
have been trading at a premium above net asset value, there can be no assurance
that this premium will continue after the offer or that the shares will not
again trade at a discount. Shares of other closed-end investment companies
frequently trade at a discount from net asset value. See "Risk Factors and
Special Considerations."
The following table shows the high and low sales prices of the Fund's
common stock on the New York Stock Exchange Composite Tape, quarterly trading
volume on the Exchange, the high and low net asset value per share and the high
and low premium or discount at which the Fund's shares were trading for each
fiscal quarter during the two most recent fiscal years and since the beginning
of the current fiscal year.
<TABLE>
<CAPTION>
Quarterly Premium (Discount)
Market Price Trading Net Asset Value to Net Asset Value(%)
------------ --------------- ----------------------
Volume
(Hundreds of
Quarter Ended High Low Shares) High Low High Low
- ------------- ---- --- ------ ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1997......... 15.1250 14.2500 14,601 15.04 14.34 3.59 (0.70)
June 30, 1997.......... 15.3750 13.7500 11,595 15.32 14.10 1.71 (2.85)
September 30, 1997..... 15.9375 15.0625 9,764 15.80 15.28 0.79 (1.04)
December 31, 1997...... 16.3125 15.0625 10,490 15.96 15.56 3.17 (3.42)
March 31, 1998......... 16.6250 15.8125 8,397 15.64 15.23 5.91 2.63
June 30, 1998.......... 16.3750 15.0625 8,520 15.74 15.24 4.43 (1.59)
September 30, 1998..... 15.6875 12.1875 12,577 15.42 13.59 2.19 (11.48)
December 31, 1998...... 16.0625 12.5625 11,901 14.67 13.36 9.76 (5.03)
March 31, 1999......... 15.7500 14.9375 10,780 13.85 13.49 13.64 10.29
June 30, 1999.......... 15.8125 15.5000 7,822 14.19 13.36 17.57 10.45
</TABLE>
The net asset value per share of the Fund's common stock at the close
of business on July 9, 1999 (the last trading date on which the Fund publicly
reported its net asset value prior to the announcement of the offer) and on
_________, 1999 (the last trading date on which the Fund publicly reported its
net asset value prior to the date of this Prospectus) was $13.56 and $____,
respectively, and the last reported sales price of a share of the Fund's common
stock on the New York Stock Exchange on those dates was $15.56 and $____,
respectively.
11
<PAGE>
THE FUND
Morgan Stanley Dean Witter High Yield Fund, Inc. (the "Fund"), incorporated
in Maryland on September 23, 1993 under the name The Morgan Stanley High Yield
Fund, Inc., is a non-diversified, closed-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund seeks a high level of current income as its primary investment
objective and capital appreciation as a secondary objective. In seeking to
achieve these objectives, the Fund invests primarily in a portfolio of high
yield securities. No assurance can be given that the Fund's investment
objectives will be realized. Due to the risks inherent in high yield securities
generally, the Fund should be considered as a vehicle for investing a portion of
an investor's assets in the high yield securities markets and not as a complete
investment program. The stockholders of the Fund approved the name change to
Morgan Stanley Dean Witter High Yield Fund, Inc. at the annual meeting of
stockholders on June 21, 1999.
At all times, except during periods when a temporary defensive investment
strategy is appropriate, as determined by the Fund's Investment Manager (as
defined below under "Investment Manager") the Fund will invest at least 65% of
its total assets in high yield securities issued by U.S. corporations. Under
current market conditions, the Fund anticipates that at least 80% of its total
assets will be invested in such securities. In addition, the Fund may invest up
to 35% of its total assets in high yield securities issued by non-U.S.
corporations and by government and government-related issuers located in
developing countries, provided that no more than 20% of the Fund's total assets
may be invested in high yield securities issued by government or government-
related issuers in developing countries. The high yield securities in which the
Fund invests include debt obligations and preferred stock. Such securities
generally will be rated, at the time of investment, below investment grade (that
is, rated "Ba" or lower by Moody's Investors Service, Inc. ("Moody's") or "BB"
or lower by Standard & Poors Ratings Group ("S&P") or, if not rated, determined
by the Investment Manager to be of comparable quality. There is no minimum
rating requirement for the securities in which the Fund invests. However, the
Fund anticipates that under normal market conditions no more than 25% of the
Fund's total assets will be rated, at the time of investment, below "B" by
Moody's or S&P, or will be unrated and of comparable quality. Yields on these
securities will, generally, at the time of investment exceed yields on higher-
rated securities. A description of the ratings used by Moody's and S&P is set
forth in Appendix A to this Prospectus.
The Fund commenced operations on November 30, 1993 following the issuance
of 7,093 shares of common stock of the Fund, par value $0.01 per share ("Common
Stock") to the Investment Manager on November 17, 1993, for $100,000 and the
initial public offering on November 23, 1993 of 5,500,000 shares to the public
resulting in aggregate net proceeds to the Fund of approximately $122,550,020.
At_______ ____, 1999, the Fund had _______ shares of Common Stock outstanding,
which are listed and traded on the New York Stock Exchange ("NYSE") under the
symbol "MSY". As of _______, 1999, the net assets of the Fund were $_______.
THE OFFER
Purpose of the Offer
The Board of Directors of the Fund has determined that it would be in the
best interests of the Fund and its stockholders to increase the assets of the
Fund available for investment so that the Fund will be in a better position to
take advantage of available investment opportunities. The Investment Manager
believes, as a result of recent events in the financial markets, that there are
a number of attractive investment opportunities in the high-yield, high risk
bond market.
In addition, the Board of Directors believes that increasing the size of
the Fund may lower the Fund's expenses as a proportion of average net assets
because the Fund's fixed costs can be spread over a larger
12
<PAGE>
asset base. In addition, the issuance of additional shares may enhance the
liquidity of the Fund's shares on the NYSE.
The Board also considered that this rights offering would give record date
stockholders the opportunity to purchase shares at a price below market price
and/or net asset value ("NAV") and might increase the level of market interest
in the Fund.
The Board of Directors considered the impact of the offer on its ability to
maintain, subject to market conditions, the Fund's current level of
distributions. Based on information provided by the Investment Manager on
current market conditions in the bond markets and available leverage
opportunities, the Board of Directors believes the offer will not result in a
change in the Fund's current level of dividends per share for the foreseeable
future. There can be no assurance the Fund will maintain its current level of
dividends per share. The Board of Directors may, in its sole discretion, change
the Fund's level of dividends per share at any time. For a further discussion
of the anticipated impact of the offer of the Fund's dividends, please refer to
"Risk Factors and Special Considerations - Dividends and Distributions."
In determining that the offer was in the best interests of the Fund and its
stockholders, the Board of Directors considered, among other things, using a
variable pricing versus fixed pricing mechanism, the benefits and drawbacks of
conducting a non-transferable versus a transferable rights offering and the
effect on the Fund if the offer is undersubscribed.
The Investment Manager will benefit from the offer because the Investment
Manager's fee is based on the average weekly net assets of the Fund.
The Fund may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares and on
terms which may or may not be similar to the offer. Any such future rights
offering will be made in accordance with the 1940 Act.
Terms of the Offer
The Fund is issuing to its stockholders of record ("Record Date
Stockholders"), as of the close of business on _________, 1999 (the "Record
Date"), non-transferable rights ("Rights") entitling the holders thereof to
subscribe for an aggregate of 2,960,000 shares (the "Shares") of the Fund's
Common Stock (the "Offer"). Each such Record Date Stockholder is being issued
one Right for each whole share of Common Stock owned on the Record Date. The
Rights entitle the holders thereof to subscribe for one Share for every three
Rights held (1-for-3) (the "Primary Subscription"). Fractional shares will not
be issued upon the exercise of Rights. Record Date Stockholders issued fewer
than three Rights are entitled to subscribe for one Share pursuant to the
Primary Subscription. Record Date Stockholders purchasing Shares in the Primary
Subscription and Record Date Stockholders who purchase Shares pursuant to the
Over-Subscription Privilege (as defined below) are hereinafter referred to as
"Exercising Rights Holders."
Rights may be exercised at any time during the subscription period (the
"Subscription Period"), which commences on __________, 1999 and ends at 5:00
P.M., New York City time, on _________, 1999 unless extended by the Fund (the
"Expiration Date"). The Rights are evidenced by Subscription Certificates
("Subscription Certificates") that will be mailed to Record Date Stockholders,
except as discussed below under "Foreign Stockholders."
Shares not subscribed for in the Primary Subscription will be offered, by
means of the over-subscription privilege (the "Over-Subscription Privilege"), to
those Record Date Stockholders who have exercised all Rights issued to them
(other than those Rights which cannot be exercised because they represent the
right to acquire less than one share) and who wish to acquire more than the
number of Shares they are entitled to purchase pursuant to the exercise of their
Rights. Shares acquired pursuant to the Over-Subscription Privilege are subject
to allotment, as more fully discussed below under "Over-Subscription Privilege."
For purposes of determining the maximum number of Shares a stockholder may
acquire pursuant
13
<PAGE>
to the Offer, stockholders whose shares are held of record by Cede & Co.
("Cede"), as nominee for The Depository Trust Company ("DTC"), or by any other
depository or nominee will be deemed to be the holders of the Rights that are
issued to Cede or such other depository or nominee on their behalf.
The first regular monthly dividend to be paid on Shares acquired upon
exercise of Rights will be the first monthly dividend, the record date for which
occurs after the issuance of the Shares. It is the Fund's present policy to pay
dividends on the 15/th/ day of each month to stockholders of record on the last
day of the previous month. Assuming the Subscription Period is not extended, it
is expected that the first dividend received by stockholders acquiring Shares in
the Offer will be paid on the 15/th/ day of November, 1999.
There is no minimum number of Rights which must be exercised in order for
the Offer to close.
Over-Subscription Privilege
Shares not subscribed for by Record Date Stockholders (the "Excess Shares")
will be offered, by means of the Over-Subscription Privilege, to Record Date
Stockholders who have exercised all exercisable Rights issued to them (other
than those Rights which cannot be exercised because they represent the right to
acquire less than one Share) and who wish to acquire more than the number of
Shares for which the Rights issued to them are exercisable. If sufficient
shares remain after completion of the Primary Subscription, all over-
subscription requests will be honored in full. If sufficient shares are not
available after completion of the Primary Subscription to honor all over-
subscription requests, the Fund may determine after the expiration of the Offer,
in the discretion of the Board of Directors, to issue up to an additional 25% of
the shares available pursuant to the Offer (up to an additional 740,000 shares)
in order to cover the over-subscription requests. Regardless of whether the
Fund issues such additional shares, and to the extent Shares are not available
to honor all over-subscription requests, the available Shares will be allocated
among those who over-subscribe so that the number of shares issued to
participating Record Date Stockholders will generally be in proportion to the
number of shares owned by such stockholders on the record date. The allocation
process involves a series of allocations in order to assure that the total
number of shares available for over-subscription is distributed on a pro rata
basis. Record Date Stockholders should indicate, on the Subscription
Certificate which they submit with respect to the exercise of the Rights issued
to them, how many Excess Shares they are willing to acquire pursuant to the
Over-Subscription Privilege.
Banks, brokers, trustees and other nominee holders of Rights will be
required to certify to the Subscription Agent (as defined herein), before any
Over-Subscription Privilege may be exercised with respect to any particular
beneficial owner, as to the aggregate number of Rights exercised pursuant to the
Primary Subscription and the number of Shares subscribed for pursuant to the
Over-Subscription Privilege by such beneficial owner and that such beneficial
owner's Primary Subscription was exercised in full. Nominee Holder Over-
Subscription Forms and Beneficial Owner Certification Forms will be distributed
to banks, brokers, trustees and other nominee holders with the Subscription
Certificates.
The Fund will not offer or sell in connection with the Offer any Shares
that are not subscribed for pursuant to the Primary Subscription or the Over-
Subscription Privilege.
Subscription Price
The subscription price for the Shares to be issued pursuant to the Offer
will be _______ (the "Subscription Price").
The Fund announced the Offer after the close of trading on the NYSE on July
14, 1999. The NAV per share of Common Stock at the close of business on July 9,
1999 (the last trading date on which the Fund publicly reported its NAV prior to
the announcement) and on _______, 1999 was $13.56 and $_______, respectively,
and the last reported sales price of a share of the Fund's Common Stock on the
NYSE on those dates was $15.56 and $______, respectively.
14
<PAGE>
Non-Transferability of Rights
The Rights are non-transferable and, therefore, may not be purchased or
sold. Rights not exercised will expire without residual value when the Offer
expires. The Rights will not be listed for trading on the NYSE or any other
securities exchange. However, the Shares to be issued pursuant to the Offer will
be listed for trading on the NYSE, subject to notice of issuance.
Expiration of the Offer
The Offer will expire at 5:00 P.M., New York City time, on ____________,
1999 unless extended by the Fund. The Rights will expire on the Expiration Date
and thereafter may not be exercised. Any extension of the Offer will be followed
as promptly as practicable by announcement thereof. Such announcement will be
issued no later than 9:00 A.M., New York City time, on the next Business Day
following the previously scheduled Expiration Date. Without limiting the manner
in which the Fund may choose to make such announcement, the Fund will not,
unless otherwise required by law, have any obligation to publish, advertise or
otherwise communicate any such announcement other than by making a release to
the Dow Jones News Service or such other means of announcement as the Fund deems
appropriate.
Subscription Agent
The subscription agent is American Stock Transfer & Trust Company (the
"Subscription Agent"). The Subscription Agent will receive for its
administrative, processing, invoicing and other services as subscription agent,
a fee estimated to be approximately $25,000 which includes reimbursement for
estimated out-of-pocket expenses related to the Offer. The Subscription Agent
is also the Fund's transfer agent, dividend-paying agent and registrar for the
Common Stock. Questions regarding the Subscription Certificates should be
directed to American Stock Transfer & Trust Company, 40 Wall Street, New York,
New York 10005, U.S.A.; stockholders may also consult their brokers or nominees.
Completed Subscription Certificates must be sent together with proper
payment of the Estimated Subscription Price for all Shares subscribed for in the
Primary Subscription and the Over-Subscription Privilege to American Stock
Transfer & Trust Company by one of the methods described below. Alternatively,
Notices of Guaranteed Delivery may be sent by facsimile to (718) 234-5001 to be
received by the Subscription Agent prior to 5:00 P.M., New York City time, on
the Expiration Date. Facsimiles should be confirmed by telephone at (718) 921-
8237. The Fund will accept only properly completed and executed Subscription
Certificates actually received at any of the addresses listed below, prior to
5:00 P.M., New York City time, on the Expiration Date or by the close of
business on the third Business Day after the Expiration Date following timely
receipt of a Notice of Guaranteed Delivery. See "Payment for Shares" below.
(1) BY FIRST CLASS MAIL:
American Stock Transfer & Trust Company
40 Wall Street, 46/th/ Floor
New York, New York 10005
U.S.A.
(2) BY OVERNIGHT COURIER:
American Stock Transfer & Trust Company
40 Wall Street, 46/th/ Floor
New York, New York 10005
U.S.A.
15
<PAGE>
(3) BY HAND:
American Stock Transfer & Trust Company
40 Wall Street, 46/th/ Floor
New York, New York 10005
U.S.A.
Delivery to an address other than one of the addresses listed above will not
constitute valid delivery.
Method for Exercising Rights
Rights are evidenced by Subscription Certificates that, except as described
below under "Foreign Restrictions," will be mailed to Record Date Stockholders
or, if a stockholder's shares of Common Stock are held by Cede or any other
depository or nominee on their behalf, to Cede or such depository or nominee.
Rights may be exercised by completing and signing the Subscription Certificate
that accompanies this Prospectus and mailing it in the envelope provided, or
otherwise delivering the completed and signed Subscription Certificate to the
Subscription Agent, together with payment in full for the Shares at the
Estimated Subscription Price by the Expiration Date. Rights may also be
exercised by contacting your broker, banker or trust company. They can arrange
on your behalf to guarantee delivery of payment and delivery of a properly
completed and executed Subscription Certificate pursuant to a Notice of
Guaranteed Delivery. The Notice of Guaranteed Delivery must be received by the
Subscription Agent by the Expiration Date as set forth below. The Subscription
Agent will not honor a Notice of Guaranteed Delivery unless a properly completed
and executed Subscription Certificate and full payment for the Shares is
received by the Subscription Agent by the close of business on ___________,
1999, the third Business Day after the Expiration Date. A fee may be charged
for this service. Fractional shares will not be issued upon the exercise of
Rights. Record Date Stockholders issued fewer than three Rights are entitled to
subscribe for one Share pursuant to the Primary Subscription. Completed
Subscription Certificates must be received by the Subscription Agent prior to
5:00 P.M., New York City time, on the Expiration Date at one of the addresses
set forth above (unless the guaranteed delivery procedures are complied with as
described below under "Payment for Shares", in which case Notices of Guaranteed
Delivery are due on the Expiration Date).
Stockholders Who Are Record Owners. Stockholders who are record owners can
choose between either option to exercise their Rights as described below under
"Payment for Shares." If time is of the essence, option (2) under "Payment for
Shares" below will permit delivery of the Subscription Certificate and payment
after the Expiration Date.
Stockholders Whose Shares Are Held by a Nominee. Stockholders whose shares
are held by a nominee, such as a bank, broker or trustee, must contact that
nominee to exercise their Rights. In such case, the nominee will complete the
Subscription Certificate on behalf of the stockholder and arrange for proper
payment by one of the methods described below under "Payment for Shares."
Nominees. Nominees who hold shares of Common Stock for the account of
others should notify the beneficial owners of such shares as soon as possible to
ascertain such beneficial owners' intentions and to obtain instructions with
respect to the Rights. If the beneficial owner so instructs, the nominee should
complete the Subscription Certificate and submit it to the Subscription Agent
with the proper payment as described below under "Payment for Shares."
Information Agent
Any questions or requests for assistance concerning the method of
subscribing for Shares or for additional copies of this Prospectus or
Subscription Certificates or Notices of Guaranteed Delivery may be directed to
the Information Agent at its telephone number and address listed below:
16
<PAGE>
Shareholder Communications Corp.
17 State Street
New York, NY 10005
Stockholders call toll free: (800) 603-1720
Banks and Brokers call: (212) 805-7113
Stockholders may also contact their brokers or nominees for information
with respect to the Offer. The Information Agent will receive a fee estimated to
be $_____, plus reimbursement for its reasonable out-of-pocket expenses related
to the Offer.
Payment for Shares
Stockholders who wish to acquire Shares pursuant to the Offer may choose
between the following methods of payment:
(1) A Record Date Stockholder may send the Subscription Certificate
together with payment for the Shares acquired in the Primary Subscription
and any additional Shares subscribed for pursuant to the Over-Subscription
Privilege to the Subscription Agent based on the Estimated Subscription
Price of $_____ per share. A subscription will be accepted when payment,
together with a properly completed and executed Subscription Certificate,
is received by the Subscription Agent's office at one of the addresses set
forth above no later than 5:00 P.M., New York City time, on the Expiration
Date. The Subscription Agent will deposit all checks and money orders
received by it for the purchase of Shares into a segregated interest-
bearing account (the interest from which will accrue to the benefit of the
Fund) pending proration and distribution of Shares. A PAYMENT PURSUANT TO
THIS METHOD MUST BE IN U.S. DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK
OR BRANCH LOCATED IN THE UNITED STATES, MUST BE PAYABLE TO MORGAN STANLEY
DEAN WITTER HIGH YIELD FUND, INC. AND MUST ACCOMPANY A PROPERLY COMPLETED
AND EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO
BE ACCEPTED. EXERCISE BY THIS METHOD IS SUBJECT TO ACTUAL COLLECTION OF
CHECKS BY 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. BECAUSE
UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR,
SHAREHOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF
A CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
(2) Alternatively, a Record Date Stockholder may acquire shares, and a
subscription will be accepted by the Subscription Agent if, prior to 5:00
P.M., New York City time, on the Expiration Date, the Subscription Agent
has received a Notice of Guaranteed Delivery by facsimile (telecopy) or
otherwise from a bank, a trust company or a NYSE member guaranteeing
delivery of (i) payment of the Estimated Subscription Price of $______ per
share for the Shares subscribed for in the Primary Subscription and any
additional Shares subscribed for pursuant to the Over-Subscription
Privilege, and (ii) a properly completed and executed Subscription
Certificate. The Subscription Agent will not honor a Notice of Guaranteed
Delivery unless a properly completed and executed Subscription Certificate
and full payment for the Shares is received by the Subscription Agent by
the close of business on ___________, 1999, the third Business Day after
the Expiration Date.
On a date within eight Business Days following the Expiration Date (the
"Confirmation Date"), the Subscription Agent will send to each Exercising Rights
Holder (or, if shares are held by Cede or any other depository or nominee, to
Cede or such other depository or nominee) a confirmation showing (i) the number
of Shares purchased pursuant to the Primary Subscription, (ii) the number of
Shares, if any, acquired pursuant to the Over-Subscription Privilege, (iii) the
Subscription Price per Share and total purchase price of
17
<PAGE>
the shares, and (iv) any additional amount payable by such Record date
Stockholder to the Fund or any excess to be refunded by the Fund to such
Stockholder, in each case based on the Subscription Price. If any Record Date
Stockholder exercises his or her right to acquire shares pursuant to the Over-
Subscription Privilege, any such excess payment that would otherwise be refunded
to the Record Date Stockholder will be applied by the Fund toward payment for
shares acquired pursuant to the exercise of the Over-Subscription Privilege. Any
additional payment required from a Record Date Stockholder must be received by
the Subscription Agent within ten business days after the Confirmation Date. Any
excess payment to be refunded by the Fund to a Record Date Stockholder will be
mailed by the Subscription Agent to such Record Date Stockholder as promptly as
possible. All payments by an Exercising Rights Holder must be in U.S. dollars by
money order or check drawn on a bank or branch located in the United States and
payable to MORGAN STANLEY DEAN WITTER HIGH YIELD FUND, INC.
If a Record Date Stockholder who acquires Shares pursuant to the Primary
Subscription or the Over-Subscription Privilege does not make payment of any
additional amounts due by the tenth business day after the Confirmation Date,
the Fund reserves the right to take any or all of the following actions: (i)
sell such subscribed and unpaid-for shares to other Record Date Stockholders,
(ii) apply any payment actually received toward the purchase of the greatest
whole number of shares that could be acquired by such Record Date Stockholder
upon the exercise of the Primary Subscription and/or Over-Subscription
Privilege, and/or (iii) exercise any and all other rights or remedies to which
the Fund may be entitled.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE
EXERCISING RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00
P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL
CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO
PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY
ORDER.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations will
be final and binding. The Fund, in its sole discretion, may waive any defect or
irregularity, or permit a defect or irregularity to be corrected, within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Fund determines
in its sole discretion. The Subscription Agent will not be under any duty to
give notification of any defect or irregularity in connection with the
submission of Subscription Certificates or incur any liability for failure to
give such notification.
Exercising Rights Holders will have no right to rescind their subscription
after receipt of their payment for Shares by the Subscription Agent, except as
provided below under "Notice of Net Asset Value Decline."
Delivery of Share Certificates
Certificates representing Shares acquired in the Primary Subscription will
be mailed promptly after the expiration of the Offer once full payment for such
Shares has been received and cleared. Certificates representing Shares acquired
pursuant to the Over-Subscription Privilege will be mailed as soon as
practicable after full payment for such Shares has been received and cleared and
all allocations have been completed. Participants in the Fund's Dividend
Reinvestment and Cash Purchase Plan (the "Plan") will have any Shares acquired
in the Primary Subscription and pursuant to the Over-Subscription Privilege
credited to their stockholder dividend reinvestment accounts in the Plan.
Participants in the Plan wishing to exercise
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<PAGE>
Rights for the shares of Common Stock held in their accounts in the Plan must
exercise such Rights in accordance with the procedures set forth above.
Stockholders whose shares of Common Stock are held of record by Cede or by any
other depository or nominee on their behalf or their broker-dealer's behalf will
have any Shares acquired in the Primary Subscription credited to the account of
Cede or such other depository or nominee. Shares acquired pursuant to the Over-
Subscription Privilege will be certificated and certificates representing such
Shares will be sent directly to Cede or such other depository or nominee. Stock
certificates will not be issued for Shares credited to Plan accounts.
Foreign Restrictions
Subscription Certificates will not be mailed to Record Date Stockholders
whose record addresses are outside the United States (the term "United States"
includes the states, the District of Columbia, and the territories and
possessions of the United States). Foreign Record Date Stockholders will
receive written notice of the Offer. The Rights to which such Subscription
Certificates relate will be held by the Subscription Agent for such Foreign
Record Date Stockholders' accounts until instructions are received to exercise
the Rights. If no instructions have been received by 5:00 P.M., New York City
time, on the Expiration Date, the Rights of those Foreign Record Date
Stockholders will expire.
Federal Income Tax Consequences of the Offer
The U.S. federal income tax consequences to holders of Common Stock with
respect to the Offer will be as follows:
1. The distribution of Rights to Record Date Stockholders will not
result in taxable income to such holders nor will such holders realize
taxable income as a result of the exercise of the Rights. No loss will be
realized if the Rights expire without exercise.
2. The basis of a Right will be (a) to a holder of Common Stock to
whom it is issued and who exercises the Right (i) if the fair market value
of the Right immediately after issuance is less than 15% of the fair market
value of the Common Stock with regard to which it is issued, zero (unless
the holder elects, by filing a statement with his timely filed federal
income tax return for the year in which the Rights are received, to
allocate the basis of the Common Stock between the Right and the Common
Stock based on their respective fair market values immediately after the
Right is issued), and (ii) if the fair market value of the Right
immediately after issuance is 15% or more of the fair market value of the
Common Stock with regard to which it is issued, a portion of the basis in
the Common Stock based upon their respective fair market values immediately
after the Right is issued, and (b) to a holder of Common Stock to whom it
is issued and who allows the Right to expire, zero.
3. The holding period of a Right received by a Record Date
Stockholder includes the holding period of the Common Stock with regard to
which the Right is issued. If the Right is exercised, the holding period of
the Common Stock acquired begins on the date the Right is exercised.
4. A Record Date Stockholder's basis for determining gain or loss
upon the sale of a Share acquired upon the exercise of a Right will be
equal to the sum of the Record Date Stockholder's basis in the Right, if
any, and the Subscription Price per Share. A Record Date Stockholder's gain
or loss recognized upon a sale of a Share acquired upon the exercise of a
Right will be capital gain or loss if the Share was held at the time of
sale as a capital asset and will be long-term capital gain or loss if the
Share is held for more than one year. See "Taxation--U.S. Federal Income
Taxes" for a summary of the capital gains rates applicable to capital gains
or losses recognized upon the sale of Shares.
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<PAGE>
The foregoing is a general summary of the material U.S. federal income tax
consequences of the Offer under the provisions of the U.S. Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"), and Treasury regulations
presently in effect that are generally applicable to Record Date Stockholders
that are United States persons within the meaning of the Internal Revenue Code,
and does not cover foreign, state or local taxes. The Internal Revenue Code and
such regulations are subject to change by legislative or administrative action,
which may be retroactive. Exercising Rights Holders should consult their tax
advisers regarding specific questions as to foreign, federal, state or local
taxes. See "Taxation."
Notice of Net Asset Value Decline
The Fund has, as required by the Securities and Exchange Commission's
("SEC") registration form, undertaken to suspend the Offer until it amends this
Prospectus if, subsequent to the effective date of the Fund's Registration
Statement, the Fund's NAV declines more than 10% from its NAV as of that date.
Accordingly, the Expiration Date would be extended and the Fund would notify
Record Date Stockholders of any such decline and permit Exercising Rights
Holders to cancel their exercise of Rights.
Employee Plan Considerations
Stockholders that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (including
corporate savings and 401(k) plans), plans of self-employed individuals and
individual retirement accounts (collectively, "Retirement Plans") should be
aware that additional contributions of cash to the Retirement Plan (other than
rollover contributions or trustee-to-trustee transfers from other Retirement
Plans) in order to exercise Rights would be treated as contributions to the
Retirement Plan and, when taken together with contributions previously made, may
result in, among other things, excise taxes for excess or nondeductible
contributions. In the case of Retirement Plans qualified under Section 401(a)
of the Internal Revenue Code and certain other Retirement Plans, additional cash
contributions could cause the maximum contribution limitations of Section 415 of
the Internal Revenue Code or other qualification rules to be violated.
Retirement Plans and other tax exempt entities, including governmental
plans, should also be aware that if they borrow in order to finance their
exercise of Rights, they may become subject to the tax on unrelated business
taxable income ("UBTI") under Section 511 of the Internal Revenue Code. If any
portion of an Individual Retirement Account ("IRA") is used as security for a
loan, the portion so used will be treated as distributed to the IRA depositor.
ERISA contains fiduciary responsibility requirements, and ERISA and the
Internal Revenue Code contain prohibited transaction rules that may impact the
exercise of Rights. Due to the complexity of these rules and the penalties for
noncompliance, Retirement Plans should consult with their counsel and other
advisers regarding the consequences of their exercise of Rights under ERISA and
the Internal Revenue Code.
Important Dates to Remember
<TABLE>
<CAPTION>
Event Date
----- ----
<S> <C>
Record Date................................................................... ___________, 1999
Subscription Period........................................................... ___________, 1999 to
___________, 1999*
Expiration Date............................................................... ___________, 1999*
Subscription Certificates and Payment for Shares Due+......................... ___________, 1999*
Notice of Guaranteed Delivery Due+............................................ ___________, 1999*
Payments and Subscription Certificates for Guarantees of Delivery Due......... ___________, 1999*
Confirmation to Participants.................................................. ___________, 1999*
</TABLE>
n
20
<PAGE>
- --------------------
* Unless the Offer is extended.
+ A stockholder exercising Rights must deliver either (i) a Subscription
Certificate and payment for Shares or (ii) a Notice of Guaranteed Delivery by
_______________, 1999, unless the Offer is extended.
USE OF PROCEEDS
If all the Rights are exercised in full at the Estimated Subscription Price
of $_____ per Share, the net proceeds of the Offer to the Fund assuming all
2,960,000 shares offered hereby are sold are estimated to be approximately
$________ after deducting offering expenses payable by the Fund estimated at
approximately $________. The Investment Manager anticipates that the Fund will
take up to 30 days from its receipt of the net proceeds of the Offer to invest
or otherwise employ such proceeds (for example, to reduce leverage), but in no
event will any such use take longer than six months. Pending the use of the
proceeds of the Offer, the proceeds will be held in U.S. Government securities
(which term includes obligations of the United States Government, its agencies
or instrumentalities) and other high-quality short-term money market
instruments. While the proceeds are invested in U.S. Government securities and
other high-quality, short-term money market instruments, the proceeds will not
be invested in securities consistent with the Fund's primary objective of high
current income.
RISK FACTORS AND SPECIAL CONSIDERATIONS
An investment in the Fund is subject to a number of risks and special
considerations, including the following:
Dilution
Record Date Stockholders who do not fully exercise their Rights should
expect that they will, at the completion of the Offer, own a smaller
proportional interest in the Fund than would otherwise be the case. The Fund
cannot state precisely the amount of any such dilution in share ownership
because the Fund does not know at this time what proportion of the Shares will
be subscribed.
Furthermore, the Subscription Price per share for the Offer may be lower
than the Fund's NAV per share. Any rights offering priced at a discount to the
Fund's NAV per share and involving payment of expenses by the Fund entails some
dilution in the NAV per share. Dilution is the decrease in NAV per share that
results from the Fund's issuance of new shares at a discount to current NAV per
share when the rights are exercised and from the Fund's payment of the expenses
of the Offer. The Offer will result in a dilution of NAV for all stockholders,
which will disproportionately affect stockholders who do not exercise their
Rights. In addition, there also may be substantial dilution to the extent that
the Fund increases the number of shares subject to subscription by up to 25% in
order to satisfy over-subscription requests. Although it is not possible to
state precisely the amount of any decrease in NAV because it is not known at the
date of this Prospectus how many shares will be subscribed for, or what the
Subscription Price will be, the dilution could be substantial.
For example, assuming that all Rights are exercised at the Estimated
Subscription Price of $_____, the NAV per share at the Expiration Date was
$______, the Fund issues an additional 25% of Shares to satisfy over-
subscription requests, and assuming the deduction of all expenses related to the
issuance of the Shares, the Fund's NAV per share would be reduced by
approximately $_____ per share or _____%.
High Yield Investments
At any one time, substantially all of the Fund's assets may be invested in
obligations or securities that are rated below investment grade by recognized
rating services such as Moody's and S&P, or if unrated, are
21
<PAGE>
determined to be of comparable quality by the Investment Manager. Non-investment
grade securities (that is, rated "Ba" or lower by Moody's or "BB" or lower by
S&P) are commonly referred to as "junk bonds" and are regarded as predominantly
speculative and involve major risk exposure to adverse conditions. Some of the
high yield securities held by the Fund, which may not be paying interest
currently or may be in payment default, may be comparable to securities rated as
low as "C" by Moody's or "CCC" or lower by S&P. These securities are considered
to have extremely poor prospects of ever attaining any real investment standing,
to have a current identifiable vulnerability to default, to be unlikely to have
the capacity to pay interest and repay principal when due in the event of
adverse business, financial or economic conditions or to be in default or not
current in the payment of interest or principal.
Securities rated below investment grade and unrated securities generally
offer a higher current yield than that available from higher grade issues, but
typically involve greater risk. Securities rated below investment grade and
unrated securities are especially subject to adverse changes in general economic
conditions, to changes in the financial condition of their issuers and to price
fluctuation in response to changes in interest rates. During periods of economic
downturn or rising interest rates, issuers of securities rated below investment
grade and unrated instruments may experience financial stress that could
adversely affect their ability to make payments of principal and interest and
increase the possibility of default. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may also decrease the values and
liquidity of securities rated below investment grade and unrated securities
especially in a market characterized by a low volume of trading.
The value of the high yield securities held by the Fund, and thus the net
asset value of the Common Stock, generally will fluctuate with (i) changes in
the perceived creditworthiness of the issuers of those securities and (ii)
movements in interest rates. The extent of the fluctuation of the Fund's NAV
will depend on various other factors, such as the average maturity of the Fund's
investments, the extent to which the Fund engages in borrowing and other
leveraging transactions, and the extent to which the Fund hedges its interest
rate and currency exchange rate risks. The Investment Manager will make
independent evaluations as to the creditworthiness of issuers of debt securities
that may differ from those of the recognized rating services. The Fund's
success in attaining its investment objectives will depend largely on the
Investment Manager's evaluation of the creditworthiness of issuers.
The market for high-yield, high risk securities has expanded rapidly in
recent years and is relatively new. This expanded market has not yet completely
weathered an economic downturn. An economic downturn or an increase in interest
rates could have a negative effect on the high-yield, high risk securities
market and on the market value of the high-yield, high risk securities held by
the Fund, as well as on the ability of the issuers of such securities to repay
principal and interest on their borrowings. In addition, the secondary market
for high yield securities, which is concentrated in relatively few market
makers, may not be as liquid as the secondary market for more highly rated
securities. As a result, the Investment Manager could find it more difficult to
sell these securities or may be able to sell the securities only at prices lower
than if such securities were widely traded. Prices realized upon the sale of
such lower rated or unrated securities, under these circumstances, may be less
than the prices used in calculating the Fund's net asset value.
Prices for high yield securities may be affected by legislative and
regulatory developments. Changes in law could adversely affect the Fund's net
asset value and investment practices, the secondary market for high yield
securities, the financial condition of issuers of high yield securities and the
value of outstanding high yield securities.
Lower rated or unrated securities also present risks based on payment
expectations. If an issuer calls the obligations for redemption, the Fund may
have to replace the security with a lower yielding security, potentially
resulting in a decreased return for investors.
22
<PAGE>
Considerations Relating to Investments in Non-U.S. Issuers
Investing in securities of non-U.S. issuers involves certain considerations
not typically associated with investing in the securities of U.S. issuers. For
example, investments may be restricted or controlled to varying degrees. These
restrictions or controls may at times limit or preclude investment in the
securities of certain non-U.S. issuers and increase the costs and expenses of
such investments to the Fund. In addition, governmental approval may be
required for the repatriation of investment income, capital or the proceeds of
sales of securities of non-U.S. issuers. The Fund could be adversely affected
by delays in, or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the Fund of any
restrictions on investments.
No established secondary markets may exist for many of the non-U.S. high
yield securities in which the Fund will invest. This may have an adverse effect
on market price and the Fund's ability to dispose of particular instruments when
necessary to meet its liquidity requirements or in response to specific economic
events such as a deterioration in the creditworthiness of the issuer. In
addition, non-U.S. issuers are not generally subject to accounting, auditing and
financial reporting standards, practices and disclosure requirements comparable
to those applicable to U.S. issuers. Consequently, there may be less publicly
available information about a non-U.S. issuer than about a U.S. issuer.
Furthermore, there is generally less government supervision and regulation of
foreign securities markets, brokers and securities issuers than in the United
States. In addition, laws in foreign countries governing business organizations,
bankruptcy and insolvency may provide less protection to security holders such
as the Fund than that provided by U.S. laws. The Fund is also subject to
currency risk which is the risk that fluctuations in the exchange rates between
the U.S. dollar and foreign currencies may negatively affect the value of the
Fund's investments.
The economies of foreign countries may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross domestic product, rate of
inflation, currency depreciation, capital reinvestment, resource self-
sufficiency and balance of payments position. Certain developing countries have
historically experienced, and may continue to experience, high rates of
inflation, high interest rates, exchange rate fluctuations, large amounts of
external debt, balance of payments and trade difficulties and extreme poverty
and unemployment. Also, there is a possibility of nationalization,
expropriation or confiscatory taxation, political changes, government
regulation, social instability or diplomatic developments (including war) which
could affect adversely the economies of such countries or the value of the
Fund's investments in those countries.
With respect to the Fund's investments in developing country government
debt securities, the issuer or governmental authority that controls the
repayment of a developing country's debt may not be able or willing to repay the
principal or interest when due in accordance with the terms of such debt. A
debtor's willingness or ability to repay principal and interest due in a timely
manner may be affected by its cash flow situation and, in the case of a
government debtor, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole and the political constraints
to which a government debtor may be subject. Government debtors may default on
their debt and may also be dependent on expected disbursements from foreign
governments, multilateral agencies and others abroad to reduce principal and
interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a debtor's implementation of economic reforms or economic performance and the
timely service of such debtor's obligations. Failure to implement such reforms,
achieve such levels of economic performance or repay principal or interest when
due may result in the cancellation of such third parties' commitments to lend
funds to the government debtor, which may further impair such debtor's ability
or willingness to timely service its debts. Holders of government debt,
including the Fund, may be requested to participate in the rescheduling of such
debt and to extend further loans to government debtors. If a government obligor
defaults on its obligations, the Fund may have limited legal recourse against
the issuer or guarantor. In some cases, remedies must be pursued in the courts
of the defaulting party itself, and the
23
<PAGE>
ability of the holder of foreign government debt securities to obtain recourse
may be subject to the political climate in the relevant country.
Government obligors in developing countries are among the world's largest
debtors to commercial banks, other governments, international financial
organizations and other financial institutions. The issuers of the government
debt securities in which the Fund may invest have in the past experienced
substantial difficulties in servicing their external debt obligations, which led
to defaults on certain obligations and the restructuring of certain
indebtedness. Restructuring arrangements have included reducing and
rescheduling interest and principal payments by negotiating new or amended
credit agreements or converting outstanding principal and unpaid interest to
Brady Bonds, and obtaining new credit to finance interest payments. Holders of
certain foreign government debt securities may be requested to participate in
the restructuring of such obligations and to extend further loans to their
issuers. There can be no assurance that the foreign government debt securities
in which the Fund may invest will not be subject to restructuring arrangements
or to requests for new credit which may adversely affect the Fund's holdings.
Furthermore, certain participants in the secondary market for such debt may be
directly involved in negotiating the terms of these arrangements and may
therefore have access to information not available to other market participants.
Risk of Leverage
The Fund is authorized to borrow money from banks and other entities, and
to issue shares of preferred stock or short-term debt securities, in an amount
equal to up to 33 1/3% of the Fund's total assets (including the amount
obtained from leverage) less all liabilities and indebtedness other than the
leverage, and may use the proceeds from the leveraging for investment purposes.
For a description of the various leverage techniques the Fund intends to use,
see "Investment Objectives and Policies -- Leverage" on page ___ of this
Prospectus. Since its inception, the Fund has generally been leveraged in the
range of approximately 0% of its assets to ___% of its assets through the use
of reverse repurchase agreements. Utilization of leverage is a speculative
investment technique and involves certain risks to the holders of Common Stock.
These include the possibility of higher volatility of the NAV of the Common
Stock and potentially more volatility in the market value of the Common Stock.
So long as the Fund is able to realize a higher net return on its investment
portfolio than the then current interest or dividend rate of any leverage
together with other related expenses, the effect of the leverage will be to
cause holders of Common Stock to realize a higher current net investment income
than if the Fund were not so leveraged. On the other hand, to the extent that
the then current interest or dividend rate on any leverage together with other
related expenses, approaches the net return on the Fund's investment portfolio,
the benefit of leverage to holders of Common Stock will be reduced, and if the
then current interest or dividend rate on any leverage were to exceed the net
return on the Fund's Portfolio, the Fund's leveraged capital structure would
result in a lower rate of return to holders of Common Stock than if the Fund
were not so leveraged. Similarly, since any decline in the NAV of the Fund's
investments will be borne entirely by holders of the Common Stock, the effect of
leverage in a declining market would be a greater decrease in NAV applicable to
the Common Stock than if the Fund were not leveraged. Any such decrease would
likely be reflected in a decline in the market price of the Common Stock. If
the Fund's current investment income were not sufficient to meet interest or
dividend requirements on any leverage (or if any decrease in the NAV of the
Fund's investments would violate the 1940 Act asset coverage requirements) it
could be necessary for the Fund to liquidate certain of its investments sooner
than would otherwise have been the case, thereby reducing the NAV attributable
to the Common Stock.
The Fund's use of leverage will be subject to the provisions of the 1940
Act, including asset coverage requirements and restrictions on the declaration
of dividends and distributions to holders of Common Stock or purchases of Common
Stock in the event such asset coverage requirements are not met. The 1940 Act
also requires that holders of preferred stock, and in certain circumstances
holders of debt securities, have certain voting rights as set forth in the
"Description of Capital Stock" section of this Prospectus on page ___.
24
<PAGE>
Foreign Currency Considerations
Since the Fund may invest in securities denominated or quoted in currencies
other than the U.S. dollar, changes in foreign currency exchange rates could
affect the value of securities in the Fund's portfolio and the unrealized
appreciation or depreciation of investments. Furthermore, the Fund may incur
costs in connection with conversions between various currencies. Foreign
exchange dealers realize a profit based on the difference between the prices at
which they are buying and selling various currencies. Thus, a dealer normally
will offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire immediately to resell that
currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward, futures or options contracts to
purchase or sell foreign currencies. To the extent available, the Fund may seek
to protect the value of some portion or all of its non-U.S. dollar-denominated
portfolio holdings against currency risks by engaging in hedging transactions as
set forth in this Prospectus. There can be no guarantee that instruments
suitable for hedging currency will be available at the time when the Fund wishes
to use them. For a description of such hedging strategies and certain
considerations relating to them, see "Investment Objectives and Policies -
Hedging" and Appendix B.
Net Asset Value Discount; Nondiversification
The Fund is a closed-end investment company. Shares of closed-end
investment companies frequently trade at a discount from NAV. This
characteristic of shares of a closed-end fund is a risk separate and distinct
from the risk that a fund's net asset value will decrease. It should be noted,
however, that shares of some closed-end funds that invest principally in high
yield securities have traded at premiums to NAV. The Fund cannot predict whether
its own shares will trade at, below or above NAV. The risk of purchasing shares
of a closed-end investment company which might trade at a discount from NAV is
more pronounced for investors who wish to sell their shares in a relatively
short period of time. The Fund is intended primarily for long-term investors and
should not be considered as a vehicle for trading purposes.
The Fund is classified as a non-diversified investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the obligations of a single
issuer. Thus, the Fund may invest a greater proportion of its assets in the
securities of a smaller number of issuers and, as a result, will be subject to
greater risk of loss with respect to its portfolio securities. The Fund,
however, intends to comply with the diversification requirements imposed by the
Internal Revenue Code for qualification as a regulated investment company.
Dividends and Distributions
Subject to market conditions, the Fund seeks to provide holders of its
Common Stock with a relatively stable level of dividends per share. However, the
Fund cannot give any assurance that it will be able to maintain its current
level of dividends per share. The Board of Directors may, in its sole
discretion, change the Fund's current level of dividends per share in response
to market or other conditions. The Fund's ability to maintain a stable level of
dividends is a function of the yield generated by the Fund's investments, which
depends on market conditions at the time those investments are made and on the
performance of those investments.
Based on information provided by the Investment Manager on current market
conditions in the high yield bond market and available leverage opportunities,
the Board of Directors believes that the offer will not result in a change in
the Fund's current level of dividends per share for the foreseeable future.
The Fund will not be permitted to declare dividends or other distributions
with respect to the Common Stock or any series of preferred shares or purchase
shares of Common Stock or any series of preferred shares unless at the time
thereof the Fund meets certain asset coverage requirements applicable to any
debt or preferred shares the Fund may have outstanding, including those imposed
by the 1940 Act. Further, the Fund will not be permitted to pay any dividends
or other distributions with respect to the
25
<PAGE>
Common Stock or any series of preferred shares if a default or an event of
default has occurred and is continuing under any credit or other agreements
applicable to any debt or preferred shares the Fund may have outstanding or if
such payment of dividend or distribution would result in a default or an event
of default under any such agreements. Failure to pay dividends or other
distributions could result in the Fund ceasing to qualify as a regulated
investment company under the Internal Revenue Code.
In the event the Fund fails to satisfy certain asset coverage requirements,
the Fund may be required to immediately pay any loans (together with interest
accrued thereon) outstanding. Repayment of any loans would reduce the Fund's
leverage and could negatively affect potential returns with respect to the
Common Stock.
Year 2000
The investment advisory services provided to the Fund by the Investment
Manager depend on the smooth operation of its computer systems. Many computer
and software systems in use today cannot recognize the year 2000, but revert to
1900 or some other date, due to the manner in which dates were encoded and
calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Investment Manager has
been actively working on necessary changes to its own computer systems to deal
with the year 2000 problem and expects that its systems will be adapted before
that date. There can be no assurance, however, that the Investment Manager will
be successful. In addition, other unaffiliated service providers may be faced
with similar problems. The Investment Manager is monitoring their remedial
efforts, but there can be no assurance that they and the services they provide
will not be adversely affected.
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
You should carefully consider your ability to assume the foregoing risks
before making an investment in the Fund. An investment in shares of the Fund is
not appropriate for all investors.
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of the Fund is to seek a high level of
current income. As a secondary objective, the Fund seeks capital appreciation.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in high yield securities issued by U.S. corporations. Under current
market conditions, the Fund anticipates that at least 80% of its total assets
will be invested in such securities. In addition, the Fund may invest up to 35%
of its total assets in high yield securities issued by non-U.S. corporations and
by government and government-related issuers located in developing countries,
provided that no more than 20% of the Fund's total assets may be invested in
high yield securities issued by government or government-related issuers in
developing countries. The high yield securities in which the Fund invests
include debt obligations and preferred stock. Such securities generally will be
rated, at the time of investment, below investment grade (that is, rated "Ba" or
lower by Moody's or "BB" or lower by S&P) or, if not rated, determined by the
Investment Manager to be of comparable quality. Debt securities rated by both
Moody's or the S&P need only satisfy the foregoing ratings standards with
respect to either the Moody's or the S&P rating. There is no minimum rating
requirement for the securities in which the Fund invests. However, the Fund
anticipates that under normal market conditions no more than 25% of the Fund's
total assets will be rated, at the time of investment, below "B" by Moody's or
S&P, or will be unrated and of
26
<PAGE>
comparable quality. Yields on these securities generally, at the time of
investment exceed yields on higher-rated securities.
The Fund's investment objectives are fundamental policies which may not be
changed without the approval of a majority of the Fund's outstanding voting
securities. As used herein, a "majority of the Fund's outstanding voting
securities" means the lesser of (i) 67% of the shares represented at a meeting
at which more than 50% of the outstanding shares are represented, or (ii) more
than 50% of the outstanding shares. There is no assurance the Fund will be able
to achieve its investment objectives.
The Fund may acquire high yield securities including debt obligations
(e.g., bonds, debentures, notes, equipment lease certificates, equipment trust
certificates, conditional sales contracts and commercial paper) and preferred
stock. The Fund's high yield investments may have equity features, such as
conversion rights or warrants and the Fund may invest up to 10% of its total
assets in equity securities other than preferred stock (common stocks, warrants
and rights and limited partnership interests). The Fund also may invest up to
20% of its total assets in fixed income securities that are investment grade
(e.g., rated in one of the top four categories or of comparable quality as
determined by the Investment Manager) and have maturities of one year or less.
The Fund may invest in or own securities of companies in various stages of
financial restructuring, bankruptcy or reorganization which are not currently
paying interest or dividends to the extent that the total value, at time of
purchase, of all such securities will not exceed 10% of the value of the Fund's
total assets.
The Fund's investments in government and government-related debt securities
may consist of (i) debt securities or obligations issued or guaranteed by
governments, governmental agencies or instrumentalities and political
subdivisions located in developing countries, (ii) debt securities or
obligations issued by government owned, controlled or sponsored entities located
in developing countries, and (iii) interests in issuers organized and operated
for the purpose of restructuring the investment characteristics of instruments
issued by any of the entities described above. The Fund also may invest in
certain debt obligations customarily referred to as "Brady Bonds," which are
created through the exchange of existing commercial bank loans to foreign
entities for new obligations in connection with debt restructurings. Brady
Bonds may be collateralized or uncollateralized and issued in various currencies
(although most are U.S. dollar-denominated), and they are actively traded in the
over-the-counter secondary market. The Fund may purchase Brady Bonds either in
the primary or secondary markets.
Selection of Investments
The Fund invests substantially all of its assets in obligations or
securities that are, at the time of investment, rated below investment grade
(that is, rated "Ba" or lower by Moody's or "BB" or lower by S&P) or, if not
rated, determined by the Investment Manager to be of comparable quality. Ratings
of S&P and Moody's represent their opinions of the quality of the securities
they undertake to rate at the time of issuance. However, ratings are not
absolute standards of quality and may not reflect changes in an issuer's
creditworthiness. Accordingly, while the Investment Manager considers ratings,
it performs its own analysis and does not rely principally on ratings. The
Investment Manager considers, among other things, the price of the security, and
the financial history and condition, the prospects and the management of an
issuer in selecting securities for the Fund. The Fund may buy unrated securities
that the Investment Manager believes are comparable to rated securities that are
consistent with the Fund's objective and policies. The Investment Manager may
vary the average maturity of the securities in the Fund without limit and there
is no restriction on the maturity of any individual security.
A description of the ratings used by Moody's and S&P is set forth in
Appendix A to this Prospectus.
Temporary Investments
During periods in which the Investment Manager believes changes in
economic, financial or political conditions make it advisable, the Fund may, for
temporary defensive purposes, reduce its holdings in high
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yield securities and invest part or all of its total assets in cash or in
certain other short-term (less than twelve months to maturity) debt securities,
including certificates of deposit, commercial paper, notes, obligations issued
or guaranteed by the United States government or any of its agencies or
instrumentalities and repurchase agreements involving such government
securities.
Other Investments
Private Placements and Restricted Securities. The Fund may invest in
privately placed securities, including securities that are not registered under
the Securities Act of 1933, as amended (the "Securities Act"), but that can be
offered and sold to qualified, institutional buyers under Rule 144A under the
Securities Act. Investors should note that these investments may be considered
a speculative activity and may involve greater risk and expense to the Fund.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest generally paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Convertible securities have
several unique investment characteristics such as (1) higher yields than common
stocks, but lower yields than comparable nonconvertible securities, (2) a lesser
degree of fluctuation in value than the underlying stock since they have fixed
income characteristics, and (3) the potential for capital appreciation if the
market price of the underlying common stock increases.
The Fund may invest up to 10% of its total assets in convertible
securities; however, it has no current intention of converting any convertible
securities it may own into equity securities or holding them as an equity
investment upon conversion. A convertible security might be subject to
redemption at the option of the issuer at a price established in the convertible
security's governing instrument. If a convertible security held by the Fund is
called for redemption, the Fund may be required to permit the issuer to redeem
the security, convert it into the underlying common stock or sell it to a third
party.
Warrants. The Fund may invest up to 10% of its total assets in warrants,
which are securities permitting, but not obligating, their holder to subscribe
for other securities. The Fund may invest in warrants for equity securities
that are acquired as units with debt instruments and warrants for debt
securities. Warrants do not carry with them the right to dividends or voting
rights with respect to the securities that they entitle their holder to
purchase, and they do not represent any rights in the assets of the issuer. As
a result, an investment in warrants may be considered more speculative than
certain other types of investments. In addition, the value of a warrant does
not necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to its expiration date. The
Fund does not intend to retain in its portfolio any common stock received upon
the exercise of a warrant and will sell the common stock as promptly as
practicable and in a manner that it believes will reduce its risk of a loss in
connection with the sale.
Zero Coupon, Pay-in-Kind and Deferred Payment Securities. The Fund may
also invest in zero coupon, pay-in-kind or deferred payment securities. Zero
coupon securities are securities that are sold at a discount to par value and on
which interest payments are not made during the life of the security. Upon
maturity, the holder is entitled to receive the par value of the security. While
interest payments are not made on such securities, holders of such securities
are deemed to have received annually "phantom income." Because the Fund will
distribute its "phantom income" to stockholders, to the extent that stockholders
elect to receive dividends in cash rather than reinvesting such dividends in
additional shares, the Fund will have fewer assets with which to purchase income
producing securities. The Fund accrues income with respect to these securities
prior to the receipt of cash payments. Pay-in-kind securities are securities
that have interest payable by delivery of additional securities. Upon maturity,
the holder is entitled to receive the aggregate par value of the securities.
Deferred payment securities are securities that remain zero coupon securities
until a
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predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals. Zero coupon, pay-in-kind and
deferred payment securities are subject to greater fluctuation in value and may
have lesser liquidity in the event of adverse market conditions than comparably
rated securities paying cash interest at regular interest payment periods.
Loan Participations and Assignments. The Fund may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between an
issuer of debt obligations and one or more financial institutions ("Lenders").
The Fund's investments in Loans are expected in most instances to be in the form
of participations in Loans ("Participations") and assignments of all or a
portion of Loans ("Assignments") from third parties. In a typical
Participation, the Fund will have a contractual relationship only with the
Lender and not with the borrower; and consequently, the Fund will not have the
right to enforce the Loan against the borrower. The Fund will have 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. As a result, the Fund may be subject
to the credit risk of both the borrower and the Lender that is selling the
Participation. Certain Participations may be structured in a manner designed to
avoid purchasers of Participations being subject to the credit risk of the
Lender with respect to the Participation, but even under such a structure, in
the event of the Lender's insolvency, the Lender's servicing of the
Participation may be delayed and the assignability of the Participation
impaired. The Fund will acquire Participations only if the Lender
interpositioned between the Fund and the borrower is determined by the
Investment Manager to be creditworthy.
When the Fund purchases Assignments from Lenders it will acquire direct
rights against the borrower on the Loan although 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. The Fund may have
difficulty disposing of Assignments and Participations because to do so it will
have to assign such interests to a third party. Because there is no liquid
market for such interests, the Fund anticipates that such interests could be
sold only to a limited number of institutional investors. The lack of a liquid
secondary market may have an adverse impact on the value of such interests and
the Fund's ability to dispose of particular Assignments or Participations when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the borrower.
The lack of a liquid secondary market for Assignments and Participations also
may make it more difficult for the Fund to assign a value to these interests for
purposes of valuing the Fund's portfolio and calculating its NAV.
Leverage
The Fund is authorized to borrow money from banks and other entities, and
to issue shares of preferred stock or short-term debt securities, in an amount
equal to up to 33 1/3% of the Fund's total assets including the amount obtained
from leverage and may use the proceeds from the leveraging for investment
purposes. It is anticipated that the interest payments on any borrowing or
short-term debt securities or the dividends on any preferred stock will reflect
short-term rates, and that the net return on the Fund's portfolio, including the
proceeds of any leverage, will exceed the interest or dividend rate applicable
to the leverage. Whether to leverage through bank borrowings or the issuance of
preferred stock or short-term debt securities, and the terms of and the timing
of such leverage, will be determined by the Fund's Board of Directors. The
extent to which the Fund is leveraged from time to time will vary depending on
the judgment of the Board of Directors, in consultation with the Investment
Manager, regarding market conditions. Through these leveraging techniques, the
Fund will seek to obtain a higher return for holders of Common Stock than if the
Fund were not leveraged. Since its inception, the Fund generally has been
leveraged in the range of approximately 0% of its assets to ___% of its assets
through the use of reverse repurchase agreements. Utilization of leverage is a
speculative investment technique and involves certain risks to the holders of
Common Stock. See "Risk Factors and Special Considerations --Risk of Leverage."
In addition, the Fund may apply for a rating from Moody's and/or S&P on any
preferred stock or short-term debt which it issues; however, no minimum rating
is required for the issuance of preferred stock
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or short-term debt by the Fund. The Fund believes that obtaining one or both of
such rating for its preferred stock or short-term debt securities will enhance
the marketability of the preferred stock or short-term debt securities and
thereby reduce the dividend rate on the preferred stock or interest requirements
of such short-term debt securities from that which the Fund would be required to
pay if the preferred stock or short-term debt securities were not so rated. The
rating agencies for any preferred stock or short-term debt securities may
require asset coverage maintenance ratios in addition to those imposed by the
1940 Act. The ability of the Fund to comply with such asset coverage maintenance
ratios may be subject to circumstances beyond the control of the Fund such as
market conditions for its portfolio securities. The Fund expects that the terms
of any preferred stock or short-term debt securities will provide for mandatory
redemption of the preferred stock or repayment of short-term debt in the event
the Fund fails to meet such asset coverage maintenance ratios. In such
circumstances, the Fund may have to liquidate portfolio securities in order to
meet redemption or repayment requirements. This would have the effect of
reducing the NAV to holders of the Common Stock and could reduce the Fund's net
income in the future.
The use of leverage may entail certain costs and expenses such as
underwriting discounts or placement fees, fees associated with the registration
with the SEC, filing under state securities law, rating agency fees, legal and
accounting fees, printing costs and certain other ongoing expenses such as
administrative and accounting fees. These costs and expenses will be borne by
the Fund and will reduce net assets available to holders of the Common Stock.
The Fund expects that all of its borrowing will be made on a secured basis.
The Fund's custodian will either segregate the assets securing the Fund's
borrowing for the benefit of the Fund's lenders or arrangements will be made
with a suitable sub-custodian, which may include a lender. If the assets used
to secure the borrowing decrease in value, the Fund may be required to pledge
additional collateral to the lender in the form of cash or securities to avoid
liquidation of those assets. The rights of any lenders to the Fund to receive
payments of interest on and repayments of principal of borrowings will be senior
to the rights of the Fund's stockholders, and the terms of the Fund's borrowings
may contain provisions that limit certain activities of the Fund and could
result in precluding the purchase of instruments that the Fund would otherwise
purchase.
If the Fund leverages through preferred stock, under the requirements of
the 1940 Act, the value of the Fund's total assets, less all liabilities and
indebtedness of the Fund not represented by senior securities, as defined in the
1940 Act, must be equal, immediately after any such issuance of preferred stock,
to at least 200% of the aggregate amount of senior securities representing
indebtedness plus the aggregate liquidation preference of any outstanding
preferred stock. Such percentage must also be met any time the Fund pays a
dividend or makes any other distribution on Common Stock (other than a
distribution in Common Stock) or any time the Fund repurchases Common Stock, in
each case after giving effect to such dividend, distribution or repurchase. The
liquidation value of preferred stock is expected to equal the aggregate original
purchase price plus any accrued and unpaid dividends thereon (whether or not
earned or declared). See "Description of Capital Stock."
If the Fund leverages through borrowing or issuing short-term debt
securities, under the requirements of the 1940 Act, the value of the Fund's
total assets, less all liabilities and indebtedness of the Fund not represented
by senior securities, as defined in the 1940 Act, must at least be equal,
immediately after the issuance of senior securities consisting of debt, to 300%
of the aggregate principal amount of all outstanding senior securities of the
Fund which are debt. If the Fund leverages through the issuance of senior
securities consisting of debt, the 300% asset coverage maintenance ratio
referred to above must also be met any time the Fund declares a dividend or
other distribution on Common Stock (other than a distribution in Common Stock)
or any time the Fund repurchases Common Stock, in each case after giving effect
to such dividend, distribution or repurchase.
The Fund may enter into reverse repurchase agreements with any member bank
of the Federal Reserve System and any broker-dealer or any foreign bank that has
been determined by the Investment
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Manager to be creditworthy. Under a reverse repurchase agreement, the Fund would
sell securities and agree to repurchase them at a mutually agreed date and
price. At the time the Fund enters into a reverse repurchase agreement, it will
either earmark cash or liquid securities or establish and maintain a segregated
account with its custodian or a designated sub-custodian, containing cash,
securities issued or guaranteed by the U.S. Government or its agencies and
instrumentalities ("U.S. Government Securities") or other liquid, high grade
debt obligations, in each instance having a value not less than the repurchase
price (including accrued interest). Reverse repurchase agreements involve the
risk that the market value of the securities purchased with the proceeds of the
sale of securities received by the Fund may decline below the price of the
securities the Fund is obligated to repurchase. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, the buyer or its trustee or receiver may receive an extension of time
to determine whether to enforce the Fund's obligations to repurchase the
securities, and the Fund's use of proceeds of the reverse repurchase agreement
may effectively be restricted pending the decision. Reverse repurchase
agreements will be treated as borrowings for purposes of calculating the Fund's
borrowing limitation to the extent that the Fund does not either earmark cash or
liquid securities or establish and maintain a segregated account (as described
above).
The Fund may, in addition to engaging in the transactions described above,
borrow money from banks for temporary or emergency purposes (including, for
example, clearance of transactions, share repurchases or payments of dividends
to stockholders) in an amount not exceeding 5% of the value of the Fund's total
assets (including the amount borrowed).
Hedging
The Fund is authorized to use various hedging and investment strategies
described below to hedge various market risks (such as movements in interest and
currency exchange rates and fluctuations in the securities markets), to manage
the effective maturity or duration of debt instruments held by the Fund or to
seek to increase the Fund's income or gain. The Fund will use such strategies
to the extent deemed appropriate by the Investment Manager, in its discretion.
Limitations on the portion of the Fund's assets that may be used in connection
with the investment strategies described below are set out in Appendix B to this
Prospectus.
As part of its hedging strategies, the Fund may purchase and sell financial
futures contracts, purchase and sell (or write) exchange listed and over-the-
counter put and call options on securities, financial futures contracts and
fixed income indices and other financial instruments and enter into interest
rate transactions and currency transactions (collectively, these transactions
are referred to in this Prospectus as "Hedging"). The Fund's interest rate
transactions may take the form of swaps, caps, floors and collars, and the
Fund's currency transactions may take the form of currency forward contracts,
currency futures contracts, currency swaps and options on currency or currency
futures contracts.
Hedging may be used to attempt to protect against possible changes in the
market value of securities held in or to be purchased for the Fund's portfolio
resulting from securities market or currency exchange rate fluctuations, to
protect the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of those securities for investment purposes, to manage the
effective maturity or duration of the Fund's portfolio, or to establish a
position in the derivatives markets as a temporary substitute for purchasing or
selling particular securities. The ability of the Fund to utilize Hedging
successfully will depend on the Investment Manager's ability to predict
pertinent market movements, which cannot be assured. These skills are different
from those needed to select portfolio securities. The Fund is not a "commodity
pool" and Hedging involving financial futures and options on financial futures
will be purchased, sold or entered into only for bona fide hedging, risk
management or other appropriate portfolio management purposes and not for
speculative purposes. The use of Hedging in certain circumstances will require
that the Fund segregate cash, liquid high grade debt obligations or other assets
to the extent the Fund's obligations are not otherwise "covered" through
ownership of the underlying security, financial instrument or currency.
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A detailed discussion of Hedging, including applicable requirements of the
Commodity Futures Trading Commission, the requirement to segregate assets with
respect to these transactions and special risks associated with such strategies,
appears as Appendix B to this Prospectus.
The degree of the Fund's use of Hedging may be limited by certain
provisions of the Internal Revenue Code. See "Taxation."
When-Issued and Delayed Delivery Securities
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. No income accrues to the purchaser of a security on a when-issued or
delayed delivery basis prior to delivery. Such securities are recorded as an
asset and are subject to changes in value based upon changes in the general
level of interest rates. Purchasing a security on a when-issued or delayed
delivery basis can 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. The Fund will only make commitments
to purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities but may sell them before the
settlement date if it is deemed advisable. Except under circumstances where a
segregated account is not required under the 1940 Act or the rules adopted
thereunder, the Fund will earmark cash or liquid securities or place them in a
segregated account in each instance in an amount at least equal in value to the
Fund's commitments to purchase securities on a when-issued or delayed delivery
basis. If the value of these assets declines, the Fund will place additional
liquid assets in the account on a daily basis so that the value of the assets in
the account is equal to the amount of such commitments. It is a current policy
of the Fund not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Fund's total assets less liabilities, other than
the obligations created by these commitments.
Repurchase Agreements
The Fund may enter into repurchase agreements with brokers, dealers or
banks that meet the credit guidelines adopted by the Fund's Directors. In a
repurchase agreement, the Fund buys a security from a seller that has agreed to
repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for the term of the agreement. The term of these agreements is
usually from overnight to one week and never exceeds one year. Repurchase
agreements may be viewed as a fully collateralized loan of money by the Fund to
the seller. The Fund always receives securities as collateral with a market
value at least equal to the purchase price, including accrued interest, and this
value is maintained during the term of the agreement. If the seller defaults
and the collateral value declines, the Fund might incur a loss. If bankruptcy
proceedings are commenced with respect to the seller, the Fund's realization
upon the collateral may be delayed or limited.
Loans of Portfolio Securities
The Fund may attempt to increase its income through lending portfolio
securities to third parties and receiving interest on such loans. In the event
of the bankruptcy of the other party to a securities loan, the Fund could
experience delays in recovering the securities it loaned. To the extent that,
in the meantime, the value of the securities the Fund has loaned decreases, the
Fund could experience a loss.
The Fund may lend securities from its portfolio if liquid assets in an
amount at least equal to the current market value of the securities loaned
(including accrued interest thereon) plus the interest payable to the Fund with
respect to the loan is earmarked by the Fund or maintained by the Fund in a
segregated account. Any securities that the Fund may receive as collateral will
not become a part of its portfolio at the time of the loan and, in the event of
a default by the borrower, the Fund will, if permitted by law, dispose of such
collateral except for such part thereof that is a security in which the Fund is
permitted to invest. During the time securities are on loan, the borrower will
pay the Fund any accrued income on those securities, and
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the Fund may invest the cash collateral and earn additional income or receive an
agreed-upon fee from a borrower that has delivered cash equivalent collateral.
Cash collateral received by the Fund will be invested in securities in which the
Fund is permitted to invest. The value of securities loaned will be marked to
market daily. Portfolio securities purchased with cash collateral are subject to
possible depreciation. Loans of securities by the Fund will be subject to
termination at the Fund's or the borrower's option. The Fund may pay reasonable
negotiated fees in connection with loaned securities. The Fund does not
currently intend to make loans of portfolio securities with a value in excess of
33 1/3% of the value of its total assets.
Short Sales
The Fund may from time to time sell securities short without limitation. A
short sale is a transaction in which the Fund sells securities it does not own
(but has borrowed) in anticipation of a decline in the market price of the
securities. When the Fund makes a short sale, the proceeds it receives from the
sale will be held on behalf of a broker until the Fund replaces the borrowed
securities. To deliver the securities to the buyer, the Fund will need to
arrange through a broker to borrow the securities and, in so doing, the Fund
will become obligated to replace the securities borrowed at their market price
at the time of replacement, whatever that price may be. The Fund may have to pay
a premium to borrow the securities and must 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 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 earmark cash or liquid securities or
place them in a segregated account with its custodian, or designated sub-
custodian, in each instance in an amount 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). Until it replaces the
borrowed securities, the Fund will maintain as earmarked or in the segregated
account sufficient amounts so that (1) the amount deposited in the account plus
the amount deposited with the broker (not including the proceeds from the short
sale) will equal the current market value of the securities sold short and (2)
the amount deposited in the account plus the amount deposited with the broker
(not including the proceeds from the short sale) will not be less than the
market value of the securities at the time they were sold short.
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 can equal only the total amount invested.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies of the Fund that may
not be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities (as defined under "Investment Objectives and
Policies"). If a percentage restriction on investment or use of assets set forth
below is adhered to at the time a transaction is effected, later changes will
not be considered a violation of the restriction. Also, if the Fund receives
from an issuer of securities held by the Fund subscription rights to purchase
securities of that issuer, and if the Fund exercises such subscription rights at
a time when the Fund's portfolio holdings of securities of that issuer would
otherwise exceed the limits set forth below, it will not constitute a violation
if, prior to receipt of securities upon exercise of such rights, and after
announcement of such rights, the Fund has sold at least as many securities of
the same class and value as it would receive on exercise of such rights.
As a matter of fundamental policy:
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1. The Fund may not purchase any security (other than obligations of the
U.S. government or its agencies or instrumentalities) if as a result
more than 25% of the Fund's total assets would be invested in a
particular industry; provided, however, that the foregoing restriction
will not be deemed to prohibit the Fund from purchasing the securities
of any issuer pursuant to the exercise of rights distributed to the
Fund by the issuer.
2. The Fund may not make any investment for the purpose of exercising
control or management.
3. The Fund may not buy or sell commodities or commodity contracts or
real estate or interests in real estate, except that it may purchase
and sell futures contracts on stock indices and foreign currencies,
securities which are secured by real estate or commodities, and
securities of companies which invest or deal in real estate or
commodities.
4. The Fund may not make loans, except that the Fund may (i) buy and hold
debt instruments in accordance with its investment objectives and
policies, (ii) enter into repurchase agreements to the extent
permitted under applicable law, and (iii) make loans of portfolio
securities.
5. The Fund may not act as an underwriter except to the extent that, in
connection with the disposition of portfolio securities, it may be
deemed to be an underwriter under applicable securities laws.
6. The Fund may not issue senior securities or borrow money, except for
(a) preferred stock and other senior securities (including borrowing
money, including on margin if margin securities are owned, entering
into reverse repurchase agreements and entering into similar
transactions) not in excess of 33 1/3% of its total assets, and (b)
borrowings up to 5% of its total assets (including the amount
borrowed) for temporary or emergency purposes (including for clearance
of transactions, repurchase of its shares or payment of dividends),
without regard to the amount of senior securities outstanding under
clause (a) above; provided, however, that the Fund's obligations under
when-issued and delayed delivery transactions and similar transactions
and reverse repurchase agreements are not treated as senior securities
if covering assets are appropriately segregated, and the use of
hedging transactions shall not be deemed to involve the issuance of a
"senior security" or a "borrowing"; for purposes of clauses (a) and
(b) above, the term "total assets" shall be calculated after giving
effect to the net proceeds of senior securities issued by the Fund
reduced by any liabilities and indebtedness not constituting senior
securities except for such liabilities and indebtedness as are
excluded from treatment as senior securities by this item (6). The
Fund's obligations under interest rate swaps are not treated as senior
securities.
As a matter of operating policy, which may be changed by the Fund's Board
of Directors without stockholder vote, the Fund will not purchase securities on
margin, except such short-term credits as may be necessary for clearance of
transactions and the maintenance of margin with respect to futures contracts.
The investment restrictions set forth in items 1 to 6 above and the Fund's
investment objectives are the Fund's only fundamental policies -- i.e., policies
that cannot be changed without the approval of a majority of the Fund's
outstanding voting securities (as defined under "Investment Objectives and
Policies" above). All other policies and restrictions described in this
Prospectus are operating policies. Unlike fundamental policies, operating
policies of the Fund may be changed by the directors of the Fund, without a vote
of the Fund's stockholders, if the directors determine such action is warranted.
The Fund will notify its stockholders of any change in any of the operating
policies set forth above. Such notice will also include a discussion of the
increased risks of investment in the Fund, if any, associated with such a
change.
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MANAGEMENT OF THE FUND
The Investment Manager
The Fund employs Morgan Stanley Dean Witter Investment Management Inc. (the
"Investment Manager"), a wholly owned subsidiary of Morgan Stanley Dean Witter &
Co., pursuant to an Investment Advisory and Management Agreement, dated as of
March 13, 1997 (the "Management Agreement"), to manage the investment and
reinvestment of the assets of the Fund, subject to the supervision of the Fund's
Directors. The Investment Manager's principal business address is 1221 Avenue of
the Americas, New York, New York 10020.
The Investment Manager provides portfolio management and named fiduciary
services to various closed-end and open-end investment companies, taxable and
nontaxable institutions, international organizations and individuals investing
in United States and international equity and fixed income securities. As of
_____________, 1999, the Investment Manager and its institutional investment
management affiliates had approximately $____ billion of combined assets under
management as investment managers or as fiduciary advisors. As of
_____________, 1999, the Investment Manager acted as adviser for approximately
$___ million of assets invested in high yield securities.
Robert. E. Angevine is the senior portfolio manager for the Fund. He is a
Principal of the Investment Manager and the portfolio manager for high yield
investments. Prior to joining the Investment Manager in October 1988, Mr.
Angevine spent eight years at Prudential Insurance where he was responsible for
one of the largest open-end high yield mutual funds in the country. Mr.
Angevine also manages high yield assets for one of the largest corporate pension
funds in the country. His other experiences include international treasury
operations at a major U.S. pharmaceutical company and commercial banking. He
received a B.A. in Economics from Lafayette College, and an MBA from Fairleigh
Dickinson University. He served two years as a Lieutenant in the U.S. Army.
Management Agreement
Under the terms of the Management Agreement, the Investment Manager makes
investment decisions, prepares and makes available research and statistical
data, and supervises the purchase and sale of securities on behalf of the Fund,
including the selection of brokers and dealers to carry out the transactions,
all in accordance with the Fund's investment objectives and policies, under the
direction and control of the Fund's Board of Directors. The Investment Manager
also is responsible for maintaining records and furnishing or causing to be
furnished all required records or other information of the Fund to the extent
such records, reports and other information are not maintained or furnished by
the Fund's administrators, custodians or other agents. The Investment Manager
pays the salaries and expenses of the Fund's officers and employees, as well as
the fees and expenses of the Fund's Directors, who are directors, officers or
employees of the Investment Manager or any of its affiliates, except that the
Fund bears travel expenses or an appropriate fraction thereof of officers and
Directors of the Fund who are directors, officers or employees of the Investment
Manager or its affiliates to the extent that such expenses relate to attendance
at meetings of the Fund's Board of Directors or any committee thereof.
The Fund pays all of its other expenses, including, among others,
organization expenses (but not the overhead or employee costs of the Investment
Manager); legal fees and expenses of counsel to the Fund; auditing and
accounting expenses; taxes and governmental fees; listing fees; dues and
expenses incurred in connection with membership in investment company
organizations; fees and expenses of the Fund's custodians, subcustodians,
transfer agents and registrars; fees and expenses with respect to
administration, except as may be provided otherwise pursuant to administration
agreements; expenses for portfolio pricing services by a pricing agent, if any;
expenses of preparing share certificates and other expenses in connection with
the issuance, offering and underwriting of shares issued by the Fund; expenses
relating to investor and public relations; expenses of registering or qualifying
securities of the Fund for public sale; freight, insurance
35
<PAGE>
and other charges in connection with the shipment of the Fund's portfolio
securities; brokerage commissions and other costs of acquiring or disposing of
any portfolio holding of the Fund; expenses of preparation and distribution of
reports, notices and dividends to stockholders; expenses of the dividend
reinvestment and cash purchase plan (except for brokerage expenses paid by
participants in such plan); costs of stationery; any litigation expenses; and
costs of stockholders' and other meetings.
For services under the Management Agreement, the Investment Manager
receives a fee, computed weekly and payable monthly, at an annual rate of 0.70%
of the Fund's average weekly net assets. For the fiscal years ended December 31,
1996, 1997 and 1998, the advisory fees earned by the Investment Manager
aggregated approximately $842,000, $929,000, and $920,000, respectively. The
Investment Manager will benefit from the Offer because the Investment Manager's
fee is based on the average weekly net assets of the Fund. It is not possible to
state precisely the amount of additional compensation the Investment Manager
will receive as a result of the Offer because it is not known how many shares
will be subscribed for and because the proceeds of the Offer will be invested in
additional portfolio securities which will fluctuate in value. However, based on
the estimated proceeds from the Offer, assuming all the rights are exercised in
full at the Estimated Subscription Price of $________ per share, assuming the
Fund issues an additional 25% of shares to satisfy over-subscription requests
and after payment of expenses the Investment Manager would receive additional
annual advisory fees of approximately $__________ as a result of the increase in
assets under management over the Fund's current assets under management.
Under the Management Agreement, the Investment Manager is permitted to
provide investment advisory services to other clients, including clients who may
invest in high yield securities. Conversely, information furnished by others to
the Investment Manager in the course of providing services to clients other than
the Fund may be useful to the Investment Manager in providing services to the
Fund.
The Management Agreement continues in effect from year to year provided
such continuance is specifically approved at least annually by (i) a vote of a
majority of those members of the Board of Directors who are not "interested
persons" of the Investment Manager, or the Fund, cast in person at a meeting
called for the purpose of voting on such approval, and (ii) by a majority vote
of either the Fund's Board of Directors or the Fund's outstanding voting
securities. At a meeting held on June 21, 1999, the Board of Directors
(including all Directors who are not "interested persons" of the Investment
Manager, or the Fund) unanimously approved the renewal of the Management
Agreement for a one year term expiring in June 2000. The Management Agreement
may be terminated at any time, without payment of penalty, by the Fund's Board
of Directors, by the vote of a majority of the Fund's outstanding voting
securities, or by the Investment Manager upon 60 days' written notice. The
Management Agreement will automatically terminate in the event of its
assignment, as defined under the 1940 Act.
The Management Agreement provides that the Investment Manager will not be
liable for any act or omission, error of judgment or mistake of law, or for any
loss suffered by the Fund in connection with matters to which the Management
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Investment Manager in the
performance of its duties, or from reckless disregard by it of its obligations
and duties under the Management Agreement.
Directors and Officers of the Fund
The Directors and officers of the Fund are listed below together with their
respective positions, ages and a brief statement of their principal occupations
during the past five years and, in the case of Directors, their positions with
certain international organizations and publicly held companies.
<TABLE>
<CAPTION>
Name, Address and Principal Occupations
- -----------------
Date of Birth Position with Fund During Past Five Years
- ------------- ------------------ ----------------------
<S> <C> <C>
Barton M. Biggs* Director and Chairman, Director and
Managing Director of
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Name, Address and Position with Fund Principal Occupations
- ----------------- --------------------- During Past Five Years
Date of Birth ----------------------
- -------------
<S> <C> <C>
1221 Avenue of the Americas Chairman of the Morgan Stanley Dean Witter Investment Management Inc.
New York, New York 10020 Board since 1995 and Chairman and Director of Morgan Stanley Dean
11/26/32 Witter Investment Management Limited; Managing
Director of Morgan Stanley & Co. Incorporated;
Member of the Yale Development Board; Director and
Chairman of the Board of various U.S. registered
investment companies managed by Morgan Stanley
Dean Witter Investment Management Inc.
Michael F. Klein* Director and Principal of Morgan Stanley & Co. Incorporated and
1221 Avenue of the Americas President since 1997 Morgan Stanley Dean Witter Investment Management
New York, New York 10020 Inc. and previously a Vice President thereof;
12/12/58 Director and President of various U.S. registered
investment companies managed by Morgan Stanley
Dean Witter Investment Management Inc.; Previously
practiced law with the New York law firm of Rogers
& Wells.
Peter J. Chase Director since 1995 Chairman and Chief Financial Officer, High Mesa
1441 Paseo De Peralta Technologies, Inc.; Director of various U.S.
Santa Fe, New Mexico 87501 registered investment companies managed by Morgan
10/12/32 Stanley Dean Witter Investment Management Inc.
John W. Croghan Director since 1995 President of Lincoln Partners, a partnership of
200 South Wacker Drive Lincoln Capital Management Company; Director of
Chicago, Illinois 60606 St. Paul Bancorp, Inc., Lindsay Manufacturing Co.
6/8/30 and Republic Services; Director of various U.S.
registered investment companies managed by Morgan
Stanley Dean Witter Investment Management Inc.;
Previously Director of Blockbuster Entertainment
Corporation.
David B. Gill Director since 1995 Director of various U.S. registered investment
26210 Ingleton Circle companies managed by Morgan Stanley Dean Witter
Easton, Maryland 21601 Investment Management Inc.; Director of the
7/6/26 Mauritius Fund Limited; Director of Moneda Chile
Fund Limited; Director of First NIS Regional Fund
SIAC; Director of Commonwealth Africa Investment
Fund Ltd.; Chairman of the Advisory Board of
Advent Latin American Private Equity Fund;
Chairman and Director of Norinvest Bank; Director
of Surinvest International Limited; Director of
National Registry Company; Director of South Asia
Regional Fund Ltd.; Director of Creditanstalt
Ukraine; Previously Director of Capital Markets
Department of the International
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Name, Address and Principal Occupations
- ----------------- During Past Five Years
Date of Birth Position with Fund ----------------------
- ------------- ------------------
<S> <C> <C>
Finance Corporation; Trustee, Batterymarch
Finance Management; Chairman and Director of
Equity Fund of Latin America S.A.; Director of
Commonwealth Equity Fund Limited; and Director
of Global Securities, Inc.
Graham E. Jones Director since 1995 Senior Vice President of BGK Properties; Trustee
300 Garfield Street, Suite 200 of various investment companies managed by Weiss,
Santa Fe, New Mexico 87501 Peck & Greer; Trustee of various investment
1/31/33 companies managed by Morgan Grenfell Capital
Management Incorporated; Director of various U.S.
registered investment companies managed by Morgan
Stanley Dean Witter Investment Management Inc.;
Trustee of various investment companies managed by
Sun Capitol Advisers, Inc.; Previously Chief
Financial Officer of Practice Management Systems,
Inc.
John A. Levin Director since 1995 Chairman and Chief Executive Officer of John A.
One Rockefeller Plaza Levin & Co., Inc.; Director of various U.S.
New York, New York 10020 registered investment companies managed by Morgan
8/20/38 Stanley Dean Witter Investment Management Inc.;
Director, President and Chief Executive Officer of
Baker Fentress & Company.
William G. Morton, Jr. Director since 1995 Chairman and Chief Executive Officer of Boston
100 Franklin Street Stock Exchange; Director of Tandy Corporation;
Boston, Massachusetts 02110 Director of various U.S. registered investment
3/13/37 companies managed by Morgan Stanley Dean Witter
Investment Management Inc.
Harold J. Schaaff, Jr.* Vice President since Principal of Morgan Stanley & Co. Incorporated and
1221 Avenue of the Americas 1993 Morgan Stanley Dean Witter Investment Management
New York, New York 10020 Inc.; General Counsel and Secretary of Morgan
6/10/60 Stanley Dean Witter Investment Management Inc.;
Officer of various U.S. registered investment
companies managed by Morgan Stanley Dean Witter
Investment Management Inc.
Joseph P. Stadler* Vice President since Principal of Morgan Stanley & Co. Incorporated and
1221 Avenue of the Americas 1993 Morgan Stanley Dean Witter Investment Management
New York, New York 10020 Inc.; Officer of various U.S. registered
6/7/54 investment companies managed by Morgan Stanley
Dean Witter Investment Management Inc.; Previously
with Price Waterhouse LLP.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Name, Address and Position with Fund Principal Occupations
- ----------------- --------------------- During Past Five Years
Date of Birth ----------------------
- -------------
<S> <C> <C>
Stefanie V. Chang* Vice President since Vice President of Morgan Stanley & Co.
1221 Avenue of the Americas 1997 Incorporated and Morgan Stanley Dean Witter
New York, New York 10020 Investment Management Inc.; Officer of various
11/30/66 U.S. registered investment companies managed by
Morgan Stanley Dean Witter Investment Management
Inc.; Previously practiced law with the New York
law firm of Rogers & Wells.
Mary E. Mullin* Secretary since 1999 Vice President of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated and Morgan Stanley Dean Witter
New York, New York 10020 Investment Management Inc.; Officer of various
3/22/67 U.S. registered investment companies managed by
Morgan Stanley Dean Witter Investment Management
Inc.; Previously practiced law with the New York
law firms of McDermott, Will & Emery and Skadden,
Arps, Slate, Meagher & Flom LLP.
Belinda Brady Assistant Treasurer Manager, Fund Administration, Chase Global Funds
73 Tremont Street since 1996 Services Company; Officer of various U.S.
Boston, Massachusetts 02108 registered investment companies managed by Morgan
1/23/68 Stanley Dean Witter Investment Management Inc.;
Previously with Price Waterhouse LLP.
</TABLE>
____________________________________
* "Interested person" within the meaning of the 1940 Act. Mr. Biggs is
chairman, director and managing director of the Investment Manager, and Messrs.
Klein, Schaaff and Stadler and Ms. Chang and Ms. Mullin are officers of the
Investment Manager.
Pursuant to the Fund's By-Laws, the terms of office of the Directors are
staggered. The Board of Directors is divided into three classes, designated
Class I, Class II and Class III, with each class having a term of three years.
Each year the term of one class expires. Class I currently consists of Peter J.
Chase, David B. Gill and Michael F. Klein. Class II currently consists of John
W. Croghan and Graham E. Jones. Class III currently consists of Barton M. Biggs,
John A. Levin and William G. Morton, Jr.
Pursuant to the Fund's By-Laws, each Director holds office until (i) the
expiration of his term and until his successor has been elected and qualified,
(ii) his death, (iii) his resignation, (iv) December 31 of the year in which he
reaches seventy-three years of age, or (v) his removal as provided by statute or
the Articles of Incorporation.
The Board of Directors has an Audit Committee. The Audit Committee makes
recommendations to the full Board of Directors with respect to the engagement of
independent accountants and reviews with the independent accountants the plan
and results of the audit engagement and matters having a material effect on the
Fund's financial operations. The members of the Audit Committee are currently
Peter J. Chase, David B. Gill and Graham E. Jones, none of whom is an
"interested person," as defined under the 1940 Act. The Chairman of the Audit
Committee is Mr. Jones. The Board of Directors does not have nominating or
compensation committees or other committees performing similar functions.
39
<PAGE>
The Fund pays each of its Directors who is not a director, officer or
employee of the Investment Manager or its affiliates an annual fee of $4,795,
plus out-of-pocket expenses. Each of the members of the Fund's Audit Committee,
which consists of the Fund's Directors who are not "interested persons" of the
Fund as defined in the 1940 Act, will receive an additional fee of $787 for
serving on such committee.
Each of the Directors who is not an "affiliated person" of the Investment
Manager within the meaning of the 1940 Act may enter into a deferred fee
arrangement (the "Fee Arrangement") with the Fund, pursuant to which such
Director may defer to a later date the receipt of his Director's fees. The
deferred fees owed by the Fund are credited to a bookkeeping account maintained
by the Fund on behalf of such Director and accrue income from and after the date
of credit in an amount equal to the amount that would have been earned had such
fees (and all income earned thereon) been invested and reinvested either (i) in
shares of the Fund or (ii) at a rate equal to the prevailing rate applicable to
90-day United States Treasury Bills at the beginning of each calendar quarter
for which this rate is in effect, whichever method is elected by the Director.
Under the Fee Arrangement, deferred Director's fees (including the return
accrued thereon) will become payable in cash upon such Director's resignation
from the Board of Directors in generally equal annual installments over a period
of five years (unless the Fund has agreed to a longer or shorter payment period)
beginning on the first day of the year following the year in which such
Director's resignation occurred. In the event of a Director's death, remaining
amounts payable to him under the Fee Arrangement will thereafter be payable to
his designated beneficiary; in all other events, a Director's right to receive
payments is non-transferable. Under the Fee Arrangement, the Board of Directors
of the Fund, in its sole discretion, has reserved the right, at the request of a
Director or otherwise, to accelerate or extend the payment of amounts in the
deferred fee account at any time after the termination of such Director's
service as a director. In addition, in the event of liquidation, dissolution or
winding up of the Fund or the distribution of all or substantially all of the
Fund's assets and property to its stockholders (other than in connection with a
reorganization or merger into another fund advised by the Investment Manager),
all unpaid amounts in the deferred fee account maintained by the Fund will be
paid in a lump sum to the Directors participating in the Fee Arrangement on the
effective date thereof.
Set forth below is a table showing the aggregate compensation paid by the
Fund to each of its Directors, as well as the total compensation paid to each
Director of the Fund by the Fund and by other U.S. registered investment
companies advised by the Investment Manager or its affiliates (collectively, the
"Fund Complex") for their services as Directors of such investment companies for
the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Pension or Total Number of Funds
Aggregate Retirement Compensation in Fund Complex
Compensation Accrued as Part From Fund Complex Benefits for
From of the Fund's Paid to Which Director
Name of Directors Fund(2)(3) Expenses Directors(2)(4) Serves(5)
------------------------ ----------------- ---------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
Barton M. Biggs(1) $ 0 None $ 0 16
Michael F. Klein(1) 0 None 0 16
Peter J. Chase 5,582 None 75,753 12
John W. Croghan 4,795 None 64,997 12
David B. Gill 5,582 None 75,753 12
Graham E. Jones 5,582 None 75,753 12
John A. Levin 4,795 None 72,097 13
William G. Morton, Jr. 4,795 None 64,997 12
</TABLE>
40
<PAGE>
____________________
(1) "Interested person" of the Fund within the meaning of the 1940 Act.
(2) The amounts reflected in this table include amounts payable by the Fund
Complex for services rendered during the fiscal year ended December 31,
1998, regardless of whether such amounts were actually received by the
Directors during such fiscal year.
(3) Of the amounts shown in this column, Mr. Croghan, Mr. Gill and Mr. Levin
deferred all of their aggregate compensation pursuant to the Fee
Arrangement described above. Payments under the Fee Arrangement to a
Director will be based on the number of share equivalents a Director holds.
(4) Of the amounts shown in this column, Mr. Croghan, Mr. Gill and Mr. Levin
deferred all or a portion of their total compensation pursuant to the Fee
Arrangement described above.
(5) Indicates the total number of boards of directors of investment companies
in the Fund Complex, including the Fund, on which the Director served at
any time during the fiscal year ended December 31, 1998.
The Articles of Incorporation of the Fund contain a provision permitted
under the Maryland General Corporation Law (the "MGCL") which by its terms
eliminates the personal liability of the Fund's directors to the Fund or its
stockholders for monetary damages for breach of fiduciary duty as a director,
subject to the requirements of the 1940 Act and certain qualifications described
below. The Articles of Incorporation and the By-Laws of the Fund provide that
the Fund will indemnify directors and officers of the Fund to the fullest extent
permitted by the MGCL, subject to the requirements of the 1940 Act. Under
Maryland law, a corporation may indemnify any director or officer made a party
to any proceeding by reason of service in that capacity unless it is established
that (1) the act or omission of the director or officer was material to the
matter giving rise to the proceeding and (A) was committed in bad faith or (B)
was the result of active and deliberate dishonesty; (2) the director or officer
actually received an improper personal benefit in money, property or services;
or (3) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. The Articles
of Incorporation further provide that to the fullest extent permitted by the
MGCL, and subject to the requirements of the 1940 Act, no director or officer
will be liable to the Fund or its stockholders for money damages. Under Maryland
law, a corporation may restrict or limit the liability of directors or officers
to the corporation or its stockholders for money damages, except to the extent
that (1) it is proved that the person actually received an improper benefit or
profit in money, property, or services, or (2) a judgment or other final
adjudication adverse to the person is entered in a proceeding based on a finding
in the proceeding that the person's action, or failure to act, was the result of
active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding. Nothing in the Articles of Incorporation or the
By-Laws of the Fund protects or indemnifies a director, officer, employee or
agent against any liability to which he would otherwise be subject by reason of
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, or protects or indemnifies a director or officer of
the Fund against any liability to the Fund or its stockholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Holdings of Common Stock
As far as is known to the Fund, no person owned beneficially five percent
or more of the outstanding shares of Common Stock of the Fund at __________,
1999. DTC holds of record ___% of the outstanding shares of Common Stock at
________, 1999. As far as is known to the Fund, no person other than DTC owned
of record or beneficially shares of the Fund representing more than five percent
of the voting power of the Fund's outstanding shares. The Investment Manager
beneficially owned ____ shares of Common Stock at ____________, 1999.
As of __________, 1999, all Directors and officers of the Fund, owned in
the aggregate less than 1% of the Common Stock.
41
<PAGE>
Administration
Under an Administration Agreement (the "Administration Agreement") between
the Fund and The Chase Manhattan Bank, it was agreed that Chase Global Funds
Services Company (the "Administrator"), an affiliate of The Chase Manhattan
Bank, will provide administrative services to the Fund. Such administrative
services include maintenance of the Fund's books and records, calculations of
NAV, preparation and filing of reports with respect to certain of the Fund's
U.S. reporting requirements, monitoring of custody arrangements with the Fund's
custodians and other accounting and general administrative services. The
Directors of the Fund will supervise and monitor the administrative services
provided by the Administrator.
The Chase Manhattan Bank, a New York State-chartered bank and trust
company, provides corporate management and administrative services to investment
companies which at December 31, 1998 had more than $176 billion of assets under
administration. The Administrator's principal business address is 73 Tremont
Street, Boston, Massachusetts 02108.
Under the Administration Agreement, the Fund will pay to the Administrator
an annual administration fee of $65,000 plus .08% of the average weekly net
assets of the Fund, computed weekly and payable monthly. For the fiscal years
ended December 31, 1996, 1997 and 1998, the administration fee earned by the
Administrator aggregated approximately $176,000, $177,000 and $176,000,
respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Management Agreement authorizes the Investment Manager to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Fund and directs the Investment Manager to seek to obtain for
the Fund the most favorable net results as determined by the Fund's Board of
Directors. The Fund has authorized the Investment Manager to pay higher
commissions in recognition of brokerage services which, in the opinion of the
Investment Manager, are necessary for the achievement of better execution,
provided the Investment Manager believes this to be in the best interest of the
Fund.
In purchasing and selling securities for the Fund, it is the Fund's policy
to seek to obtain quality executions at the most favorable prices, through
responsible broker-dealers. In selecting broker-dealers to execute the
securities transactions, consideration will be given to such factors as the
price of the security, the rate of the commission, the size and difficulty of
the order, the reliability, integrity, financial condition, general execution
and operational capabilities of competing broker-dealers, and the brokerage and
research services which they provide to the Fund. Some securities considered for
investment by the Fund may also be appropriate for other clients served by the
Investment Manager. If purchase or sale of securities consistent with the
investment policies of the Fund and one or more of these other clients served by
the Investment Manager is considered at or about the same time, transactions in
such securities will be allocated among the Fund and clients in a manner deemed
fair and reasonable by the Investment Manager. Although there is no specified
formula for allocating such transactions, the various allocation methods used by
the Investment Manager, and the results of such allocations, are subject to
periodic review by the Fund's Directors.
The Investment Manager on behalf of the Fund may place brokerage
transactions through brokers, including Morgan Stanley & Co. Incorporated, who
provide it with investment research services, including market and statistical
information and quotations for the Fund's portfolio valuation purposes. The
terms "investment research" and "market and statistical information and
quotations" include advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities and potential buyers or sellers of securities, as well as the
furnishing of analyses and reports concerning issuers, industries, securities,
economic factors and trends, and portfolio strategy, each and all as consistent
with those services mentioned in Section 28(e) of the Securities Exchange Act of
1934, as amended (the "1934 Act").
42
<PAGE>
Research provided to the Investment Manager in advising the Fund will be in
addition to and not in lieu of the services required to be performed by the
Investment Manager itself, and the Investment Manager's fees will not be reduced
as a result of the receipt of such supplemental information. It is the opinion
of the management of the Fund that such information is only supplementary to the
Investment Manager's own research efforts, since the information must still be
analyzed, weighed and reviewed by the Investment Manager's staff. Such
information may be useful to the Investment Manager in providing services to
clients other than the Fund, and not all such information is necessarily used by
the Investment Manager in connection with the Fund. Conversely, information
provided to the Investment Manager by brokers and dealers through whom other
clients of the Investment Manager effect securities transactions may prove
useful to the Investment Manager in providing services to the Fund.
The Fund's Board of Directors will review at least annually the commissions
allocated by the Investment Manager on behalf of the Fund to determine if such
allocations were reasonable in relation to the benefits inuring to the Fund.
For the fiscal years ended December 31, 1996, 1997 and 1998, the Fund paid
brokerage commissions for the execution of portfolio transactions of $3,148,117,
$4,438,570 and $1,870,752, respectively. The rate of portfolio turnover for the
fiscal years ended December 31, 1996, 1997 and 1998 was 28%, 66% and 42%,
respectively.
NET ASSET VALUE
The Fund determines its NAV no less frequently than weekly, on the last
business day of each week and at such other times as the Board of Directors may
determine, by dividing the value of the net assets of the Fund (the value of its
assets less its liabilities, exclusive of capital stock and surplus, less the
liquidation value of any outstanding shares of preferred stock, which is
expected to equal the original purchase price per share plus any accrued and
unpaid dividends thereon, whether or not earned or declared) by the total number
of shares of Common Stock outstanding. In valuing the Fund's assets, all
securities for which market quotations are readily available are valued (i) at
the last sale price prior to the time of determination if there was a sale on
the date of determination, (ii) at the mean between the last current bid and
asked prices if there was no sales price on such date and bid and asked
quotations are available, and (iii) at the bid price if there was no sales price
on such date and only bid quotations are available. Publicly traded government
debt securities are typically traded on the over-the-counter market, and will be
valued at the mean between the last current bid and the asked price as of the
close of business on that market. In instances where a price determined above is
deemed not to represent fair market value, the value is determined in such
manner as the Board of Directors may prescribe. Bonds and other fixed income
securities may be valued on the basis of prices provided by independent pricing
services when such prices are believed to reflect the fair market value of such
securities. The prices determined by independent pricing services are determined
without regard to bid or last sales prices but take into account institutional
size trading in similar groups of securities and any developments related to the
specific securities. Short-term investments having a maturity of 60 days or less
are valued at amortized cost, unless the Board of Directors determines that such
valuation does not constitute fair value. Securities for which reliable
quotations or pricing services are not readily available and all other
securities and assets are valued at fair value as determined in good faith by,
or under procedures established by, the Board of Directors.
DIVIDENDS AND DISTRIBUTIONS;
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
It is the Fund's present policy, which may be changed by the Board of
Directors, to distribute to stockholders, at least monthly, dividends of its net
investment income and also to distribute any net realized capital gains
annually. Pursuant to the Fund's Dividend Reinvestment and Cash Purchase Plan
(the "Plan"), each stockholder may elect, by written instruction to American
Stock Transfer & Trust Company (the "Plan
43
<PAGE>
Agent"), to have all distributions automatically reinvested by the Plan Agent in
Fund shares pursuant to the Plan. Stockholders who do not participate in the
Plan will receive all distributions in cash paid by check in U.S. dollars mailed
directly to the stockholder by American Stock Transfer & Trust Company, as
paying agent. Copies of dividend reinvestment forms may be obtained from the
Plan Agent at P.O. Box 922, Wall Street Station, New York, New York 10269-0560.
The Plan Agent serves as agent for the stockholders in administering the
Plan. After the Fund declares an income dividend or capital gains distribution
payable either in Common Stock or in cash, as stockholders may have elected,
nonparticipants in the Plan will receive cash and participants in the Plan will
receive Common Stock to be issued by the Fund or to be purchased in the open
market by the Plan Agent. If the market price per share on the valuation date
equals or exceeds NAV per share on that date, the Fund will issue new shares to
participants at NAV or, if the NAV is less than 95% of the market price on the
valuation date, then at 95% of the market price. The valuation date will be the
dividend or distribution payment date or, if that date is not a trading day on
the exchange on which the Common Stock is then listed, the next preceding
trading day. If NAV exceeds the market price of the Common Stock on such
valuation date, or if the Fund should declare a dividend or distribution payable
only in cash, the Plan Agent will, as agent for the participants, buy the Common
Stock in the open market with the cash in respect of such dividend or
distribution, for the participants' account on, or shortly after, the payment
date.
Participants in the Plan have the option of making additional cash payments
to the Plan Agent, monthly in any amount from $100 to $3,000, for investment in
the Common Stock. The Plan Agent will use all funds received from participants
(as well as any dividends and distributions received in cash) to purchase Fund
shares in the open market on or about the payment date for each monthly dividend
or distribution (which is expected to be approximately the 15th day of each
month). No participant will have any authority to direct the time or price at
which the Plan Agent may purchase the Common Stock on its behalf. To avoid
unnecessary cash accumulations, and also to allow ample time for receipt and
processing by the Plan Agent, it is suggested that participants send in
voluntary cash payments to be received by the Plan Agent approximately ten days
before the 15th day of each month. Any voluntary cash payments received more
than ten days prior to any such date will be returned by the Plan Agent, and
interest will not be paid on any uninvested cash payments. A participant may
withdraw a voluntary cash payment by written notice, if the notice is received
by the Plan Agent not less than forty-eight hours before such payment is to be
invested. All voluntary cash payments should be made by check drawn on a U.S.
bank (or a non-U.S. bank, if the U.S. currency is imprinted on the check)
payable in U.S. dollars and should be mailed to the Plan Agent for Morgan
Stanley Dean Witter High Yield Fund, Inc., along with a properly executed cash
remittance form (copies of which will be provided by the Plan Agent to the
participants), at 40 Wall Street, New York, New York 10005.
The Plan Agent will maintain all stockholder accounts in the Plan and will
furnish written confirmations of all transactions in the account, including
information needed by stockholders for personal and tax records. Shares in the
account of each Plan participant will be held by the Plan Agent in non-
certificated form in the name of the participant, and each stockholder's proxy
will include those shares purchased pursuant to the Plan.
In the case of stockholders, such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
stockholder as representing the total amount registered in the stockholder's
name and held for the account of beneficial owners who are participating in the
Plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions. The Plan Agent's fees for the handling of 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 with respect to the Plan Agent's open market purchases in connection
with the reinvestment of dividends or distributions. A participant will also pay
brokerage commissions incurred in purchases from voluntary cash
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payments made by the participant. Brokerage charges for purchasing small amounts
of stock for individual accounts through the Plan are expected to be less than
the usual brokerage charges for such transactions, because the Plan Agent will
be purchasing stock for all participants in blocks and prorating the lower
commission thus attainable.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable on such dividends and
distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payment made and any dividend or distribution paid
subsequent to notice of the change sent to all stockholders at least 90 days
before the record date for such dividend or distribution. The Plan also may be
amended or terminated by the Plan Agent by at least 90 days' written notice to
all stockholders. All correspondence concerning the Plan should be directed to
the Plan Agent for Morgan Stanley Dean Witter High Yield Fund, Inc. at 40 Wall
Street, New York, New York 10005.
TAXATION
U.S. Federal Income Taxes
The Fund has elected and qualified and intends to continue to qualify to be
treated as a regulated investment company under the Internal Revenue Code. To so
qualify, the Fund must, among other things: (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock or securities and gains from
the sale or other disposition of foreign currencies, or other income (including
gains from options, futures contracts and forward contracts) derived with
respect to the Fund's business of investing in stocks, securities or currencies;
and (b) diversify its holdings so that, at the end of each quarter, (i) at least
50% of the value of the Fund's total assets is represented by cash and cash
items, U.S. Government securities, securities of other regulated investment
companies, and other securities, with such other securities limited in respect
of any one issuer to an amount not greater in value than 5% of the Fund's total
assets and to not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of the Fund's total assets is
invested in the securities (other than U.S. Government securities or securities
of other regulated investment companies) of any one issuer or of any two or more
issuers that the Fund controls and that are determined to be engaged in the same
business or similar or related businesses. The Fund expects that all of its
foreign currency gains will be directly related to its principal business of
investing in stock and securities.
As a regulated investment company, the Fund will not be subject to U.S.
federal income tax on its investment company taxable income that it distributes
to its stockholders, provided that at least 90% of its investment company
taxable income for the taxable year is distributed to its stockholders; however,
the Fund will be subject to tax on its income and gains, to the extent that it
does not distribute to its stockholders an amount equal to such income and
gains. Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, but does not
include net long-term capital gains in excess of net short-term capital losses.
The Fund intends to distribute annually to its stockholders substantially all of
its investment company taxable income. If necessary, the Fund intends to borrow
money or liquidate assets to make such distributions. Dividend distributions of
investment company taxable income are taxable to a U.S. stockholder as ordinary
income to the extent of the Fund's current and accumulated earnings and profits,
whether paid in cash or in shares. In general, corporate stockholders of the
Fund will be entitled to a deduction for dividends received by corporations to
the extent of the Fund's dividend income, if any, derived from its investment in
the stock of domestic corporations. The Fund will notify stockholders annually
of the amount of dividend income received from the Fund that is eligible for the
deduction for dividends received by corporations. If the Fund fails to satisfy
the 90% distribution requirement or fails to qualify as a regulated investment
company in any taxable year, it will be subject to tax in such year on all of
its taxable income, whether or not the Fund makes any distributions to its
stockholders.
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As a regulated investment company, the Fund also will not be subject to
U.S. federal income tax on its net long-term capital gains in excess of net
short-term capital losses and capital loss carryovers from the prior eight
years, if any, that it distributes to its stockholders. If the Fund retains for
reinvestment or otherwise an amount of such net long-term capital gains, it will
be subject to a tax of 35% of the amount retained. The Board of Directors of the
Fund will determine at least once a year whether to distribute any net long-term
capital gains in excess of net short-term capital losses and capital loss
carryovers from prior years. Although the Fund currently expects to distribute
any net realized capital gains at least annually, if it determines to retain any
net realized capital gains, it will designate such amounts retained as
undistributed capital gains in a notice to its stockholders who, if subject to
U.S. federal income taxation on long-term capital gains, (a) will be required to
include in income for U.S. federal income tax purposes, as long-term capital
gains, their proportionate shares of the undistributed amount, and (b) will be
entitled to credit against their U.S. federal income tax liabilities their
proportionate shares of the tax paid by the Fund on the undistributed amount and
to claim refunds to the extent that their credits exceed their liabilities. For
U.S. federal income tax purposes, the basis of shares owned by a stockholder of
the Fund will be increased by an amount equal to 65% of the amount of
undistributed capital gains included in the stockholder's income. Distributions
of net long-term capital gains, if any, by the Fund are taxable to its
stockholders as long-term capital gains whether paid in cash or in shares and
regardless of how long the stockholder has held the Fund's shares. Such
distributions of net long-term capital gains are not eligible for the dividends
received deduction. Under the Internal Revenue Code, net long-term capital gains
will be taxed at a rate no greater than 20% for individuals and 35% for
corporations. Stockholders will be notified annually as to the U.S. federal
income tax status of their dividends and distributions.
Stockholders receiving dividends or distributions in the form of additional
shares pursuant to the Plan should be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of money
that the stockholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares equal to such amount.
If the NAV of shares is reduced below a stockholder's cost as a result of a
distribution by the Fund, the distribution will be taxable even though it, in
effect, represents a return of invested capital. Investors considering buying
shares just prior to a dividend or capital gain distribution payment date should
be aware that, although the price of shares purchased at that time may reflect
the amount of the forthcoming distribution, those who purchase just prior to the
record date for a distribution will receive a distribution which will be taxable
to them. The amount of capital gains realized and distributed (which from an
investment standpoint may represent a partial return of capital rather than
income) in any given year will be the result of action taken for the best
investment of the principal of the Fund, and may therefore vary from year to
year.
Under the Internal Revenue Code, the Fund may be subject to a 4% excise tax
on a portion of its undistributed income. To avoid the tax, the Fund must
distribute annually at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year and at least 98% of its
capital gain net income for the 12-month period ending, as a general rule, on
October 31 of the calendar year. For this purpose, any income or gain retained
by the Fund that is subject to corporate income tax will be treated as having
been distributed at year-end. In addition, the minimum amounts that must be
distributed in any year to avoid the excise tax will be increased or decreased
to reflect any under distribution or over distribution, as the case may be, in
the previous year. For a distribution to qualify under the foregoing test, the
distribution generally must be declared and paid during the year. Any dividend
declared by the Fund in October, November or December of any year and payable to
stockholders of record on a specified date in such a month shall be deemed to
have been received by each stockholder on December 31 of such year and to have
been paid by the Fund not later than December 31 of such year, provided that
such dividend is actually paid by the Fund during January of the following year.
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The Internal Revenue Service ("IRS") has taken the position in a revenue
ruling that a regulated investment company that has two or more classes of
shares must designate distributions made to each class in any year as consisting
of no more than such class's proportionate share of each type of income for each
tax year based on the total dividends distributed to each class for such year,
including income qualifying for the corporate dividends-received deductions and
net capital gains. Consequently, when both Common Stock and preferred stock are
outstanding, the Fund intends to allocate, to the fullest extent practicable,
income distributed to the classes as consisting of particular types of income in
accordance with the class's proportionate Shares of such income. Thus, the Fund
will designate dividends qualifying for the corporate dividends-received
deduction, income not qualifying for the dividends-received deduction and net
capital gain income in a manner that allocates such income between the holders
of Common Stock and preferred stock in proportion to the total distributions
made to each class during the taxable year, or otherwise as required by
applicable law.
If at any time when leverage is outstanding, the Fund does not meet the
asset coverage requirements of the 1940 Act or of any rating agency that has
rated such leverage, the Fund will be required to suspend distributions to
holders of Common Stock until the asset coverage is restored. See "Investment
Objectives and Policies -- Leverage." This may prevent the Fund from
distributing at least 90% of its investment company taxable income, and may
therefore jeopardize the Fund's qualification for taxation as a regulated
investment company or cause the Fund to incur a tax liability or a non-
deductible 4% excise tax on the undistributed taxable income (including gain),
or both. Upon any failure to meet the asset coverage requirements of the 1940
Act, or imposed by a rating agency, the Fund may, in its sole discretion,
purchase or redeem any preferred stock or short-term debt securities in order to
maintain or restore the requisite asset coverage and avoid the adverse
consequences to the Fund and its stockholders of failing to qualify as a
regulated investment company or of incurring a tax liability or a non-deductible
4% excise tax. There can be no assurance, however, that any such redemption
would achieve such objectives.
The Fund is likely to make investments that produce income that is not
matched by a corresponding cash distribution to the Fund, such as investments in
certain obligations having original issue discount (e.g., an amount equal to the
excess of the stated redemption price of the security at maturity over its issue
price) or market discount (e.g., an amount equal to the excess of the stated
redemption price of the security over the basis of such bond immediately after
it was acquired) if the Fund elects to accrue market discount on a current
basis. The Fund has elected to accrue market discount on a current basis. In
addition, income may continue to accrue for federal income tax purposes with
respect to a non-performing investment. Any such income would be treated as
income earned by the Fund and therefore would be subject to the distribution
requirements of the Internal Revenue Code. Because such income may not be
matched by a corresponding cash distribution to the Fund, the Fund may be
required to borrow money or dispose of other securities to be able to make
distributions to its investors.
The Fund will maintain accounts and calculate income by reference to the
U.S. dollar for U.S. federal income tax purposes. Certain investments may be
maintained in, and income therefrom calculated by reference to, non-U.S.
currencies, and such calculations will not necessarily correspond to the Fund's
distributable income and capital gains for U.S. federal income tax purposes as a
result of fluctuations in currency exchange rates. Furthermore, exchange control
regulations may restrict the ability of the Fund to repatriate investment income
or the proceeds of sales of securities. These restrictions and limitations may
limit the Fund's ability to make sufficient distributions to satisfy the 90%
distribution requirement and to avoid the 4% excise tax.
The Fund's transactions in foreign currencies, forward contracts, options
and futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Internal Revenue Code
that, among other things, may affect the character of gains and losses realized
by the Fund (i.e., may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to the Fund, defer Fund losses, and affect the
determination of whether capital gains and losses are characterized as
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long-term or short-term capital gains or losses. These rules could therefore
affect the character, amount and timing of distributions to stockholders. These
provisions also may require the Fund to mark-to-market certain types of the
positions in its portfolio (i.e., treat them as if they were closed out) which
may cause the Fund to recognize income without receiving cash with which to make
distributions in amounts necessary to satisfy the 90% and 98% distribution
requirements for avoiding income and excise taxes. The Fund will monitor its
transactions, will make the appropriate tax elections, and will make the
appropriate entries in its books and records when it acquires any foreign
currency, option, futures contract, forward contract, or hedged investment in
order to mitigate the effect of these rules and prevent disqualification of the
Fund as a regulated investment company and minimize the imposition of income and
excise taxes.
For backup withholding purposes, the Fund may be required to withhold 31%
of reportable payments (which may include dividends, capital gain distributions,
and redemptions) to certain non-corporate stockholders. A stockholder, however,
may avoid becoming subject to this requirement by filing an appropriate form
certifying under penalty of perjury that such stockholder's taxpayer
identification number is correct and that such stockholder is not subject to
backup withholding, or is exempt from backup withholding.
Upon the sale or exchange of its shares, a stockholder will realize a
taxable gain or loss depending upon the amount realized and the stockholder's
basis in the shares. Such gain or loss will be treated as capital gain or loss
if the shares are capital assets in the stockholder's hands, and will be long-
term if the stockholder's holding period for the shares is more than 12 months
and otherwise will be short-term. Any loss realized on a sale or exchange will
be disallowed to the extent that the shares disposed of are replaced (including
replacement through the reinvesting of dividends and capital gains distributions
in the Fund) within a period of 61 days beginning 30 days before and ending 30
days after the disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a stockholder on the sale of Fund shares held by the stockholder for
six months or less will be treated for federal income tax purposes as a long-
term capital loss to the extent of any distributions of long-term capital gains
received by the stockholder with respect to such shares.
An amount received by a stockholder from the Fund in exchange for shares of
the Fund (pursuant to a repurchase of shares in a tender offer or otherwise)
generally will be treated as a payment in exchange for the shares tendered,
which may result in taxable gain or loss as described above. However, if the
amount received by a stockholder exceeds the fair market value of the shares
tendered, or if a stockholder does not tender all of the shares of the Fund
owned or deemed to be owned by the stockholder, all or a portion of the amount
received may be treated as a dividend taxable as ordinary income or as a return
of capital. In addition, if a tender offer is made, any stockholders who do not
tender their shares could be deemed, under certain circumstances, to have
received a taxable distribution as a result of their increased proportionate
interest in the Fund.
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Foreign Stockholders
Taxation of a stockholder who, as to the United States, is a non-resident
alien individual, foreign trust or estate, foreign corporation or foreign
partnership ("foreign stockholder") depends, in part, on whether the
stockholder's income from the Fund is "effectively connected" with a U.S. trade
or business carried on by the stockholder. If a stockholder is a resident alien
or if dividends or distributions from the Fund are effectively connected with a
U.S. trade or business carried on by a foreign stockholder, then dividends of
net investment income, distributions of net capital gains and gain realized upon
the sale of shares of the Fund will be subject to U.S. income tax at the rates
applicable to U.S. citizens or domestic corporations. If the income from an
investment in shares of the Fund is effectively connected with a U.S. trade or
business carried on by a foreign stockholder that is a corporation, then such
stockholder also may be subject to the 30% branch profits tax.
If the income from the Fund is not effectively connected with a U.S. trade
or business carried on by the foreign stockholder, (i) dividends of net
investment income will be subject to a 30% (or lower treaty rate) U.S. federal
withholding tax, and (ii) distributions of net capital gains and gains realized
upon the sale of shares of the Fund will not be subject to U.S. federal tax as
long as such foreign stockholder is not a non-resident alien individual who was
physically present in the United States for more than 182 days during the
taxable year and certain other conditions are satisfied. However, certain
foreign stockholders may nonetheless be subject to 31% backup withholding on
distributions of net capital gains and gross proceeds paid to them upon the sale
of their shares of the Fund. See "Taxation-U.S. Federal Income Taxes."
The tax consequences to a foreign stockholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Stockholders may be required to provide appropriate documentation
to establish their entitlement to the benefits of such a treaty. Foreign
investors are advised to consult their own tax advisers with respect to (a)
whether their income from the Fund is or is not effectively connected with a
United States trade or business carried on by them, (b) whether they may claim
the benefits of an applicable tax treaty and (c) any other tax consequences to
them of an investment in the Fund.
Notices
Stockholders will be notified annually by the Fund as to the United States
federal income tax status of the dividends, distributions and deemed
distributions made by the Fund to its stockholders. Furthermore, stockholders
will be sent, if appropriate, various written notices after the close of the
Fund's taxable year as to the United States federal income tax status of certain
dividends, distributions and deemed distributions that were paid (or that were
treated as having been paid) by the Fund to its stockholders during the
preceding taxable year.
Other Taxation
Distributions also may be subject to state, local and foreign taxes
depending on each stockholder's particular position.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS A SUMMARY
INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. IN VIEW OF THE INDIVIDUAL NATURE
OF TAX CONSEQUENCES, EACH SHAREHOLDER IS ADVISED TO CONSULT HIS OWN TAX ADVISER
WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO HIM OF PARTICIPATION IN THE
FUND, INCLUDING THE EFFECT AND APPLICABILITY OF STATE LOCAL, FOREIGN, AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
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DESCRIPTION OF CAPITAL STOCK
Common Stock
The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock ($0.01 par value). As of the date of this Prospectus, ____________ shares
of Common Stock are outstanding. Shares of the Fund, when issued, will be fully
paid and nonassessable and will have no conversion, preemptive or other
subscription rights. Holders of Common Stock are entitled to one vote per share
on all matters to be voted upon by stockholders and are not able to cumulate
their votes in the election of Directors. Thus, holders of more than 50% of the
shares voting for the election of directors have the power to elect 100% of the
directors.
All shares of Common Stock are equal as to assets, earnings and the receipt
of dividends, if any, as may be declared by the Board of Directors out of funds
available therefor, however, the Fund's Board of Directors has the authority to
classify and reclassify any authorized but unissued shares of capital stock and
to establish the rights and preferences of any such reclassified shares. See
"Description of Capital Stock -- Preferred Stock." In the event of liquidation,
dissolution or winding up of the Fund, each share of Common Stock is entitled to
receive its proportion of the Fund's assets remaining after payment of all debts
and expenses, including any preferential liquidating distribution to holders of
any preferred stock issued by the Fund.
The Fund commenced operations on November 30, 1993 following the issuance
of 7,093 shares of Common Stock to the Investment Manager on November 17, 1993
for $100,000 and the initial public offering on November 23, 1993 of 5,500,000
shares to the public resulting in aggregate net proceeds to the Fund of
approximately $122,550,020. As of _______, 1999, the net assets of the Fund
were $________.
Following the expiration of the Offer, depending upon market conditions,
the Fund may offer additional shares of Common Stock in a secondary offering at
prices not less than the NAV of the Fund's shares at the time of such offer.
Furthermore, additional shares may be issued under the Plan. Other offerings of
the Fund's shares will require approval of the Fund's Board of Directors and may
require stockholder approval. Any such additional offerings would also be
subject to the requirements of the 1940 Act, including the requirement that
shares may not be sold at a price below the then current NAV (exclusive of
underwriting discounts and commissions) except in connection with an offering to
existing stockholders or with the consent of a majority of the Fund's shares.
The Fund is a closed-end investment company and as such its stockholders do
not have the right to cause the Fund to redeem their shares of Common Stock. The
Fund, however, may repurchase shares of Common Stock from time to time in the
open market or in private transactions when it can do so at prices at or below
the current NAV per share on terms that represent a favorable investment
opportunity. Subject to its investment limitations, the Fund may borrow to
finance the repurchase of shares. However, the payment of interest on such
borrowings will increase the Fund's expenses and consequently reduce net income.
In addition, the Fund is required under the 1940 Act to maintain "asset
coverage" of not less than 300% of its "senior securities representing
indebtedness" as such terms are defined in the 1940 Act.
The Fund's shares of Common Stock will trade in the open market at a price
which is a function of several factors, including their NAV and yield. The
shares of closed-end investment companies frequently sell at a discount from,
but sometimes at a premium over, their NAVs. See "Risk Factors and Special
Considerations." There can be no assurance that it will be possible for
investors to resell shares of the Fund at or above the price at which shares are
offered by this Prospectus or that the market price of the Fund's shares will
equal or exceed NAV. Since the Fund may repurchase its shares at prices below
their NAV or make a tender offer for its shares, the NAV of those shares that
remain outstanding will be increased, but the effect of such repurchases on the
market price of the remaining shares cannot be predicted.
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Any offer by the Fund to repurchase shares will be made at a price based
upon the NAV of the shares at the close of business on or within 14 days after
the last date of the offer. Each offer will be made and stockholders notified in
accordance with the requirements of the 1934 Act and the 1940 Act, either by
publication or mailing or both. Each offering document will contain such
information as is prescribed by such laws and the rules and regulations
promulgated thereunder. When a repurchase offer is authorized by the Fund's
Board of Directors, a stockholder wishing to accept the offer may be required to
offer to sell all (but not less than all) of the shares owned by such
stockholder (or attributed to him for federal income tax purposes under Section
318 of the Internal Revenue Code). The Fund will purchase all shares tendered in
accordance with the terms of the offer unless it determines to accept none of
them (based upon one of the conditions set forth below). Persons tendering
shares may be required to pay a service charge to help defray certain costs of
the transfer agent. Any such service charges will not be deducted from the
consideration paid for the tendered shares. During the period of a repurchase
offer, the Fund's stockholders will be able to determine the Fund's current net
asset value (which will be calculated weekly) by use of a toll-free telephone
number.
The Fund's Articles of Incorporation and By-Laws include provisions that
could limit the ability of others to acquire control of the Fund, to modify the
structure of the Fund or to cause it to engage in certain transactions. These
provisions, described below, also could have the effect of depriving
stockholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging third parties from seeking to obtain control of
the Fund in a tender offer or similar transaction. In the opinion of the Fund,
however, these provisions offer several possible advantages. They potentially
require persons seeking control of the Fund to negotiate with its management
regarding the price to be paid for the shares required to obtain such control,
they promote continuity and stability and they enhance the Fund's ability to
pursue long-term strategies that are consistent with its investment objective.
The Fund's Articles of Incorporation provide that the Fund's Board of
Directors have the sole power to adopt, alter or repeal the Fund's By-Laws. In
addition, the Directors are divided into three classes, each having a term of
three years, with the term of one class expiring each year. In addition, a
Director may be removed from office only with cause and only by a majority of
the Fund's stockholders. The affirmative vote of 75% or more of the Fund's
outstanding shares is required to amend, alter or repeal the provisions in the
Fund's Articles of Incorporation relating to amendments to the Fund's By-Laws
and to removal of Directors. See "Management of the Fund -- Directors and
Officers of the Fund." These provisions could, among other things, delay the
replacement of a majority of the Directors and have the effect of making changes
in the Board of Directors more difficult than if such provisions were not in
place.
The affirmative vote of the holders of 75% or more of the outstanding
shares is required to (1) convert the Fund from a closed-end to an open-end
investment company, (2) merge or consolidate with any other entity or enter into
a share exchange transaction in which the Fund is not the successor corporation,
(3) dissolve or liquidate the Fund, (4) sell all or substantially all of its
assets, (5) cease to be an investment company registered under the 1940 Act, (6)
issue to any person securities in exchange for property worth $1,000,000 or
more, exclusive of sales of securities in connection with a public offering,
issuance of securities pursuant to a dividend reinvestment plan or other stock
dividend or issuance of securities upon the exercise of any stock subscription
rights, or (7) amend, alter or repeal the above provisions in the Fund's
Articles of Incorporation. However, if such action has been approved or
authorized by the affirmative vote of at least 70% of the entire Board of
Directors, the affirmative vote of only a majority of the outstanding shares
would be required for approval, except in the case of the issuance of
securities, in which no stockholder vote would be required unless otherwise
required by applicable law. The principal purpose of the above provisions is to
increase the Fund's ability to resist takeover attempts and attempts to change
the fundamental nature of the business of the Fund that are not supported by
either the Board of Directors or a large majority of the stockholders. These
provisions make it more difficult to liquidate, take over or open-end the Fund
and thereby are intended to discourage investors from purchasing its shares with
the hope of making a quick profit by forcing the Fund to change its structure.
These provisions, however, would apply to all actions
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proposed by anyone, including management, and would make changes in the Fund's
structure accomplished through a transaction covered by the provisions more
difficult to achieve. The foregoing provisions also could impede or prevent
transactions in which holders of shares of Common Stock might obtain prices for
their shares in excess of the market prices at which the Fund's shares were then
trading. Although these provisions could have the effect of depriving
stockholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging a third party from seeking to obtain control of
the Fund, the Fund believes the conversion of the Fund from a closed-end to an
open-end investment company to eliminate the discount may not be desired by
stockholders, who purchased their Common Stock in preference to stock of the
many mutual funds available.
The Fund is required by the rules of the NYSE to hold annual meetings of
stockholders. The most recent annual meeting of stockholders was held on June
21, 1999. The next annual meeting of stockholders is scheduled for June 2000.
Under Maryland law and the Fund's By-Laws, the Fund will call a special meeting
of its stockholders upon the written request of stockholders entitled to cast at
least 25% of all the votes at such meeting. Such request for such a special
meeting must state the purpose of the meeting and the matters proposed to be
acted on at it. The secretary of the Fund shall (i) inform the stockholders who
make the request of the reasonably estimated cost of preparing and mailing a
notice of the meeting, and (ii) on payment of these costs to the Fund notify
each stockholder entitled to notice of the meeting. Notwithstanding the above,
under Maryland law and the Fund's By-Laws, unless requested by stockholders
entitled to cast a majority of all the votes entitled to be cast at the meeting,
a special meeting need not be called to consider any matter which is
substantially the same as a matter voted on at any special meeting of the
stockholders held during the preceding 12 months.
Preferred Stock
The Fund's Articles of Incorporation provide that the Board of Directors
may classify or reclassify any unissued shares of capital stock into one or more
additional or other classes or series, with rights as determined by the Board of
Directors, by action by the Board of Directors without the approval of the
holders of Common Stock. Holders of Common Stock have no preemptive right to
purchase any shares of preferred stock that might be issued.
Although the terms of any preferred stock, including its dividend rate,
liquidation preference and redemption provisions will be determined by the Board
of Directors (subject to applicable law and the Fund's Articles of
Incorporation), it is likely that the preferred stock will be structured to
carry a relatively short-term dividend rate reflecting interest rates on short-
term debt securities, by providing for the periodic redetermination of the
dividend rate at relatively short intervals through an auction, remarketing or
other procedure. Although no shares of preferred stock are currently authorized,
the Fund believes that it is likely that the liquidation preference, voting
rights and redemption provisions of the preferred stock will be similar to those
stated below.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Fund, the holders of preferred
stock will be entitled to receive a preferential liquidating distribution
(expected to equal the original purchase price per share plus accrued and unpaid
dividends, whether or not declared) before any distribution of assets is made to
holders of Common Stock. After payment of the full amount of the liquidating
distribution to which they are entitled, the preferred stockholders will not be
entitled to any further participation in any distribution of assets by the Fund.
A consolidation or merger of the Fund with or into any corporation or
corporations, a share exchange transaction or a sale of all or substantially all
other assets of the Fund will not be deemed to be a liquidation, dissolution or
winding up of the Fund.
Voting Rights. The 1940 Act requires that the holders of any preferred
stock, voting separately as a single class, have the right to elect at least two
directors at all times and, subject to the prior rights, if any, of the holders
of any other class of senior securities outstanding, to elect a majority of the
directors at any time
52
<PAGE>
two years' dividends on any preferred shares are unpaid. The 1940 Act also
requires that, in addition to any approval by stockholders that might otherwise
be required, the approval of the holders of a majority of any outstanding
preferred shares, voting separately as a class, would be required to (a) adopt
any plan of reorganization that would adversely affect the preferred shares and
(b) take any action requiring a vote of security holders pursuant to Section
13(a) of the 1940 Act, including, among other things, changes in the Fund's
classification as a closed-end investment company or changes in its fundamental
investment restrictions. See "Common Stock" above concerning voting requirements
for conversion of the Fund to an open-end investment company and other matters.
In addition, in the discretion of the Board of Directors, subject to the 1940
Act, the terms of any preferred stock may also require the affirmative vote of
up to 75% of the preferred stock, voting separately as a class, for approval of
certain transactions involving a merger or sale of assets or conversion of the
Fund to open-end status and other matters. The Board of Directors presently
intends that, except for the matters discussed in the previous sentence and
except as otherwise indicated in this Prospectus and as otherwise required by
applicable law, holders of shares of preferred stock will have equal voting
rights with holders of Common Stock (one vote per share, unless otherwise
required by the 1940 Act), and will vote together with holders of Common Stock
as a single class.
It is presently intended that with respect to the election of the Fund's
directors, on and after issuance of any preferred stock the holders of all
outstanding shares of preferred stock, voting as a separate class, would be,
entitled to elect two directors of the Fund, and the remaining directors would
be elected by holders of Common Stock and preferred stock, voting together as a
single class. The Fund's By-laws currently provide that the Board of Directors
will consist of not more than 14 directors and not less than such number of
directors as permitted under Maryland law, as may be determined from time to
time by vote of a majority of directors then in office.
It is presently intended that the affirmative vote of the holders of a
majority of the outstanding shares of preferred stock, voting as a separate
class, will be required to amend, alter or repeal any of the preferences, rights
or powers of holders of shares of preferred stock so as to affect materially and
adversely such preferences, rights, or powers, or increase or decrease the
number of shares of preferred stock. The class vote of holders of preferred
stock described above will in each case be in addition to any other vote
required to authorize the action in question.
Redemption, Purchase and Sale of Preferred Stock by the Fund. It is
currently contemplated that the terms of any preferred stock that is issued will
provide that it is redeemable by the Fund in whole or in part at the original
purchase price per share plus accrued dividends per share, that the Fund may
tender for or purchase shares of preferred stock and that the Fund may
subsequently resell any shares so tendered or repurchased. Any redemption or
purchase of shares of preferred stock by the Fund will reduce the leverage
applicable to shares of Common Stock, while any resale of preferred stock by the
Fund will increase such leverage. See "Investment Objectives and Policies --
Leverage."
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company acts as the Fund's dividend paying
agent, transfer agent and the registrar for the Fund's Common Stock. The
principal business address of American Stock Transfer & Trust Company is 40 Wall
Street, New York, New York 10005.
CUSTODIANS
The Chase Manhattan Bank (the "U.S. Custodian") acts as the custodian for
the Fund's assets held in the United States. The principal business address of
the U.S. Custodian is 3 Chase Metrotech Center, Brooklyn, New York 11245.
53
<PAGE>
Under a custody agreement between United States Trust Company of New York
(succeeded to by the U.S. Custodian) and the Fund (the "Domestic Custody
Agreement"), the U.S. Custodian has agreed to hold all property of the Fund,
delivered to it, in safekeeping in a segregated account (except that the U.S.
Custodian may commingle such property with other assets held by the U.S.
Custodian in a fiduciary or custodian capacity), make payments of cash from the
Fund's accounts for the purchase of securities for the Fund, endorse and collect
all checks, drafts or other orders for payment of money received as custodian
for the Fund, daily furnish the Fund with confirmations and a summary of all
transfers to or from the account, collect and receive for the account of the
Fund all income and other payments and distributions, and prepare and maintain
the books and records of the Fund as required by the 1940 Act, other applicable
federal or state laws, rules or regulations, or any federal or state regulatory
body.
For its services the U.S. Custodian receives a fee calculated based on the
average daily net assets of the Fund, computed and payable monthly, plus an
amount for each transaction effected in the Fund's account. In addition, the
U.S. Custodian will be reimbursed by the Fund for any out-of-pocket expenses
incurred by it in connection with the performance of its duties under the
Domestic Custody Agreement.
The Chase Manhattan Bank (which succeeded Morgan Stanley Trust Company)
also acts as the custodian for the Fund's assets held outside the United States
(the "International Custodian").
Under a custody agreement between the International Custodian and the Fund
(the "International Custody Agreement"), the International Custodian has agreed
to hold all property of the Fund, delivered to it, in safekeeping in a
segregated account, receive and collect all income and transaction proceeds with
respect to such property, accept and deliver securities on the purchase, sale,
redemption, exchange or conversion thereof, pay from the Fund's account the
purchase price of any securities acquired by the Fund, as well as any taxes and
other expenses payable in connection with securities transactions, maintain all
necessary books and records with respect to the property of the Fund held by it,
provide the Fund with periodic reports regarding the Fund's account and, in
general, attend to all nondiscretionary details in connection with the sale,
purchase, transfer and other dealings with the securities and other property of
the Fund held by the International Custodian.
For its services the International Custodian receives a fee calculated as a
percentage of Fund assets in its custody, plus an amount for each transaction
effected in the Fund's account. In addition, the International Custodian will be
reimbursed by the Fund for any out-of-pocket expenses incurred by it in
connection with the performance of its duties under the International Custody
Agreement.
The International Custodian may employ one or more sub-custodians outside
the United States that are approved by the Board of Directors in accordance with
regulations under the 1940 Act. The fees and expenses of any such sub-custodian
will be paid by the International Custodian.
EXPERTS
The December 31, 1998 financial statements of the Fund have been
incorporated by reference herein in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting. The business address of
PricewaterhouseCoopers LLP is 1177 Avenue of the Americas, New York, New York
10036.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed on for the
Fund by Rogers & Wells LLP, New York, New York, and by its special Maryland
counsel, Piper & Marbury L.L.P., Baltimore, Maryland.
54
<PAGE>
ADDITIONAL INFORMATION
On occasion, the Fund may compare its performance to performance data
published by Lipper Analytical Services, Inc., Morningstar Publications, Inc. or
other industry publications. As with other performance data, performance
comparisons should not be considered indicative of the Fund's relative
performance for any future period.
The Fund has filed with the SEC in Washington, D.C. a registration
statement under the Securities Act, relating to the Shares offered by this
Prospectus. Further information concerning these Shares and the Fund may be
found in that registration statement on file with the SEC, of which this
Prospectus constitutes a part. The Fund also files reports and other information
with the SEC. The registration statements and these reports and other
information can be inspected, without charge, and copied, for a fee, at the
public reference facilities maintained by the SEC at 450 5/th/ Street, N.W.,
Washington, D.C. 20549. The Fund's filings are also available to the public on
the SEC's internet site (http://www.sec.gov). The reports and other information
concerning the Fund may also be inspected at the offices of the NYSE.
55
<PAGE>
APPENDIX A
RATINGS
A description of the rating policies of Moody's and S&P with respect to
bonds and debentures appears below.
Moody's Investors Service's Corporate Bond Ratings
Aaa - Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment qualities and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
e.g., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers "1", "2" and "3" to certain of its
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a mid-
range ranking; and the modifier "3" indicates that the issue ranks in the lower
end of its generic rating category.
A-1
<PAGE>
Standard & Poor's Corporate Bond Ratings
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to repay principal and pay
interest.
AA - Bonds rated AA also qualify as high quality debt obligations. Capacity
to pay principal and interest is very strong, and differ from AAA issues only in
small degree.
A - Bonds rated A have a strong capacity to repay principal and pay
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to repay
principal and pay interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead a weakened capacity to repay principal and pay interest for bonds
in this category than for higher rated categories.
BB-B-CCC-CC-C - Bonds rated BB, B, CCC, CC and C are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
D - Bonds rated D are in default. The D category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such payments
will be made during such grace period. The D rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
Moody's Investors Service's Commercial Paper Ratings
Prime-1 - Issuers (or related supporting institutions) rated Prime-1 have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and well-
established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2 - Issuers (or related supporting institutions) rated Prime-2 have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is
maintained.
Prime-3 - Issuers (or related supporting institutions) rated Prime-3 have
an acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Not Prime - Issuers rated Not Prime do not fall within any of the Prime
rating categories.
A-2
<PAGE>
Standard & Poor's Commercial Paper Ratings
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from "A-l" for the highest
quality obligations to "D" for the lowest. The four categories are as follows:
A-1 - This highest category indicates that the degree of safety regarding
timely payments is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-l".
A-3 - Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B - Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C - This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D - Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
A-3
<PAGE>
APPENDIX B
DESCRIPTION OF VARIOUS FOREIGN CURRENCY HEDGES
AND STOCK OPTIONS AND FUTURES CONTRACTS
Foreign Currency Hedging Transactions
Forward Foreign Currency Exchange Contract. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks).
Foreign Currency Futures Contracts. A foreign currency futures contract is
a standardized contract for the future delivery of a specified amount of a
foreign currency at a future date at a price set at the time of the contract.
Foreign currency futures contracts traded in the United States are traded on
regulated exchanges. Parties to a futures contract must make initial "margin"
deposits, which generally range from 2% to 5% of the contract price, to secure
performance of the contract. There also are requirements to make 'variation'
margin deposits as the value of the futures contract fluctuates. The Fund may
not enter into foreign currency futures contracts if the aggregate amount of
initial margin deposits on the Fund's futures positions, including stock index
futures contracts (which are discussed below), would exceed 5% of the value of
the Fund's total assets. The Fund also will be required to segregate assets to
cover its futures contracts obligations.
At the maturity of a forward of futures contract, the Fund may either
accept or make delivery of the currency specified in the contract or, prior to
maturity, enter into a closing purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are usually effected with the currency trader who is a party
to the original forward contract. Closing purchase transactions with respect to
futures contracts are effected on an exchange. The Fund will only enter into
such a forward or futures contract if it is expected that there will be a liquid
market in which to close out such contract. There can, however, be no assurance
that such a liquid market will exist in which to close a forward or futures
contract, in which case the Fund may suffer a loss.
Currency Hedging Strategies. The Fund may enter into forward foreign
currency exchange contracts and foreign currency futures contracts in several
circumstances. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when the
Fund anticipates the receipt in a foreign currency of dividends or interest
payments on such a security which it holds, the Fund may desire to "lock in" the
dollar price of the security or the dollar equivalent of such dividend or
interest payment, as the case may be. In addition, when the Investment Manager
believes that the currency of a particular foreign country may suffer a
substantial decline against the dollar, it may enter into a forward or futures
contract to sell, for a fixed amount of dollars, the amount of foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency.
The Fund does not intend to enter into such forward or futures contracts to
protect the value of its portfolio securities on a regular basis, and will not
do so if, as a result, the Fund will have more than 20% of the value of its
total assets committed to the consummation of such contracts. The Fund also will
not enter into such forward or futures contracts or maintain a net exposure to
such contracts where the consummation of the contracts would obligate the Fund
to deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency. Further, the
Fund generally will not enter into a forward or futures contract with a term of
greater than one year.
B-1
<PAGE>
The Fund may attempt to accomplish objectives similar to those described
above with respect to forward and futures contracts for currency by means of
purchasing put or call options on foreign currencies on exchanges. A put option
gives the Fund the right to sell a currency at the exercise price until the
expiration of the option. A call option gives the Fund the right to purchase a
currency at the exercise price until the expiration of the option.
While the Fund may enter into forward, futures and options contracts to
reduce currency exchange rate risks, changes in currency prices may result in a
poorer overall performance for the Fund than if it had not engaged in any such
transaction. Moreover, there may be an imperfect correlation between the Fund's
portfolio holdings of securities denominated in a particular currency and
forward, futures or options contracts entered into by the Fund. Such imperfect
correlation may prevent the Fund from achieving the intended hedge or expose the
Fund to risk of foreign exchange loss.
Certain provisions of the Internal Revenue Code may limit the extent to
which the Fund may enter into forward or futures contracts or engage in options
transactions. These transactions may also affect the character and timing of
income and the amount of gain or loss recognized by the Fund and its
stockholders for U.S. federal income tax purposes. See "Taxation -- U.S. Federal
Income Taxes. "
Options and Index Futures Contracts
Options on Securities. In order to hedge against market shifts, the Fund
may purchase put and call options on securities. In addition, the Fund may seek
to increase its income or may hedge a portion of its portfolio investments
through writing (e.g., selling) covered call options. A put option gives the
holder the right to sell to the writer of the option an underlying security at a
specified price at any time during or at the end of the option period. In
contrast, a call option gives the purchaser the right to buy the underlying
security covered by the option from the writer of the option at the stated
exercise price. A "covered" call option means that so long as the Fund is
obligated as the writer of the option, it will own (i) the underlying securities
subject to the option, or (ii) securities convertible or exchangeable without
the payment of any consideration in to the securities subject to the option.
The Fund will receive a premium from writing call options, which increases
the Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, the Fund will limit
its opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as writer of the option continues. Thus, in some periods the Fund
will receive less total return and in other periods greater total return from
writing covered call options than it would have received from its underlying
securities had it not written call options.
The Fund may purchase options on securities that are listed on securities
exchanges or traded over the counter. In purchasing a put option, the Fund will
seek to benefit from a decline in the market price of the underlying security,
while in purchasing a call option, the Fund will seek to benefit from an
increase in the market price of the underlying security. If an option purchased
is not sold or exercised when it has remaining value, or if the market price of
the underlying security remains equal to or greater than the exercise price, in
the case of a put, or remains equal to or below the exercise price, in the case
of a call, during the life of the option, the Fund will lose its investment in
the option. For the purchase of an option to be profitable, the market price of
the underlying security must decline sufficiently below the exercise price, in
the case of a put, and must increase sufficiently above the exercise price, in
the case of a call, to cover the premium and transaction costs. Because premiums
paid by the Fund on options are small in relation to the market value of the
investments underlying the options, buying options can result in large amounts
of leverage. The leverage offered by trading in options could cause the Fund's
net asset value to be subject to more frequent and wider fluctuation than would
be the case if the Fund did not invest in options.
B-2
<PAGE>
Index Futures. The Fund may purchase and sell indexed financial futures
contracts. An index futures contract is an agreement to take or make delivery of
an amount of cash equal to the difference between the value of the index at the
beginning and at the end of the contract period. Successful use of index futures
will be subject to the Investment Manager's ability to predict correctly
movements in the direction of the relevant debt market. No assurance can be
given that the Investment Manager's judgment in this respect will be correct.
The Fund may sell indexed financial futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of
equity securities in its portfolio that might otherwise result. When the Fund is
not fully invested in high yield securities and anticipates a significant market
advance, it may purchase index futures in order to gain rapid market exposure
that may in part or entirely offset increases in the cost of securities that it
intends to purchase. In a substantial majority of these transactions, the Fund
will purchase such securities upon termination of a futures position, but, under
unusual market conditions, a futures position may be terminated without the
corresponding purchase of debt securities.
B-3
<PAGE>
Morgan Stanley Dean Witter High Yield Fund, Inc.
<PAGE>
PART C -- OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements
-- Report of Independent Accountants
-- Included in Part A: Financial Highlights and Financial
Statements incorporated by reference
Statements, schedules and historical information other than those
listed above have been omitted since they are either not
applicable or not required or the required information is shown
in the financial statements or notes thereto.
(2) Exhibits
(a) -- Amended and Restated Articles of Incorporation, as
amended
(b) -- Amended and Restated By-Laws
(c) -- Not applicable
(d) (1) -- Specimen certificate for Common Stock, par value
$.01 per share
(2) -- Form of Subscription Certificate and Instructions*
(3) -- Form of Notice of Guaranteed Delivery*
(4) -- Form of DTC/Nominee Over-Subscription Exercise
Form*
(5) -- Form of Subscription Agent Agreement between the
Registrant and American Stock Transfer and Trust
Company*
(6) -- Form of Information Agent Agreement between the
Registrant and Shareholder Communications Corp.*
(e) -- Dividend Reinvestment and Cash Purchase Plan,
adopted by the Fund, administered by American
Stock Transfer & Trust Company as plan agent
(f) -- Not applicable
(g) -- Investment Advisory and Management Agreement, dated
as of March 13, 1997, between the Fund and the
Investment Manager
(h) -- Form of Soliciting Dealer Agreement*
(i) -- Not applicable
(j) (1) -- Domestic Custody Agreement, dated as of November
30, 1993, between the Fund and United States Trust
Company of New York (succeeded to by The Chase
Manhattan Bank)
(2) -- International Custody Agreement, dated as of
November 22, 1993, between the Fund and Morgan
Stanley Trust Company (succeeded to by The Chase
Manhattan Bank)
(k) (1) -- Agreement for Stock Transfer Services, dated as of
November 22, 1993, between the Fund and American
Stock Transfer & Trust Company
(2) -- Fund Administration Agreement, dated November 22,
1993, between the Fund and United States Trust
Company of New York (succeeded to by The Chase
Manhattan Bank)
(l) (1) -- Opinion and consent of Rogers & Wells LLP*
(2) -- Opinion and consent of Piper & Marbury L.L.P.*
C-1
<PAGE>
(m) -- Not applicable
(n) -- Consent of PricewaterhouseCoopers LLP*
(o) -- Not applicable
(p) -- Investment Letter, dated November 17, 1993, from
the Investment Manager to the Fund
(q) -- Not applicable
(r) -- Financial Data Schedule*
_______________
* To be filed by amendment.
Item 25. Marketing Arrangements
See Exhibit 2(h) to this Registration Statement.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement.*
<TABLE>
<CAPTION>
<S> <C>
SEC Registration fees..................................................... $
Printing (other than stock certificates)..................................
Engraving and printing stock certificates.................................
Fees and expenses of qualification under state securities laws
(including fees of counsel)...............................................
Auditing and accounting fees..............................................
Legal fees and expenses...................................................
NASD fee..................................................................
New York Stock Exchange listing fees......................................
Subscription Agent fees and expenses......................................
Information Agent fees and expenses.......................................
Miscellaneous............................................................. -----------------
Total................................................................. $
================
* To be completed by amendment.
</TABLE>
Item 27. Persons Controlled by or Under Common Control with Registrant
Not applicable
Item 28. Number of Holders of Securities
As of the effective date of the Registration Statement:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Common Stock, $.01 par value............................................. ________________
</TABLE>
Item 29. Indemnification
Section 2-418 of the General Corporation Law of the State of Maryland,
Article SEVENTH of the Fund's Articles of Incorporation, Article VII of the
Fund's By-Laws and the Investment Advisory and Management Agreement each provide
for indemnification.
C-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Fund, pursuant to the foregoing
provisions or otherwise, the Fund has been advised that in the opinion of the
Securities and Exchange Commission (the "SEC") such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Fund of expenses incurred or paid by
a director, officer or controlling person of the Fund in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the Fund
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Item 30. Business and Other Connections of Investment Manager
The description of the business of Morgan Stanley Dean Witter Investment
Management Inc. is set forth under the caption "Management of the Fund" in the
Prospectus forming part of this Registration Statement. The information as to
the directors and officers of Morgan Stanley Dean Witter Investment Management
Inc. set forth in Morgan Stanley Dean Witter Investment Management Inc.'s Form
ADV filed with the SEC on December 15, 1981 (File No. 801-15757) and as amended
through the date hereof is incorporated herein by reference.
Item 31. Location of Accounts and Records
Morgan Stanley Dean Witter High Yield Fund, Inc.
c/o Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
(Fund's Articles of Incorporation and By-Laws)
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
(with respect to its services as Investment Manager)
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
(with respect to its services as Administrator)
The Chase Manhattan Bank
3 Chase Metrotech Center
Brooklyn, New York 11245
(with respect to its services as Custodian for the Fund's U.S. assets)
The Chase Manhattan Bank
3 Chase Metrotech Center
Brooklyn, New York 11245
(with respect to its services as Custodian for the Fund's foreign assets)
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
C-3
<PAGE>
(with respect to its services as Transfer Agent)
Item 32. Management Services
Not applicable
Item 33. Undertakings
(a) The Fund undertakes to suspend offering its shares until it amends its
Prospectus contained herein if (1) subsequent to the effective date of its
Registration Statement, the net asset value per share declines more than 10
percent from its net asset value per share as of the effective date of this
Registration Statement or (2) the net asset value increases to an amount greater
than its net proceeds as stated in the Prospectus.
(b) The Fund hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Fund under Rule 497 (h) under the
Securities Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on the
14th day of July, 1999.
MORGAN STANLEY DEAN WITTER
HIGH YIELD FUND, INC.
By: /s/ Michael F. Klein
-------------------------
Michael F. Klein
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael F. Klein, Harold J. Schaaff, Jr.,
Stefanie V. Chang and Mary E. Mullin and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all Amendments (including pre-effective and post-
effective amendments) to this Registration Statement, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to a1l intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Barton M. Biggs Director and Chairman July 14, 1999
- -------------------
Barton M. Biggs
/s/ Michael F. Klein Director and President July 14, 1999
- -------------------- (Principal Executive Officer)
Michael F. Klein
/s/ Peter J. Chase Director July 14, 1999
- ------------------
Peter J. Chase
/s/ John W. Croghan Director July 14, 1999
- -------------------
John W. Croghan
/s/ David B. Gill Director July 14, 1999
- -----------------
David B. Gill
/s/ Graham E. Jones Director July 14, 1999
- -------------------
Graham E. Jones
/s/ John A. Levin Director July 14, 1999
- -----------------
John A. Levin
/s/ William G. Morton, Jr. Director July 14, 1999
- -------------------------
William G. Morton, Jr.
/s/ Belinda Brady Assistant Treasurer July 14, 1999
- ----------------- (Principal Financial Officer
Belinda Brady and Principal Accounting
</TABLE> Officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Page
- ------ ---------------------- -------------
<S> <C>
(2) (a) - Amended and Restated Articles of Incorporation, as amended
(2) (b) - Amended and Restated By-Laws
(2) (c) - Not applicable
(2) (d) (1) - Specimen certificate for Common Stock, par value $.01 per share
(2) - Form of Subscription Certificate and Instructions*
(3) - Form of Notice of Guaranteed Delivery*
(4) - Form of DTC/Nominee Over-Subscription Exercise Form*
(5) - Form of Subscription Agent Agreement between the Registrant and American
Stock Transfer & Trust Company*
(6) - Information Agent Agreement between the Registrant and Shareholder
Communications Corp.*
(2) (e) - Dividend Reinvestment and Cash Purchase Plan, adopted by the Fund,
administered by American Stock Transfer & Trust Company as plan agent
(2) (f) - Not applicable
(2) (g) - Investment Advisory and Management Agreement, dated as of March 13, 1997,
between the Fund and the Investment Manager
(2) (h) - Form of Soliciting Dealer Agreement*
(2) (i) - Not applicable
(2) (j) (1) - Domestic Custody Agreement, dated as of November 30, 1993, between the Fund
and United States Trust Company of New York (succeeded to by The Chase
Manhattan Bank)
(2) - International Custody Agreement, dated as of November 22, 1993, between the
Fund and Morgan Stanley Trust Company (succeeded to by The Chase Manhattan
Bank)
(2) (k) (1) - Agreement for Stock Transfer Services, dated as of November 22, 1993,
between the Fund and American Stock Transfer & Trust Company
(2) - Fund Administration Agreement, dated November 22, 1993, between the Fund
and United States Trust Company of New York (succeeded to by The Chase
Manhattan Bank)
(2) (l) (1) - Opinion and consent of Rogers & Wells LLP*
- Opinion and consent of Piper & Marbury L.L.P.*
(2) (m) - Not applicable
(2) (n) - Consent of PricewaterhouseCoopers LLP*
(2) (o) - Not applicable
(2) (p) - Investment Letter, dated November 17, 1993, from the Investment Manager to
the Fund
(2) (q) - Not applicable
(2) (r) - Financial Data Schedule*
</TABLE>
- -----------------
* To be filed by amendment.
<PAGE>
Exhibit (2)(a)
ARTICLES OF INCORPORATION
OF
THE MORGAN STANLEY HIGH YIELD FUND, INC.
THE UNDERSIGNED, Doris Crawford, whose post office address is c/o The
Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202,
being at least eighteen years of age, does hereby act as an incorporator, under
and by virtue of the general laws of the State of Maryland authorizing the
formation of corporations and with the intention of forming a corporation.
The name of the corporation (hereinafter called the "Corporation") is The Morgan
Stanley High Yield Fund, Inc.
FIRST: The Corporation was formed for the following purposes:
(1) To act as a closed-end investment company of the management type
registered as such with the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940.
(2) To hold, invest and reinvest its assets in securities and other
investments or to hold all or part of its assets in cash.
(3) To issue and sell shares of its capital stock in such amounts and
on such terms and conditions and for such purposes and for such amount or kind
of consideration as may now or hereafter be permitted by law.
(4) To enter into management, supervisory, advisory, administrative,
underwriting and other contracts and otherwise do business with other
corporations, and subsidiaries or affiliates thereof, or any other firm or
organization, notwithstanding that the Board of Directors of the Corporation may
be composed in part of officers, directors or employees of such corporation,
firm or organization and, in the
1
<PAGE>
absence of fraud, the Corporation and such corporation, firm or organization may
deal freely with each other and neither such management, supervisory, advisory,
administrative or underwriting contract nor any other contract or transaction
between the Corporation and such corporation, firm or organization shall be
invalidated or in any way affected thereby.
(5) To do any and all additional acts and exercise any and all
additional powers or rights as may be necessary, incidental, appropriate or
desirable for the accomplishment of all or any of the foregoing purposes.
The Corporation shall be authorized to exercise and generally to enjoy all of
the powers, rights and privileges granted to, or conferred upon, corporations by
the General Laws of the State of Maryland now or hereafter in force.
SECOND: The post office address of the place at which the principal office of
the Corporation in the State of Maryland is located is c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202.
The name of the Corporation's resident agent is the Corporation Trust
Incorporated, and its post office address is 32 South Street, Baltimore,
Maryland 21202. Said resident agent is a corporation of the State of Maryland.
THIRD: Section 1. The total number of shares of capital stock that the
Corporation has authority to issue is 100,000,000 shares of capital stock of the
par value of $0.01 each, having an aggregate par value of $1,000,000 all of
which 100,000,000 shares are initially classified as "Common Stock."
Section 2. (1) Without the assent or vote of the stockholders, the Board
of Directors shall have the authority by resolution to classify and reclassify
any authorized but unissued shares of capital stock from time to time by setting
or changing in any one or more respects the preferences,
2
<PAGE>
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of the capital
stock.
(2) The foregoing powers of the Board of Directors to classify and
reclassify any of the shares of capital stock shall include, without limitation,
subject to the provisions of the Charter, authority to classify or reclassify
any unissued shares of such stock into a class or classes of preferred stock,
preference stock, special stock or other stock, and to divide and classify
shares of any class into one or more series of such class, by determining,
fixing, or altering one or more of the following:
(a) The distinctive designation of such class or series and the
number of shares to constitute such class or series; provided
that, unless otherwise prohibited by the terms of such or any
other class or series, the number of shares of any class or
series may be decreased by the Board of Directors in
connection with any classification or reclassification of
unissued shares and the number of shares of such class or
series may be increased by the Board of Directors in
connection with any such classification or reclassification,
and any shares of any class or series which have been
redeemed, purchased, otherwise acquired or converted into
shares of Common Stock or any other class or series shall
become part of the authorized capital stock and be subject to
classification and reclassification as provided in this
subparagraph;
(b) Whether or not and, if so, the rates, amounts and times at
which, and the conditions under which, dividends shall be
payable on shares of such class or series, whether any such
dividends shall rank senior or junior to or on a parity with
the dividends payable on any other class or series of stock,
and the status of any such dividends as cumulative, cumulative
to a limited extent or non-cumulative and as participating or
non-participating.
(c) Whether or not shares of such class or series shall have
voting rights, in addition to any voting rights provided by
law and, if so, the terms of such voting rights;
(d) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and
conditions thereof, including provisions for adjustment of the
conversation or exchange rate in such events or at such times
and the Board of Directors shall determine;
(e) Whether or not shares of such class or series shall be subject
to redemption and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which
they shall be redeemable and the amount per share payable in
case of redemption, which amount may vary under different
conditions and at different redemption dates; and whether or
not there shall be any sinking fund or purchase account in
respect thereof, and if so, the terms thereof;
3
<PAGE>
(f) The rights of the holders of shares of such class or series
upon the liquidation, dissolution or winding up of the affairs
of, or upon any distribution of the assets of, the
Corporation, which rights may vary depending upon whether such
liquidation, dissolution or winding up is voluntary or
involuntary and, if voluntary, may vary at different dates,
and whether such rights shall rank senior or junior to or on a
parity with such rights of any other class or series of stock;
(g) Whether or not there shall be any limitations applicable,
while shares of such class or series are outstanding, upon the
payment of dividends or making of distributions on, or the
acquisition of, or the use of moneys for purchase or
redemption of, any stock of the Corporation, or upon any
action of the Corporation, including action under this
subparagraph, and, if so, the terms and conditions thereof;
and
(h) Any other preferences, rights, restrictions, including
restrictions on transferability, and qualifications of shares
of such class or series, not inconsistent with law and the
Charter of the Corporation.
(3) For the purposes hereof and of any articles supplementary to the
Charter providing for the classification or reclassification of any shares of
capital stock or of any other charter document of the Corporation - (unless
otherwise provided in any such articles or document), any class or series of
stock of the Corporation shall be deemed to rank:
(a) prior to another class or series either as to dividends or
upon liquidation, if the holders of such class or series shall
be entitled to the receipt of dividends or of amounts
distributable on liquidation, dissolution or winding up, as
the case may be, in preference or priority to holders of such
other class or series;
(b) on a parity with another class or series either as to
dividends or upon liquidation, whether or not the dividend
rates, dividend payment dates or redemption or liquidation
price per share thereof be different from those of such
others, if the holders of such class or series of stock shall
be entitled to receipt of dividends or amounts distributable
upon liquidation, dissolution or winding up, as the case may
be, in proportion to their respective dividend rates or
redemption or liquidation prices, without preference or
priority over the holders of such other class or series; and
(c) junior to another class or series either as to dividends or
upon liquidation, if the rights of the holders or such class
or series shall be subject or subordinate to the rights of the
holders of such other class or series in respect of the
receipt of dividends or the amounts distributable upon
liquidation, dissolution or winding up, as the case may be.
4
<PAGE>
(4) The provision of Section 2 of this Article Fourth may not be
amended, altered or repealed except by vote of three-fourths of the shares of
capital stock of the Corporation outstanding and entitled to vote thereupon.
Section 3. The presence in person or by proxy of the holders of record
of a majority of the aggregate number of shares of capital stock issued and
outstanding and entitled to vote thereat shall constitute a quorum for the
transaction of any business at all meetings of the stockholders except as
otherwise provided by law or in these Articles of Incorporation.
Section 4. Notwithstanding any provisions of the General Laws of the
State of Maryland requiring action to be taken or authorized by the affirmative
vote of the holders of a designated proportion greater than a majority of the
shares of capital stock of the Corporation outstanding and entitled to vote
thereupon, such action shall, except as otherwise provided in these Articles of
Incorporation, be valid and effective if taken or authorized by the affirmative
vote of the holders of a majority of the total number of shares of capital stock
of the Corporation outstanding and entitled to vote thereupon.
Section 5. No holder of shares of capital stock of the Corporation
shall, as such holder, have any preemptive right to purchase or subscribe for
any part of any new or additional issue of stock of any class, or of rights or
options to purchase any stock, or of securities convertible into, or carrying
rights or options to purchase, stock of any class, whether now or hereafter
authorized or whether issued for money, for a consideration other than money or
by way of a dividend or otherwise, and all such rights are hereby waived by each
holder of capital stock and of any other class of stock or securities which may
hereafter be created.
Section 6. All persons who shall acquire capital stock in the
Corporation shall acquire the same subject to the provisions of these Articles
of Incorporation.
5
<PAGE>
Section 7. (1) Except as otherwise provided in subsection 2 of this
Section 7 of this Article Fourth, the affirmative vote of at least three-fourths
of the shares of capital stock of the Corporation outstanding and entitled to
vote thereupon shall be necessary to authorize any of the following actions:
(a) the conversion of the Corporation to an "open-end company"
or any amendment to these Articles of Incorporation to make
the Corporation's common stock a "redeemable security" (as
such terms are defined in the Investment Company Act of
1940);
(b) the merger or consolidation of the Corporation with or into
any other company (including, without limitation, a
partnership, corporation, joint venture, business trust,
common law trust or any other business organization) or
share exchange in which the Corporation is not the
successor corporation;
(c) the dissolution or liquidation of the Corporation
notwithstanding any other provision in these Articles of
Incorporation;
(d) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of
transactions; of all or substantially all of the assets of
the Corporation other than in the ordinary course of the
Corporation's business;
(e) a change in the nature of the business of the Corporation
so that it would cease to be an investment company
registered under the Investment Company Act of 1940; or
(f) the issuance or transfer by the Corporation (in one
transaction or a series of transactions) of any securities
of the Corporation to any other person in exchange for
cash, securities or other property having any aggregate
fair market value of $1,000,000 or more excluding (i) sales
of any securities of the Corporation in connection with a
public offering thereof, (ii) issuances of any securities
of the Corporation pursuant to a dividend reinvestment plan
adopted by the Corporation or pursuant to a stock dividend
and (iii) issuances of any securities of the Corporation
upon the exercise of any stock subscription rights
distributed by the Corporation.
(2) If the Board of Directors approves, by a vote of at least seventy
percent of the entire Board of Directors, any action listed in subsection (1) of
this Section 7 of this Article Fourth other than the action described in clause
(1) (f), the affirmative vote of only a majority of the share of capital stock
of the Corporation outstanding and entitled to vote thereupon shall be necessary
to authorize such action. If the Board of Directors approves, by a vote of a
least seventy percent of the entire Board of Directors, an
6
<PAGE>
action described in clause (1) (f) of this Section 7 of this Article Fourth, no
shareholder vote shall be required to authorize such action.
(3) The provisions of the Section 7 of this Article Fourth may not be
amended, altered or repealed except by the approval of at least three-fourths of
the shares of capital stock of the Corporation outstanding and entitled to vote
thereupon.
FOURTH: The initial number of directors of the Corporation is three (3), and
the names of the directors who shall act as such until the first annual meeting
or until their successor or successors are duly elected and qualify are Warren
J. Olsen, Harold J. Schaaff, Jr. and Joseph P. Stadler. The By-Laws of the
Corporation may fix the number of directors at a number other than three and may
authorize the Board of Directors, by the vote of a majority of the entire Board
of Directors, to increase or decrease the number of directors within a limit
specified in the By-Laws, provided that in no case shall the number of directors
be less than the number prescribed by law, and to fill the vacancies created by
any such increase in the number of directors. Unless otherwise provided by the
By-Laws of the Corporation, the directors of the Corporation need not be
stockholders.
The By-Laws of the Corporation may divide the Directors of the Corporation into
classes and proscribe the tenure of office of the several classes; but no class
shall be elected for a period shorter than that from the time of the election of
such class until the next annual meeting and thereafter for a period shorter
than the interval between annual meetings or for a longer period than five
years, and the term of office of at least one class shall expire each year.
A director may be removed only with cause, and any such removal may be made only
by the stockholders of the Corporation.
The provisions of this Article Fifth may not be amended, altered or repealed
except by a vote of three-fourths of the shares of capital stock of the
Corporation outstanding and entitled to vote thereupon.
7
<PAGE>
FIFTH: Section 1. All corporate powers and authority of the Corporation (except
as at the time otherwise provided by statute, by these Articles of Incorporation
or by the By-Laws) shall be vested in and exercised by the Board of Directors.
Section 2. The Board of Directors shall have the sole power to adopt,
alter or repeal the By-Laws of the Corporation except to the extent that the By-
Laws otherwise provide. The provisions of this Section 2 of this Article Sixth
may not be amended, altered or repealed except by vote of three-fourths of the
shares of capital stock of the Corporation outstanding and entitled to vote
thereupon.
Section 3. The Board of Directors shall have the power from time to time
to determine whether and to what extent, and at what times and places and under
what conditions and regulations, the accounts and books of the Corporation
(other than the stock ledger) or any of them shall be open to the inspection of
stockholders: and no stockholder shall have any right to inspect any account,
book or document of the Corporation except to the extent permitted by statute or
the By-Laws.
Section 4. The Board of Directors shall have the power to determine, as
provided herein, or if a provision is not made herein, in accordance with
generally accepted accounted principles, what constitutes net income, total
assets and the net asset value of the shares of capital stock of the
Corporation.
Section 5. The Board of Directors shall have the power to distribute
dividends from the funds legally available therefor in such amounts, if any, and
in such manner to the stockholders of record as of a date, as the Board of
Directors may determine.
Section 6. Without the assent or vote of the stockholders, the Board of
Directors shall have the power to authorize the issuance from time to time of
shares of the capital stock of any class of the Corporation, whether now or
hereafter authorized, and securities convertible into shares of capital
8
<PAGE>
stock of the Corporation of any class or classes, whether now or hereafter
authorized, for such consideration as the Board of Directors may deem advisable.
Section 7. Without the assent or vote of the stockholders, the Board of
Directors shall have the power to authorize and issue obligations of the
Corporation, secured or unsecured, as the Board of Directors may determine, and
to authorize and cause to be executed mortgages and liens upon the real or
personal property of the Corporation.
Section 8. The provision of Section 6 and 7 of this Article Sixth may
not be amended, altered or repealed except by vote of three-fourths of the
shares of capital stock of the Corporation outstanding and entitled to vote
thereupon.
SIXTH: Section 1. To the fullest extent permitted by the Maryland General
Corporation Law, subject to the requirements of the Investment Company Act of
1940, as amended, no director or officer of the Corporation shall be personally
liable to the Corporation or its security holders for money damages. This
limitation on liability applies to events occurring at the time a person serves
as a director or officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which such liability is
asserted. No amendment of these Articles of Incorporation or repeal of any
provision hereof shall limit or eliminate the benefits provided to directors and
officers under this provision in connection with any act or omission that
occurred prior to such amendment or repeal.
Section 2. The Corporation shall indemnify, to the fullest extent
permitted by law (including the Investment Company Act of 1940) as currently in
effect or as the same may hereafter be amended, any person made or threatened to
be made a party to any action, suit or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that such person or such
person's testator or intestate is or was a director or officer of the
Corporation or serves or served at the request of the Corporation any other
enterprises as a director or officer. To the fullest extent permitted by law
(including the Investment Company Act of 1940) as currently in effect or as the
same may hereafter be
9
<PAGE>
amended, expenses incurred by any such person in defending any such action, suit
or proceeding shall be paid or reimbursed by the Corporation promptly upon
receipt by it of an undertaking of such person to repay such expenses if it
shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation. The rights provided to any person by this
Section 2 of this Article Seventh shall be enforceable against the Corporation
by such person who shall be presumed to have relied upon it in serving or
continuing to serve as a director or officer as provided above. No amendment of
this Section 2 of this Article Seventh shall impair the rights of any person
arising at any time with respect to events occurring prior to such amendment.
For purposes of this Section 2 of this Article Seventh, the term "Corporation"
shall include any predecessor of the Corporation and any constituent corporation
(including any constituent of a constituent) absorbed by the Corporation in a
consolidation or merger; the term "other enterprise" shall include any
corporation, partnership, joint venture, trust or employee benefit plan; service
"at the request of the Corporation" shall include service as a director or
officer of the Corporation which imposes duties on, or involves services by,
such director or officer with respect to an employee benefit plan, its
participants or beneficiaries; any excise taxes assessed on a person with
respect to an employee benefit plan shall be deemed to be indemnifiable
expenses; and action by a person with respect to any employee benefit plan which
such person reasonably believes to be in the interest of the participants and
beneficiaries of such plan shall be deemed to be action not opposed to the best
interests of the Corporation. The provisions of this Section 2 of this Article
Seventh shall be in addition to the other provisions of this Article Seventh.
Section 3. Nothing in this Article Seventh protects or purports to
protect any director or officer against any liability to the Corporation or its
security holders to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
10
<PAGE>
Section 4. Each section or portion thereof of this Article Seventh shall
be deemed severable from the remainder, and the invalidity of any such section
or portion shall not affect the validity of the remainder of this Article.
SEVENTH: The duration of the Corporation shall be perpetual.
EIGHTH: From time to time, any of the provisions of these Articles of
Incorporation may be amended, altered or repealed (including any amendment that
changes the terms of any of the outstanding stock by classification,
reclassification or otherwise), and other provisions that may, under the
statutes of the State of Maryland at the time in force, be lawfully contained in
articles of incorporation may be added or inserted, upon the vote of the holders
of a majority of the shares of capital stock of the Corporation outstanding and
entitled to vote thereupon. If these Articles of Incorporation specifically so
provide, however, any such amendment, alteration, repeal, addition or insertion
may be affected only upon the vote of three-fourths of the shares of capital
stock of the Corporation outstanding and entitled to vote thereupon. The
provision of the prior sentence may not be amended, altered or repealed except
by vote of three-fourths of the shares of capital stock of the corporation
outstanding and entitled to vote thereupon. All rights at any time conferred
upon the stockholders of the Corporation by these Articles of Incorporation are
subject to the provisions of this Article Ninth.
IN WITNESS WHEREOF, I have executed these Articles of Incorporation
acknowledging the same to be my act, on September 23, 1993.
/s/Doris Crawford
----------------------
Incorporator
Witness:
/s/Billie Swoboda
-----------------------
11
<PAGE>
THE MORGAN STANLEY HIGH YIELD FUND, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
THE MORGAN STANLEY HIGH YIELD FUND, INC., a Maryland corporation (the
"Corporation"), DOES HEREBY CERTIFY:
1. The name of the Corporation is THE MORGAN STANLEY HIGH YIELD FUND, INC.
The Corporation desires to amend and restate its Charter as currently in effect.
The original Articles of Incorporation were filed with the Maryland State
Department of Assessments and Taxation on September 23, 1993.
2. Pursuant to Section 2-609 of the Maryland General corporation Law,
these Articles of Amendment and Restatement restate and integrate and further
amend the provisions of the Articles of Incorporation of the Corporation.
3. The text of the Charter of the Corporation as heretofore amended or
supplemented is hereby restated and further amended to read in its entirety as
follows:
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
THE MORGAN STANLEY HIGH YIELD FUND, INC.
THE UNDERSIGNED, Doris Crawford, whose post office address is c/o The
Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202,
being at least eighteen years of age, does hereby act as an incorporator, under
and by virtue of the general laws of the State of Maryland authorizing the
formation of corporations and with the intention of forming a corporation.
FIRST: The name of the corporation (hereinafter called the "Corporation") is
The Morgan Stanley High Yield Fund, Inc.
SECOND: The Corporation was formed for the following purposes:
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(1) To act as a closed-end investment company of the management type
registered as such with the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940.
(2) To hold, invest and reinvest its assets in securities and other
investments or to hold all or part of its assets in cash.
(3) To issue and sell shares of its capital stock in such amounts and
on such terms and conditions and for such purposes and for such amount or kind
of consideration as may now or hereafter be permitted by law.
(4) To enter into management, supervisory, advisory, administrative,
underwriting and other contracts and otherwise do business with other
corporations, and subsidiaries or affiliates thereof, or any other firm or
organization, notwithstanding that the Board of Directors of the Corporation may
be composed in part of officers, directors or employees of such corporation,
firm or organization and, in the absence of fraud, the Corporation and such
corporation, firm or organization may deal freely with each other and neither
such management, supervisory, advisory, administrative or underwriting contract
nor any other contract or transaction between the Corporation and such
corporation, firm or organization shall be invalidated or in any way affected
thereby.
(5) To do any and all additional acts and exercise any and all
additional powers or rights as may be necessary, incidental, appropriate or
desirable for the accomplishment of all or any of the foregoing purposes.
The Corporation shall be authorized to exercise and generally to enjoy
all of the powers, rights and privileges granted to, or conferred upon,
corporations by the General Laws of the State of Maryland now or hereafter in
force.
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THIRD: The post office address of the place at which the principal office of
the Corporation in the State of Maryland is located is c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202.
The name of the Corporation's resident agent is The Corporation Trust
Incorporated, and its post office address is 32 South Street, Baltimore,
Maryland 21202. Said resident agent is a corporation of the State of Maryland.
FOURTH: Section 1. (1) The total number of shares of capital stock that the
Corporation has authority to issue is 100,000,000 shares of capital stock of the
par value of $0.01 each, having an aggregate par value of $1,000,000, all of
which 100,000,000 shares are initially classified as "Common Stock."
(2) The following is a description of the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the Common Stock of the
Corporation:
(a) Each share of Common Stock shall have one vote, and, except as
otherwise provided in respect of any class of stock hereafter
classified or reclassified, the exclusive voting power for all
purposes shall be vested in the holders of the Common Stock.
(b) Subject to the provisions of law and any preferences of any class
of stock hereafter classified or reclassified, dividends, including
dividends payable in shares of another class of the Corporation's
stock, may be paid on the Common Stock of the Corporation at such time
and in such amounts as the Board of Directors may deem advisable.
(c) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the
Common Stock shall be entitled, after payment or provision for payment
of the debts and other liabilities of the Corporation and the amount
to which the holders of any class of stock hereafter classified or
reclassified having a preference on distributions in the liquidation,
dissolution or winding up of the Corporation shall be entitled,
together with the holders of any other class of stock hereafter
classified or reclassified not having a preference on distributions in
the liquidation, dissolution
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or winding up of the Corporation, to share ratably in the remaining
net assets of the Corporation.
Section 2. (1) Without the assent or vote of the stockholders, the
Board of Directors shall have the authority by resolution to classify and
reclassify any authorized but unissued shares of capital stock from time to time
by setting or changing in any one or more respects the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of the capital stock.
(2) The foregoing powers of the Board of Directors to classify and
reclassify any of the shares of capital stock shall include, without limitation,
subject to the provisions of the Charter, authority to classify or reclassify
any unissued shares of such stock into a class or classes of preferred stock,
preference stock, special stock or other stock, and to divide and classify
shares of any class into one or more series of such class, by determining,
fixing, or altering one or more of the following:
(a) The distinctive designation of such class or series and the number
of shares to constitute such class or series; provided that, unless
otherwise prohibited by the terms of such or any other class or
series, the number of shares of any class or series may be decreased
by the Board of Directors in connection with any classification or
reclassification of unissued shares and the number of shares of such
class or series may be increased by the Board of Directors in
connection with any such classification or reclassification, and any
shares of any class or series which have been redeemed, purchased,
otherwise acquired or converted into shares of Common Stock or any
other class or series shall become part of the authorized capital
stock and be subject to classification and reclassification as
provided in this subparagraph;
(b) Whether or not and, if so, the rates, amounts and times at which,
and the conditions under which, dividends shall be payable on shares
of such class or series, whether any such dividends shall rank senior
or junior to or on a parity with the dividends payable on any other
class or series of stock, and the status of any such dividends as
cumulative, cumulative to a limited extent or non-cumulative and as
participating or non-participating;
(c) Whether or not shares of such class or series shall have voting
rights, in addition to any voting rights provided by law and, if so,
the terms of such voting rights;
15
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(d) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and conditions
thereof, including provisions for adjustment of the conversion or
exchange rate in such events or at such times as the Board of
Directors shall determine;
(e) Whether or not shares of such class or series shall be subject to
redemption and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be
redeemable and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates; and whether or not there shall be any sinking fund
or purchase account in respect thereof, and if so, the terms thereof;
(f) The rights of the holders of shares of such class or series upon
the liquidation, dissolution or winding up of the affairs of, or upon
any distribution of the assets of, the Corporation, which rights may
vary depending upon whether such liquidation, dissolution or winding
up is voluntary or involuntary and, if voluntary, may vary at
different dates, and whether such rights shall rank senior or junior
to or on a parity with such rights of any other class or series of
stock;
(g) Whether or not there shall be any limitations applicable, while
shares of such class or series are outstanding, upon the payment of
dividends or making of distributions on, or the acquisition of, or
the use of moneys for purchase or redemption of, any stock of the
Corporation, or upon any other action of the Corporation, including
action under this subparagraph, and, if so, the terms and conditions
thereof; and
(h) Any other preferences, rights, restrictions, including
restrictions on transferability, and qualifications of shares of such
class or series, not inconsistent with law and the Charter of the
Corporation.
(3) For the purposes hereof and of any articles supplementary to the
Charter providing for the classification or reclassification of any shares of
capital stock or of any other charter document of the Corporation - (unless
otherwise provided in any such articles or document), any class or series of
stock of the Corporation shall be deemed to rank:
(a) prior to another class or series either as to dividends or upon
liquidation, if the holders of such class or series shall be entitled
to the receipt of dividends or of amounts distributable on
liquidation, dissolution or winding up, as the case may be, in
preference or priority to holders of such other class or series;
(b) on a parity with another class or series either as to dividends or
upon liquidation, whether or not the dividend rates, dividend payment
dates or redemption or liquidation price per share thereof be
different from those of such others, if the holders of such class or
series of stock shall be entitled to receipt of
16
<PAGE>
dividends or amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in proportion to their respective
dividend rates or redemption or liquidation prices, without preference
or priority over the holders of such other class or series; and
(c) junior to another class or series either as to dividends or upon
liquidation, if the rights of the holders of such class or series
shall be subject or subordinate to the rights of the holders of such
other class or series in respect of the receipt of dividends or the
amounts distributable upon liquidation, dissolution or winding up, as
the case may be.
(4) The provisions of Section 2 of this Article Fourth may not be
amended, altered or repealed except by vote of three-fourths of the shares of
capital stock of the Corporation outstanding and entitled to vote thereupon.
Section 3. The presence in person or by proxy of the holders of
record of a majority of the aggregate number of shares of capital stock issued
and outstanding and entitled to vote thereat shall constitute a quorum for the
transaction of any business at all meetings of the stockholders except as
otherwise provided by law or in these Articles of Incorporation.
Section 4. Notwithstanding any provision of the General Laws of the
State of Maryland requiring action to be taken or authorized by the affirmative
vote of the holders of a designated proportion greater than a majority of the
shares of capital stock of the Corporation outstanding and entitled to vote
thereupon, such action shall, except as otherwise provided in these Articles of
Incorporation, be valid and effective if taken or authorized by the affirmative
vote of the holders of a majority of the total number of shares of capital stock
of the Corporation outstanding and entitled to vote thereupon voting together as
a single class.
Section 5. No holder of shares of capital stock of the Corporation
shall, as such holder, have any preemptive right to purchase or subscribe for
any part of any new or additional issue of stock of any class, or of rights or
options to purchase any stock, or of securities convertible into, or carrying
rights or options to purchase, stock of any class, whether now or
17
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hereafter authorized or whether issued for money, for a consideration other than
money or by way of a dividend or otherwise, and all such rights are hereby
waived by each holder of capital stock and of any other class of stock or
securities which may hereafter be created.
Section 6. All persons who shall acquire capital stock in the
Corporation shall acquire the same subject to the provisions of these Articles
of Incorporation.
Section 7. (1) Except as otherwise provided in subsection 2 of this
Section 7 of this Article Fourth, the affirmative vote of at least three-fourths
of the shares of capital stock of the Corporation outstanding and entitled to
vote thereupon voting together as a single class shall be necessary to authorize
any of the following actions:
(a) the conversion of the Corporation to an "open-end company" or any
amendment to these Articles of Incorporation to make the Corporation's
common stock a "redeemable security" (as such terms are defined in the
Investment Company Act of 1940);
(b) the merger or consolidation of the Corporation with or into any
other company (including, without limitation, a partnership,
corporation, joint venture, business trust, common law trust or any
other business organization) or share exchange in which the
Corporation is not the successor corporation;
(c) the dissolution or liquidation of the Corporation notwithstanding
any other provision in these Articles of Incorporation;
(d) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) of all or
substantially all of the assets of the Corporation other than in the
ordinary course of the Corporation's business;
(e) a change in the nature of the business of the Corporation so that
it would cease to be an investment company registered under the
Investment Company Act of 1940; or
(f) the issuance or transfer by the Corporation (in one transaction or
a series of transactions) of any securities of the Corporation to any
other person in exchange for cash, securities or other property having
an aggregate fair market value of $1,000,000 or more excluding (i)
sales of any securities of the Corporation in connection with a public
offering thereof, (ii) issuances of any securities of the Corporation
pursuant to a dividend reinvestment plan adopted by the Corporation or
pursuant to a stock dividend and (iii) issuances of any
18
<PAGE>
securities of the Corporation upon the exercise of any stock
subscription rights distributed by the Corporation.
(2) If the Board of Directors approves, by a vote of at least seventy
percent of the entire Board of Directors, any action listed in subsection (1) of
this Section 7 of this Article Fourth other than the action described in clause
(1) (f), the affirmative vote of only a majority of the shares of capital stock
of the Corporation outstanding and entitled to vote thereupon voting together as
a single class shall be necessary to authorize such action. If the Board of
Directors approves, by a vote of at least seventy percent of the entire Board of
Directors, an action described in clause (1) (f) of this Section 7 of this
Article Fourth, no shareholder vote shall be required to authorize such action.
(3) The provisions of this Section 7 of this Article Fourth may not be
amended, altered or repealed except by the approval of at least three-fourths of
the shares of capital stock of the Corporation outstanding and entitled to vote
thereupon voting together as a single class.
FIFTH: The initial number of directors of the Corporation is three (3), and the
names of the directors who shall act as such until the first annual meeting or
until their successor or successors are duly elected and qualify are Warren J.
Olsen, Harold J. Schaaff, Jr. and Joseph P. Stadler. The By-Laws of the
Corporation may fix the number of directors at a number other than three and may
authorize the Board of Directors, by the vote of a majority of the entire Board
of Directors, to increase or decrease the number of directors within a limit
specified in the By-Laws, provided that in no case shall the number of directors
be less than the number prescribed by law, and to fill the vacancies created by
any such increase in the number of directors. Unless otherwise provided by the
By-Laws of the Corporation, the directors of the Corporation need not be
stockholders.
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The By-Laws of the Corporation may divide the Directors of the
Corporation into classes and proscribe the tenure of office of the several
classes; but no class shall be elected for a period shorter than that from the
time of the election of such class until the next annual meeting and thereafter
for a period shorter than the interval between annual meetings or for a longer
period than five years, and the term of office of at least one class shall
expire each year.
A director may be removed only with cause, and any such removal may be
made only by the stockholders of the Corporation.
The provisions of this Article Fifth may not be amended, altered or
repealed except by a vote of three-fourths of the shares of capital stock of the
Corporation outstanding and entitled to vote thereupon voting together as a
single class.
SIXTH: Section 1. All corporate powers and authority of the Corporation
(except as at the time otherwise provided by statute, by these Articles of
Incorporation or by the By-Laws) shall be vested in and exercised by the Board
of Directors.
Section 2. The Board of Directors shall have the sole power to adopt,
alter or repeal the By-Laws of the Corporation except to the extent that the By-
Laws otherwise provide. The provisions of this Section 2 of this Article Sixth
may not be amended, altered or repealed except by vote of three-fourths of the
shares of capital stock of the Corporation outstanding and entitled to vote
thereupon voting together as a single class.
Section 3. The Board of Directors shall have the power from time to
time to determine whether and to what extent, and at what times and places and
under what conditions and regulations, the accounts and books of the Corporation
(other than the stock ledger) or any of them shall be open to the inspection of
stockholders; and no stockholder shall have any right to
20
<PAGE>
inspect any account, book or document of the Corporation except to the extent
permitted by statute or the By-Laws.
Section 4. The Board of Directors shall have the power to determine,
as provided herein, or if a provision is not made herein, in accordance with
generally accepted accounting principles, what constitutes net income, total
assets and the net asset value of the shares of capital stock of the
Corporation.
Section 5. The Board of Directors shall have the power to distribute
dividends from the funds legally available therefor in such amounts, if any, and
in such manner to the stockholders of record as of a date, as the Board of
Directors may determine.
Section 6. Without the assent or vote of the stockholders, the Board
of Directors shall have the power to authorize the issuance from time to time of
shares of the capital stock of any class of the Corporation, whether now or
hereafter authorized, and securities convertible into shares of capital stock of
the Corporation of any class or classes, whether now or hereafter authorized,
for such consideration as the Board of Directors may deem advisable.
Section 7. Without the assent or vote of the stockholders, the Board
of Directors shall have the power to authorize and issue obligations of the
Corporation, secured or unsecured, as the Board of Directors may determine, and
to authorize and cause to be executed mortgages and liens upon the real or
personal property of the Corporation.
Section 8. The provisions of Sections 6 and 7 of this Article Sixth
may not be amended, altered or repealed except by vote of three-fourths of the
shares of capital stock of the Corporation outstanding and entitled to vote
thereupon voting together as a single class.
SEVENTH: Section 1. To the fullest extent permitted by Maryland statutory or
decisional law, subject to the requirements of the Investment Company Act of
1940, as amended, no
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director or officer of the Corporation shall be personally liable to the
Corporation or its security holders for money damages. This limitation on
liability applies to events occurring at the time a person serves as a director
or officer of the Corporation whether or not such person is a director or
officer at the time of any proceeding in which such liability is asserted. No
amendment of these Articles of Incorporation or repeal of any provision hereof
shall limit or eliminate the benefits provided to directors and officers under
this provision in connection with any act or omission that occurred prior to
such amendment or repeal.
Section 2. The Corporation shall indemnify, to the fullest extent
permitted by law (including the Investment Company Act of 1940) as currently in
effect or as the same may hereafter be amended, any person made or threatened to
be made a party to any action, suit or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that such person or such
person's testator or intestate is or was a director or officer of the
Corporation or serves or served at the request of the Corporation any other
enterprises as a director or officer. To the fullest extent permitted by law
(including the Investment Company Act of 1940) as currently in effect or as the
same may hereafter be amended, expenses incurred by any such person in defending
any such action, suit or proceeding shall be paid or reimbursed by the
Corporation promptly upon receipt by it of an undertaking of such person to
repay such expenses if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation. The rights provided to any
person by this Section 2 of this Article Seventh shall be enforceable against
the Corporation by such person who shall be presumed to have relied upon it in
serving or continuing to serve as a director or officer as provided above. No
amendment of this Section 2 of this Article Seventh shall impair the rights of
any person arising at any time with respect to events occurring prior to such
amendment. For purposes of this Section 2 of this
22
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Article Seventh, the term "Corporation" shall include any predecessor of the
Corporation and any constituent corporation (including any constituent of a
constituent) absorbed by the Corporation in a consolidation or merger; the term
"other enterprise" shall include any corporation, partnership, joint venture,
trust or employee benefit plan; service "at the request of the Corporation"
shall include service as a director or officer of the Corporation which imposes
duties on, or involves services by, such director or officer with respect to an
employee benefit plan, its participants or beneficiaries; any excise taxes
assessed on a person with respect to an employee benefit plan shall be deemed to
be indemnifiable expenses; and action by a person with respect to any employee
benefit plan which such person reasonably believes to be in the interest of the
participants and beneficiaries of such plan shall be deemed to be action not
opposed to the best interests of the Corporation. The provisions of this Section
2 of this Article Seventh shall be in addition to the other provisions of this
Article Seventh.
Section 3. Nothing in this Article Seventh protects or purports to
protect any director or officer against any liability to the Corporation or its
security holders to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
Section 4. Each section or portion thereof of this Article Seventh
shall be deemed severable from the remainder, and the invalidity of any such
section or portion shall not affect the validity of the remainder of this
Article.
EIGHTH: The duration of the Corporation shall be perpetual.
NINTH: From time to time, any of the provisions of these Articles of
Incorporation may be amended, altered or repealed (including any amendment that
changes the contract rights of any of the outstanding stock), and other
provisions that may, under the statutes of the State of
23
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Maryland at the time in force, be lawfully contained in articles of
incorporation may be added or inserted, upon the vote of the holders of a
majority of the shares of capital stock of the Corporation outstanding and
entitled to vote thereupon voting together as a single class. If these Articles
of Incorporation specifically so provide, however, any such amendment,
alteration, repeal, addition or insertion may be affected only upon the vote of
three-fourths of the shares of capital stock of the Corporation outstanding and
entitled to vote thereupon voting together as a single class. The provisions of
the prior sentence may not be amended, altered or repealed except by vote of
three-fourths of the shares of capital stock of the corporation outstanding and
entitled to vote thereupon voting together as a single class. All rights at any
time conferred upon the stockholders of the Corporation by these Articles of
Incorporation are subject to the provisions of this Article Ninth.
IN WITNESS WHEREOF, I have executed these Articles of Incorporation
acknowledging the same to be my act, on September 23, 1993.
/s/ Doris Crawford
---------------------
Incorporator
Witness:
/s/ Billie Swoboda
- --------------------
4. The amendment to and restatement of the Charter of the Corporation as
hereinabove set forth has been duly approved by the Board of Directors and no
stock entitled to be voted on the matter was outstanding or subscribed for at
the time of approval.
5. The current address of the principal office of the Corporation in the
State of Maryland is as set forth in Article Third of the foregoing amendment
and restatement of the Charter. The name and address of the Corporation's
current resident agent is as set forth in Article Third of the foregoing
amendment and restatement of the Charter. The number of directors of the
Corporation and the names of those currently in office are as set forth in
Article Fifth of the foregoing amendment and restatement of the Charter.
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6. (a) The foregoing amendment and restatement of the Charter does not
increase the authorized capital stock of the Corporation.
(b) A description of each class of capital stock, including the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption are set forth in the foregoing amendment and restatement of the
Charter.
7. These Articles of Amendment and Restatement shall be effective on the
date of acceptance for record by the Maryland State Department of Assessments
and Taxation.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
and Restatement to be signed in its name and on its behalf by its Vice President
and attested to by its Secretary on this 28th day of October, 1993.
THE MORGAN STANLEY HIGH YIELD FUND, INC.
By /s/ Harold J. Schaaff, Jr. (SEAL)
--------------------------------------
Harold J. Schaaff, Jr., Vice President
ATTEST:
/s/ Valerie Y. Lewis
- ----------------------------------
Valerie Y. Lewis, Secretary
THE UNDERSIGNED, Vice President of THE MORGAN STANLEY HIGH YIELD FUND,
INC., who executed on behalf of the Corporation the foregoing Articles of
Amendment and Restatement of which this Certificate is made a part, hereby
acknowledges in the name and on behalf of said Corporation the foregoing
Articles of Amendment and Restatement to be the corporate act of said
Corporation and hereby certifies that to the best of his knowledge, information
and belief the matters and facts set forth therein with respect to the
authorization and approval thereof are true in all material respects under the
penalties of perjury.
/s/ Harold J. Schaaff, Jr.
---------------------------------
Harold J. Schaaff, Jr
25
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THE MORGAN STANLEY HIGH YIELD FUND, INC.
ARTICLES OF AMENDMENT
The Morgan Stanley High Yield Fund, Inc., a Maryland corporation (the
"Corporation"), having its principal office c/o Morgan Stanley Dean Witter
Investment Management Inc., 1221 Avenue of the Americas, New York, New York
10020, hereby certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: The Articles of Incorporation of the Corporation is hereby amended
so that Article First will now read as follows:
FIRST: The name of the corporation is Morgan Stanley Dean Witter High
Yield Fund, Inc. (the "Corporation").
SECOND: the foregoing amendment was advised by the board of directors of
the Fund and approved by the stockholders of the Fund.
IN WITNESS WHEREOF, the Corporation has caused these presents to be signed
in its name and on its behalf by its President and witnessed by its Acting
Secretary on June 22 , 1999.
-------------
WITNESS THE MORGAN STANLEY
HIGH YIELD FUND, INC.
/s/ Stefanie V. Chang /s/ Michael F. Klein
- --------------------- ---------------------
Name: Stefanie V. Chang Name: Michael F. Klein
Title: Acting Secretary Title: President
THE UNDERSIGNED, the President of The Morgan Stanley High Yield Fund, Inc.,
who executed on behalf of the Corporation the foregoing Articles of Amendment of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles of Amendment to be the
corporate act of said Corporation and hereby certifies that to the best of his
knowledge, information, and belief the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ Michael F. Klein
------------------------
Name: Michael F. Klein
Title: President
26
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD FUND, INC.
CERTIFICATE OF CORRECTION
Morgan Stanley Dean Witter High Yield Fund, Inc., a Maryland corporation
(the "Corporation"), having its principal office c/o Morgan Stanley Dean Witter
Investment Management Inc., 1221 Avenue of the Americas, New York, New York
10020, hereby certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: The Articles of Amendment of the Corporation was filed on June 23,
1999 and was signed by Michael F. Klein and Stefanie V. Chang.
SECOND: The Articles of Amendment presently states that the Articles of
Amendment was signed and witnessed on June 22, 1999. The correct date on which
the Articles of Amendment was signed and witnessed is June 21, 1999. The
Articles of Amendment should be changed accordingly in order to reflect this
correct date of June 21, 1999.
IN WITNESS WHEREOF, the Corporation has caused these presents to be signed
in its name and on its behalf by its President and witnessed by its Secretary on
July 7, 1999.
WITNESS MORGAN STANLEY DEAN WITTER
HIGH YIELD FUND, INC.
/s/ Mary E. Mullin /s/ Michael F. Klein
- -------------------- ------------------------
Name: Mary E. Mullin Name: Michael F. Klein
Title: Secretary Title: President
THE UNDERSIGNED, the President of Morgan Stanley Dean Witter High Yield
Fund, Inc., who executed on behalf of the Corporation the foregoing Certificate
of Correction of which this certificate is made a part, hereby acknowledges in
the name and on behalf of said Corporation the foregoing Certificate of
Correction to be the corporate act of said Corporation and hereby certifies that
to the best of his knowledge, information, and belief the matters and facts set
forth therein with respect to the authorization and approval thereof are true in
all material respects under the penalties of perjury.
/s/ Michael F. Klein
-----------------------
Name: Michael F. Klein
Title: President
27
<PAGE>
Exhibit (2)(b)
THE MORGAN STANLEY HIGH YIELD FUND, INC.
A Maryland corporation
AMENDED AND RESTATED BY-LAWS
June 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I STOCKHOLDERS................................................ 1
Section 1.1. Place of Meeting....................................... 1
Section 1.2. Annual Meetings........................................ 1
Section 1.3. Special Meetings....................................... 1
Section 1.4. Notice of Meetings of Stockholders..................... 2
Section 1.5. Record Dates........................................... 2
Section 1.6. Quorum; Adjournment of Meetings........................ 3
Section 1.7. Voting and Inspectors.................................. 3
Section 1.8. Conduct of Stockholders' Meetings...................... 4
Section 1.9. Concerning Validity of Proxies, Ballots, etc........... 4
Section 1.10. Action Without Meeting................................. 5
Section 1.11. Advance Notice of Stockholder Nominees for Director
and other Stockholder Proposals........................ 5
ARTICLE II BOARD OF DIRECTORS.......................................... 9
Section 2.1. Function of Directors.................................. 9
Section 2.2. Number of Directors.................................... 9
Section 2.3. Classes of Directors; Terms of Directors............... 9
Section 2.4. Vacancies.............................................. 10
Section 2.5. Increase or Decrease in Number of Directors............ 10
Section 2.6. Place of Meeting....................................... 10
Section 2.7. Regular Meetings....................................... 10
Section 2.8. Special Meetings....................................... 11
Section 2.9. Notices................................................ 11
Section 2.10. Quorum................................................. 11
Section 2.11. Executive Committee.................................... 11
Section 2.12. Other Committees....................................... 12
Section 2.13. Telephone Meetings..................................... 12
Section 2.14. Action Without a Meeting............................... 13
Section 2.15. Compensation of Directors.............................. 13
Section 2.16. Selection and Nomination of Non-Interested
Directors.............................................. 13
ARTICLE III OFFICERS................................................... 13
Section 3.1. Executive Officers..................................... 13
Section 3.2. Term of Office......................................... 14
</TABLE>
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TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
Section 3.3. Powers and Duties..................................... 14
Section 3.4. Surety Bonds.......................................... 14
ARTICLE IV CAPITAL STOCK.............................................. 15
Section 4.1. Certificates for Shares............................... 15
Section 4.2. Transfer of Shares.................................... 15
Section 4.3. Stock Ledgers......................................... 15
Section 4.4. Transfer Agents and Registrars........................ 15
Section 4.5. Lost, Stolen or Destroyed Certificates................ 16
ARTICLE V CORPORATE SEAL; LOCATION OF OFFICES; BOOKS; NET ASSET
VALUE...................................................... 16
Section 5.1. Corporate Seal........................................ 16
Section 5.2. Location of Offices................................... 16
Section 5.3. Books and Records..................................... 16
Section 5.4. Annual Statement of Affairs........................... 17
Section 5.5. Net Asset Value....................................... 17
ARTICLE VI FISCAL YEAR AND ACCOUNTANT................................. 17
Section 6.1. Fiscal Year........................................... 17
Section 6.2. Accountant............................................ 17
ARTICLE VII INDEMNIFICATION AND INSURANCE.............................. 17
Section 7.1 General............................................... 17
Section 7.2 Indemnification of Directors and Officers............. 18
ARTICLE VIII CUSTODIAN.................................................. 19
ARTICLE IX AMENDMENT OF BY-LAWS....................................... 20
</TABLE>
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<PAGE>
THE MORGAN STANLEY HIGH YIELD FUND, INC.
By-Laws
ARTICLE I
Stockholders
------------
Section 1.1. Place of Meeting. All meetings of the stockholders
----------------
should be held at the principal office of the Corporation in the State of
Maryland or at such other place within the United States as may from time to
time be designated by the Board of Directors and stated in the notice of such
meeting.
Section 1.2. Annual Meetings. The annual meeting of the
---------------
stockholders of the Corporation shall be held during the first six months of
each year on such date and at such hour as may from time to time be designated
by the Board of Directors and stated in the notice of such meeting, for the
purpose of electing directors for the ensuing year and for the transaction of
such other business as may properly be brought before the meeting.
Section 1.3. Special Meetings. Special meetings of the stockholders
----------------
for any purpose or purposes may be called by the Chairman of the Board, the
President, or a majority of the Board of Directors. Special meetings of
stockholders shall also be called by the Secretary upon receipt of the request
in writing signed by stockholders holding not less than 25% of the votes
entitled to be cast thereat. Such request shall state the purpose or purposes of
the proposed meeting and the matters proposed to be acted on at such proposed
meeting. The Secretary shall inform such stockholders of the reasonably
estimated costs of preparing and mailing such notice of meeting and upon payment
to the Corporation of such costs, the Secretary shall give notice as required in
this Article to all stockholders entitled to notice of such meeting. No special
meeting of stockholders need be called upon the request of the holders of common
stock entitled to cast
<PAGE>
less than a majority of all votes entitled to be cast at such meeting to
consider any matter which is substantially the same as a matter voted upon at
any special meeting of stockholders held during the preceding twelve months.
Section 1.4. Notice of Meetings of Stockholders. Not less than ten
----------------------------------
days' and not more than ninety days' written or printed notice of every meeting
of stockholders, stating the time and place thereof (and the purpose of any
special meeting), shall be given to each stockholder entitled to vote thereat
and to each other stockholder entitled to notice of the meeting by leaving the
same with such stockholder or at such stockholder's residence or usual place of
business or by mailing it, postage prepaid, and addressed to such stockholder at
such stockholder's address as it appears upon the books of the Corporation. If
mailed, notice shall be deemed to be given when deposited in the mail addressed
to the stockholder as aforesaid.
No notice of the time, place or purpose of any meeting of stockholders
need be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 1.5. Record Dates. The Board of Directors may fix, in
------------
advance, a record date for the determination of stockholders entitled to notice
of or to vote at any stockholders meeting or to receive a dividend or be
allotted rights or for the purpose of any other proper determination with
respect to stockholders and only stockholders of record on such date shall be
entitled to notice of and to vote at such meeting or to receive such dividends
or rights or otherwise, as the case may be, provided, however, that such record
-------- -------
date shall not be prior to ninety days preceding the date of any such meeting of
stockholders, dividend payment date, date for the allotment of rights or other
such action requiring the determination of a record date; and
2
<PAGE>
further provided that such record date shall not be prior to the close of
business on the day the record date is fixed, that the transfer books shall not
be closed for a period longer than 20 days, and that in the case of a meeting of
stockholders, the record date or the closing of the transfer books shall not be
less than ten days prior to the date fixed for such meeting.
Section 1.6. Quorum: Adjournment of Meetings. The presence in
-------------------------------
person or by proxy of stockholders entitled to cast a majority of the votes
entitled to be cast thereat shall constitute a quorum at all meetings of the
stockholders, except as otherwise provided in the Articles of Incorporation. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the holders of a majority of the stock present in person or by
proxy shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until the requisite amount of stock
entitled to vote at such meeting shall be present, to a date not more than 120
days after the original record date. At such adjourned meeting at which the
requisite amount of stock entitled to vote thereat shall be represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.
Any meeting of stockholders, annual or special, may adjourn from time
to time to reconvene at the same or some other place, and notice need not be
given of any such adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting.
Section 1.7. Voting and Inspectors. At all meetings, stockholders
---------------------
of record entitled to vote thereat shall have one vote for each share of common
stock standing in his name on the books of the Corporation (and such
stockholders of record holding fractional shares, if
3
<PAGE>
any, shall have proportionate voting rights) on the date for the determination
of stockholders entitled to vote at such meeting, either in person or by proxy
appointed by instrument in writing subscribed by such stockholder or his duly
authorized attorney.
All elections shall be had and all questions decided by a majority of
the votes cast at a duly constituted meeting, except as otherwise provided by
statute or by the Articles of Incorporation or by these By-Laws.
At any election of Directors, the Chairman of the meeting may, and
upon the request of the holders of ten percent (10%) of the stock entitled to
vote at such election shall, appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of Director shall be appointed such
Inspector.
Section 1.8. Conduct of Stockholders' Meetings. The meetings of the
---------------------------------
stockholders shall be presided over by the Chairman of the Board, or if he is
not present, by the President, or if he is not present, by a vice-president, or
if none of them is present, by a Chairman to be elected at the meeting. The
Secretary of the Corporation, if present, shall act as a Secretary of such
meetings, or if he is not present, an Assistant Secretary shall so act; if
neither the Secretary nor the Assistant Secretary is present, then the meeting
shall elect its Secretary.
Section 1.9. Concerning Validity of Proxies, Ballots, etc. At every
meeting of the stockholders, all proxies shall be received and taken in charge
of and all ballots shall be received and canvassed by the Secretary of the
meeting, who shall decide all questions touching the qualification of voters,
the validity of the proxies and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed by the Chairman of the meeting,
in which
4
<PAGE>
event such inspectors of election shall decide all such questions. Unless a
proxy provides otherwise, it is not valid for more than eleven months after its
date.
Section 1.10. Action Without Meeting. Any action to be taken by
----------------------
stockholders may be taken without a meeting if (1) all stockholders entitled to
vote on the matter consent to the action in writing, (2) all stockholders
entitled to notice of the meeting but not entitled to vote at it sign a written
waiver of any right to dissent and (3) said consents and waivers are filed with
the records of the meetings of stockholders. Such consent shall be treated for
all purposes as a vote at the meeting.
Section 1.11. Advance Notice of Stockholder Nominees for Director
---------------------------------------------------
and Other Stockholder Proposals.
- -------------------------------
(a) The matters to be considered and brought before any annual or
special meeting of stockholders of the Corporation shall be limited to only such
matters, including the nomination and election of directors, as shall be brought
properly before such meeting in compliance with the procedures set forth in this
Section 1.11.
(b) For any matter to be properly before any annual meeting of
stockholders, the matter must be (i) specified in the notice of annual meeting
given by or at the direction of the Board of Directors, (ii) otherwise brought
before the annual meeting by or at the direction of the Board of Directors or
(iii) brought before the annual meeting in the manner specified in this Section
1.11 by a stockholder of record or a stockholder (a "Nominee Holder") that holds
voting securities entitled to vote at meetings of stockholders through a nominee
or "street name" holder of record and can demonstrate to the Corporation such
indirect ownership and such Nominee Holder's entitlement to vote such
securities. In addition to any other requirements under applicable law and the
Certificate of Incorporation and By-Laws of the Corporation, persons
5
<PAGE>
nominated by stockholders for election as directors of the Corporation and any
other proposals by stockholders shall be properly brought before the meeting
only if notice of any such matter to be presented by a stockholder at such
meeting of stockholders (the "Stockholder Notice") shall be delivered to the
Secretary of the Corporation at the principal executive office of the
Corporation not less than 60 nor more than 90 days prior to the first
anniversary date of the annual meeting for the preceding year; provided,
--------
however, that, if and only if the annual meeting is not scheduled to be held
- -------
within a period that commences 30 days before such anniversary date and ends 30
days after such anniversary date (an annual meeting date outside such period
being referred to herein as an "Other Annual Meeting Date"), such Stockholder
Notice shall be given in the manner provided herein by the later of the close of
business on (i) the date 60 days prior to such Other Annual Meeting Date or (ii)
the 10th day following the date such Other Annual Meeting Date is first publicly
announced or disclosed. Any stockholder desiring to nominate any person or
persons (as the case may be) for election as a director or directors of the
Corporation shall deliver, as part of such Stockholder Notice; (i) a statement
in writing setting forth (A) the name of the person or persons to be nominated,
(B) the number and class of all shares of each class of stock of the Corporation
owned of record and beneficially by each such person, as reported to such
stockholder by such nominee(s), (C) the information regarding each such person
required by paragraph(b) of Item 22 of Rule 14a-101 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), adopted by the Securities
and Exchange Commission (or the corresponding provisions of any regulation or
rule subsequently adopted by the Securities and Exchange Commission applicable
to the Corporation), (D) whether such stockholder believes any nominee will be
an "interested person" of the Corporation (as defined in the Investment Company
Act of 1940, as amended), and, if not an "interested person", information
6
<PAGE>
regarding each nominee that will be sufficient for the Corporation to make such
determination, and (E) the number and class of all shares of each class of stock
of the Corporation owned of record and beneficially by such stockholder; (ii)
each such person's signed consent to serve as a director of the Corporation if
elected, such stockholder's name and address; and (iii) in the case of a Nominee
Holder, evidence establishing such Nominee Holder's indirect ownership of, and
entitlement to vote, securities at the meeting of stockholders. Any stockholder
who gives a Stockholder Notice of any matter proposed to be brought before the
meeting (not involving nominees for director) shall deliver, as part of such
Stockholder Notice, the text of the proposal to be presented and a brief written
statement of the reasons why such stockholder favors the proposal and setting
forth such stockholder's name and address, the number and class of all shares of
each class of stock of the Corporation owned of record and beneficially by such
stockholder, if applicable, any material interest of such stockholder in the
matter proposed (other than as a stockholder) and, in the case of a Nominee
Holder, evidence establishing such Nominee Holder's indirect ownership of, and
entitlement to vote, securities at the meeting of stockholders. As used herein,
shares "beneficially owned" shall mean all shares which such person is deemed to
beneficially own pursuant to Rules 13d-3 and 13d-5 under the Exchange Act.
Notwithstanding anything in this Section 1.11 to the contrary, in the event
that the number of directors to be elected to the Board of Directors of the
Corporation is increased and either all of the nominees for director or the size
of the increased Board of Directors are not publicly announced or disclosed by
the Corporation at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a Stockholder Notice shall also be considered timely
hereunder, but only with respect to nominees for any new positions created by
such increase, if it shall be delivered to the Secretary of the Corporation at
the principal executive office of the
7
<PAGE>
Corporation not later than the close of business on the 10th day following the
first date all of such nominees or the size of the increased Board of Directors
shall have been publicly announced or disclosed.
(c) Only such matters shall be properly brought before a special meeting
of stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. In the event the Corporation calls a special
meeting of stockholders for the purpose of electing one or more directors to the
Board of Directors, any stockholder may nominate a person or persons (as the
case may be), for election to such position(s) as specified in the Corporation's
notice of meeting, if the Stockholder Notice required by clause(b) of this
Section 1.11 hereof shall be delivered to the Secretary of the Corporation at
the principal executive office of the Corporation not later than the close of
business on the 10th day following the day on which the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected at
such meeting is publicly announced or disclosed.
(d) For purposes of this Section 1.11, a matter shall be deemed to have
been "publicly announced or disclosed" if such matter is disclosed in a press
release reported by the Dow Jones News Service, Associated Press or comparable
national news service or in a document publicly filed by the Corporation with
the Securities and Exchange Commission.
(e) In no event shall the adjournment of an annual meeting, or any
announcement thereof, commence a new period for the giving of notice as provided
in this Section 1.11. This Section 1.11 shall not apply to stockholder proposals
made pursuant to Rule 14a-8 under the Exchange Act.
(f) The person presiding at any meeting of stockholders, in addition to
making any other determinations that may be appropriate to the conduct of the
meeting, shall
8
<PAGE>
have the power and duty to determine whether notice of nominees and other
matters proposed to be brought before a meeting has been duly given in the
manner provided in this Section 1.11 and, if not so given, shall direct and
declare at the meeting that such nominees and other matters shall not be
considered.
ARTICLE II
Board of Directors
------------------
Section 2.1. Function of Directors. The business and affairs of the
---------------------
Corporation shall be conducted and managed under the direction of its Board of
Directors. All powers of the Corporation shall be exercised by or under
authority of the Board of Directors except as conferred on or reserved to the
stockholders by statute.
Section 2.2. Number of Directors. The Board of Directors shall consist of
-------------------
not more than fourteen Directors or not less than such number of Directors as
may be permitted under Maryland law, as may be determined from time to time by
vote of a majority of the Directors then in office. Directors need not be
stockholders.
Section 2.3. Classes of Directors; Terms of Directors. The Directors shall
----------------------------------------
be divided into three classes, designated Class I, Class II and Class III. All
classes shall be as nearly equal in number as possible. The Directors as
initially classified shall hold office for terms as follows: the Class I
Directors shall hold office until the date of the annual meeting of stockholders
in 1996 or until their successors shall be elected and qualified; the Class II
Directors shall hold office until the date of the annual meeting of stockholders
in 1997 or until their successors shall be elected and qualified; and the Class
III Directors shall hold office until the date of the annual meeting of
stockholders in 1998 or until their successors shall be elected and qualified.
Upon expiration of the term of office of each class as set forth above, the
9
<PAGE>
Directors in each such class shall be elected for a term of three years to
succeed the Directors whose terms of office expire. Each Director shall hold
office until the expiration of his term and until the successor shall have been
elected and qualified, or until his death, or until he shall have resigned, or
until December 31 of the year in which he shall have reached seventy-three years
of age, or until he shall have been removed as provided by Statute of the
Articles of Incorporation.
Section 2.4. Vacancies. In case of any vacancy in the Board of Directors
---------
through death, resignation or other cause, other than an increase in the number
of Directors, subject to the provisions of law, a majority of the remaining
Directors, although a majority is less than a quorum, by an affirmative vote,
may elect a successor to hold office until the next annual meeting of
stockholders or until his successor is chosen and qualified.
Section 2.5. Increase or Decrease in Number of Directors. The Board of
-------------------------------------------
Directors, by the vote of a majority of the entire Board, may increase the
number of Directors and may elect Directors to fill the vacancies created by any
such increase in the number of Directors until the next annual meeting of
stockholders or until their successor are duly chosen and qualified. The Board
of Directors, by the vote of a majority of the entire Board, may likewise
decrease the number of Directors to a number not less than that permitted by
law.
Section 2.6. Place of Meeting. The Directors may hold their meetings
----------------
within or outside the State of Maryland, at any office or offices of the
Corporation or at any other place as they may from time to time determine.
Section 2.7. Regular Meetings. Regular meetings of the Board of Directors
----------------
shall be held at such time and on such notice as the Directors may from time to
time determine.
The annual meeting of the Board of Directors shall be held as soon as
practicable after the annual meeting of the stockholders for the election of
Directors.
10
<PAGE>
Section 2.8. Special Meetings. Special meetings of the Board of Directors
----------------
may be held from time to time upon call of the Chairman of the Board, the
President, the Secretary or two or more of the Directors, by oral or telegraphic
or written notice duly served on or sent or mailed to each Director not less
than one day before such meeting.
Section 2.9. Notices. Unless required by statute or otherwise determined
-------
by resolution of the Board of Directors in accordance with these By-laws,
notices to Directors need not be in writing and need not state the business to
be transacted at or the purpose of any meeting, and no notice need be given to
any Director who is present in person or to any Director who, in writing
executed and filed with the records of the meeting either before or after the
holding thereof, waives such notice. Waivers of notice need not state the
purpose or purposes of such meeting.
Section 2.10. Quorum. One-third of the Directors then in office shall
------
constitute a quorum for the transaction of business, provided that if there is
more than one Director, a quorum shall in no case be less than two Directors. If
at any meeting of the Board there shall be less than a quorum present, a
majority of those present may adjourn the meeting from time to time until a
quorum shall have been obtained. The act of the majority of the Directors
present at any meeting at which there is a quorum shall be the act of the
Directors, except as may be otherwise specifically provided by statute or by the
Articles of Incorporation or by these By-Laws.
Section 2.11. Executive Committee. The Board of Directors may appoint from
-------------------
the Directors an Executive Committee to consist of such number of Directors (not
less than two) as the Board may from time to time determine. The Chairman of the
Committee shall be elected by the Board of Directors. The Board of Directors
shall have power at any time to change the
11
<PAGE>
members of such Committee and may fill vacancies in the Committee by election
from the Directors. When the Board of Directors is not in session, to the extent
permitted by law, the Executive Committee shall have and may exercise any or all
of the powers of the Board of Directors in the management and conduct of the
business and affairs of the Corporation. The Executive Committee may fix its own
rules of procedure, and may meet when and as provided by such rules or by
resolution of the Board of Directors, but in every case the presence of a
majority shall be necessary to constitute a quorum. During the absence of a
member of the Executive Committee, the remaining members may appoint a member of
the Board of Directors to act in his place.
Section 2.12. Other Committees. The Board of Directors may appoint
----------------
from the Directors other committees which shall in each case consist of such
number of Directors (not less than two) and shall have and may exercise such
powers as the Board may determine in the resolution appointing them. A majority
of all the members of any such committee may determine its action and fix the
time and place of its meetings, unless the Board of Directors shall otherwise
provide. The Board of Directors shall have power at any time to change the
members and powers of any such committee, to fill vacancies and to discharge any
such committee.
Section 2.13. Telephone Meetings. Members of the Board of Directors or
------------------
a committee of the Board of Directors may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time. Participation
in a meeting by these means, subject to the provisions of the Investment Company
Act of 1940, as amended, constitutes presence in person at the meeting.
12
<PAGE>
Section 2.14. Action Without a Meeting. Any action required or
------------------------
permitted to be taken at any meeting of the Board of Directors or any committee
thereof may be taken without a meeting, if a written consent to such action is
signed by all members of the Board or of such committee, as the case may be,
and such written consent is filed with the minutes of the proceedings of the
Board or such committee.
Section 2.15. Compensation of Directors. No Director shall receive any
-------------------------
stated salary or fees from the Corporation for his services as such if such
Director is, otherwise than by reason of being such Director, an interested
person (as such term is defined by the Investment Company Act of 1940, as
amended) of the Corporation or of its investment manager or principal
underwriter. Except as provided in the preceding sentence, Directors shall be
entitled to receive such compensation from the Corporation for their services as
may from time to time be voted by the Board of Directors.
Section 2.16. Selection and Nomination of Non-Interested Directors.
----------------------------------------------------
Subject to approval by a majority of the directors of the Corporation, the
directors of the Corporation who are not interested persons of the Corporation
(as that term is defined in the Investment Company Act of 1940, as amended)
shall select and nominate the directors of the Corporation who are not
interested persons of the Corporation.
ARTICLE III
Officers
--------
Section 3.1. Executive Officers. The executive officers of the
------------------
Corporation shall be chosen by the Board of Directors. These may include a
Chairman of the Board of Directors (who shall be a Director) and shall include a
President, a Secretary and a Treasurer. The Board of Directors or the Executive
Committee may also in its discretion appoint one or more Vice-Presidents,
Assistant Secretaries, Assistant Treasurers and other officers, agents and
employees,
13
<PAGE>
who shall have such authority and perform such duties as the Board of Directors
or the Executive Committee may determine. The Board of Directors may fill any
vacancy which may occur in any office. Any two offices, except those of
President and Vice-President, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity,
if such instrument is required by law or these By-Laws to be executed,
acknowledged or verified by two or more officers.
Section 3.2. Term of Office. The term of office of all officers shall
--------------
be one year and until their respective successors are chosen and qualified. Any
officer may be removed from office at any time with or without cause by the vote
of a majority of the whole Board of Directors. Any officer may resign his office
at any time by delivering a written resignation to the Corporation and, unless
otherwise specified therein, such resignation shall take effect upon delivery.
Section 3.3. Powers and Duties. The officers of the Corporation shall
-----------------
have such powers and duties as shall he stated in a resolution of the Board of
Directors, or the Executive Committee and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board of Directors and the Executive Committee.
Section 3.4. Surety Bonds. The Board of Directors may require any
------------
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as amended,
and the rules and regulations of the Securities and Exchange Commission) to the
Corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his duties
to the Corporation, including responsibility for negligence and for the
accounting of any of the Corporation's property, funds or securities that may
come into his hands.
14
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ARTICLE IV
Capital Stock
-------------
Section 4.1. Certificates for Shares. Each stockholder of the
-----------------------
Corporation shall be entitled to a certificate or certificates for the full
number of shares of stock of the Corporation owned by him in such form as the
Board may from time to time prescribe.
Section 4.2. Transfer of Shares. Shares of the Corporation shall be
------------------
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require, in the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.
Section 4.3. Stock Ledgers. The stock ledgers of the Corporation,
-------------
containing the names and addresses of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a Transfer Agent, at the offices of
the Transfer Agent of the Corporation.
Section 4.4. Transfer Agents and Registrars. The Board of Directors
------------------------------
may from time to time appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the Corporation, and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made, all certificates representing shares of capital stock thereafter issued
shall be countersigned by one of such transfer agents or by one of such
registrars of transfers or by both and shall not be valid unless so
countersigned. If the same person shall be both transfer agent and registrar,
only one countersignature by such person shall be required.
15
<PAGE>
Section 4.5. Lost, Stolen or Destroyed Certificates. The Board of
--------------------------------------
Directors or the Executive Committee or any officer or agent authorized by the
Board of Directors or Executive Committee may determine the conditions upon
which a new certificate of stock of the Corporation of any class may be issued
in place of a certificate which is alleged to have been lost, stolen or
destroyed; and may, in its discretion, require the owner of such certificate or
such owner's legal representative to give bond, with sufficient surety, to the
Corporation and each Transfer Agent, if any, to indemnify it and each such
Transfer Agent against any and all loss or claims which may arise by reason of
the issue of a new certificate in the place of the one so lost, stolen or
destroyed.
ARTICLE IV
Corporate Seal; Location of
Offices; Books; Net Asset Value
-------------------------------
Section 5.1. Corporate Seal. The Board of Directors may provide for a
--------------
suitable corporate seal, in such form and bearing such inscriptions as it may
determine. Any officer or director shall have the authority to affix the
corporate seal. If the Corporation is required to place its corporate seal to a
document, it shall be sufficient to place the word "(seal)" adjacent to the
signature of the authorized officer of the Corporation signing the document.
Section 5.2. Location of Offices. The Corporation shall have a principal
-------------------
office in the State of Maryland. The Corporation may, in addition, establish and
maintain such other offices as the Board of Directors or any officer may from
time to time, determine.
Section 5.3. Books and Records. The books and records of the Corporation
-----------------
shall be kept at the places, within or without the State of Maryland, as the
directors or any officer may determine; provided, however, that the original or
-------- -------
a certified copy of the by-laws, including any amendments to them, shall be kept
at the Corporation's principal executive office.
16
<PAGE>
Section 5.4. Annual Statement of Affairs. The President or any other
---------------------------
executive officer of the Corporation shall prepare annually a full and correct
statement of the affairs of the Corporation, to include a balance sheet and a
financial statement of operations for the preceding fiscal year. The statement
of affairs should be submitted at the annual meeting of stockholders and, within
20 days of the meeting, placed on file at the Corporation's principal office.
Section 5.5. Net Asset Value. The value of the Corporation's net assets
---------------
shall be determined at such times and by such method as shall be established
from time to time by the Board of Directors.
ARTICLE VI
Fiscal Year and Accountant
--------------------------
Section 6.1. Fiscal Year. The fiscal year of the Corporation, unless
-----------
otherwise fixed by resolution of the Board of Directors, shall begin on the
first day of January and shall end on the last day of December in each year.
Section 6.2. Accountant. The Corporation shall employ an independent
----------
public accountant or a firm of independent public accountants as its Accountant
to examine the accounts of the Corporation and to sign and certify financial
statements filed by the Corporation. The employment of the Accountant shall be
conditioned upon the right of the Corporation to terminate the employment
forthwith without any penalty by vote of a majority of the outstanding voting
securities at any stockholders' meeting called for that purpose.
ARTICLE VII
Indemnification and Insurance
-----------------------------
Section 7.1. General. The Corporation shall indemnify directors, officers,
-------
employees and agents of the Corporation against judgments, settlements and
expenses to the fullest extent authorized and in the manner permitted, by
applicable federal and state law.
17
<PAGE>
Section 7.2. Indemnification of Directors and Officers. The Corporation
-----------------------------------------
shall indemnify to the fullest extent permitted by law (including the Investment
Company Act of 1940, as amended) as currently in effect or as the same may
hereafter be amended, any person made or threatened to be made a party to any
action, suit or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that such person or such person's testator
or intestate is or was a director or officer of the Corporation or serves or
served at the request of the Corporation any other enterprise as a director or
officer. To the fullest extent permitted by law (including the Investment
Company Act of 1940, as amended) as currently in effect or as the same may
hereafter be amended, expenses incurred by any such person in defending any such
action, suit or proceeding shall be paid or reimbursed by the Corporation
promptly upon receipt by it of an undertaking of such person to repay such
expense if it shall ultimately be determined that such person is not entitled to
be indemnified by the Corporation. The rights provided to any person by this
Article VII shall be enforceable against the Corporation by such person who
shall be presumed to have relied upon it in serving or continuing to serve as a
director or officer as provided above. No amendment of this Article VII shall
impair the rights of any person arising at any time with respect to events
occurring prior to such amendment. For purposes of this Article VII, the term
"Corporation" shall include any predecessor of the Corporation and any
constituent corporation (including any constituent of a constituent) absorbed by
the Corporation in a consolidation or merger; the term "other enterprises" shall
include any corporation, partnership, joint venture, trust or employee benefit
plan; service "at the request of the Corporation" shall include service as a
director or officer of the Corporation which imposes duties on, or involves
services by, such director or officer with respect to an employee benefit plan,
its participants or beneficiaries; any excise taxes assessed on a person with
respect to an
18
<PAGE>
employee benefit plan shall be deemed to be indemnifiable expenses; and action
by a person with respect to any employee benefit plan which such person
reasonably believes to be in the interest of the participants and beneficiaries
of such plan shall be deemed to be action not opposed to the best interests of
the Corporation.
Section 7.3. Isurance. Subject to the provisions of the Investment
--------
Company Act of 1940, as amended, the Corporation, directly, through third
parties or through affiliates of the Corporation, may purchase, or provide
through a trust fund, letter of credit or surety bond insurance on behalf of any
person who is or was a Director, officer, employee or agent of the Corporation,
or who, while a Director, officer, employee or agent of the Corporation, is or
was serving at the request of the Corporation as a Director, officer, employee,
partner, trustee or agent of another foreign or domestic corporation,
partnership joint venture, trust or other enterprise against any liability
asserted against and incurred by such person in any such capacity or arising out
of such person's position, whether or not the Corporation would have the power
to indemnify such person against such liability.
ARTICLE VIII
Custodian
---------
The Corporation shall have as custodian or custodians one or more
trust companies or banks of good standing, foreign or domestic, as may be
designated by the Board of Directors, subject to the provisions of the
Investment Company Act of 1940, as amended, and other applicable laws and
regulations; and the funds and securities held by the Corporation shall be kept
in the custody of one or more such custodians, provided such custodians or
custodians can be found ready and willing to act, and further provided that the
Corporation and/or the Custodians may employ such subcustodians as the Board of
Directors may approve and as shall be permitted by law.
19
<PAGE>
ARTICLE IX
Amendment of By-Laws
--------------------
The By-Laws of the Corporation may be altered, amended, added to or
repealed only by majority vote of the entire Board of Directors.
20
<PAGE>
Exhibit (2)(d)(1)
COMMON STOCK COMMON STOCK
NUMBER SHARES
INCORPORATED UNDER THE
LAWS OF THE STATE OF MARYLAND
CUSIP 61744M 10 4
SEE REVERSE FOR CERTAIN
DEFINITIONS
The Morgan Stanley High Yield Fund, Inc.
Name Changed To Morgan Stanley Dean
Witter High Yield Fund, Inc.
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK PAR VALUE $0.01, OF
The Morgan Stanley High Yield Fund, Inc. (hereinafter called the "Corporation"),
transferable on the books of the Corporation by the registered holder hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar or its designated agent.
In Witness Whereof the Corporation has caused the facsimile signatures of
its duly authorized officers and its facsimile seal to be affixed hereto.
Dated:
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NEW YORK)
By Transfer Agent CORPORATE /s/ Warren J. Olsen
and Registrar SEAL President
Authorized
Signatory /s/ Valerie Y. Lewis
Secretary
<PAGE>
The Morgan Stanley High Yield Fund, Inc.
A FULL STATEMENT OF THE DESIGNATION AND ANY PREFERENCES, CONVERSION AND OTHER
RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS, QUALIFICATIONS
AND TERMS AND CONDITIONS OF REDEMPTION OF THE SHARES OF CAPITAL STOCK MAY BE
OBTAINED FROM THE CORPORATION BY ANY STOCKHOLDER UPON REQUEST AND WITHOUT
CHARGE.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT -- ______Custodian ______
TEN ENT - as tenants by the entireties (Cust.) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors Act
of survivorship and not as _________________________________
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ______________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
______________________________________________________________________________
_______________________________________________________________________Shares
the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________Attorney
to transfer the said shares on the books of the within-named Corporation with
full power of substitution in the premises.
Dated:_____________________________
Signature(s)_____________________________
NOTICE: The signature(s) to
this assignment must
correspond with the name as
written upon the face of the
Certificate, in every
particular, without
alteration or enlargement, or
any change whatever.
Signature Guaranteed By:
__________________________
<PAGE>
Exhibit (2)(e)
THE MORGAN STANLEY HIGH YIELD FUND, INC.
---------------------------------------
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
TERMS AND CONDITIONS
1. Each shareholder ("Shareholder") holding shares of common stock
of The Morgan Stanley High Yield Fund, Inc. (the "Fund") may elect, by written
instruction to the American Stock Transfer & Trust Company (the "Plan Agent"),
to be a participant in the Fund's Dividend Reinvestment and Cash Purchase Plan
(the "Plan") and to have all distributions automatically reinvested by the Plan
Agent in Fund shares pursuant to the Plan. A Shareholder who does not wish to
participate in the Plan will receive all distributions in cash, net of any
applicable U.S. withholding tax, and will be paid by check in U.S. dollars
mailed directly to such Shareholder by the American Stock Transfer & Trust
Company, as dividend disbursing agent. The Plan Agent will act as agent for
individual Shareholders in administering the Plan and will open an account for
each Shareholder under the Plan in the same name as her or his shares of common
stock are registered.
2. Whenever the directors of the Fund declare an income dividend or
capital gains distribution payable either in shares of common stock or in cash,
non-participating Shareholders will receive cash, and participating Shareholders
will take such dividend or distribution entirely in shares of common stock to be
issued by the Fund or to be purchased on the open market by the Plan Agent, and
the Plan Agent shall automatically receive such shares of common stock,
including fractions, for the Shareholder's account. Whenever the market price
per share of common stock equals or exceeds the net asset value per share at the
time the shares of common stock are valued for the purpose of determining the
number of shares of common stock equivalent to the dividend or distribution (the
"Valuation Date"), the Fund will issue new shares to participants at net asset
value, or, if the net asset value is less than 95% of the market price on the
Valuation Date, then participants will be issued shares valued at 95% of the
market price. If net asset value per share on the Valuation Date exceeds the
market price per share on that date, the Plan Agent, as agent for the
participants, will buy shares of the Fund's common stock on the open market,
<PAGE>
on the New York Stock Exchange or elsewhere in the United States, for the
participants' accounts. If, before the Plan Agent has completed such purchases,
the market price exceeds the net asset value per share, the average per share
purchase price paid by the Plan Agent may exceed the net asset value per share,
resulting in the acquisition of fewer shares than if the dividend or
distribution had been paid in shares issued by the Fund at net asset value.
Additionally, if the market price exceeds the net asset value per share before
the Plan Agent has completed its purchases, the Plan Agent is permitted to cease
purchasing shares and the Fund may issue the remaining shares at a price equal
to the greater of (a) net asset value or (b) 95% of the then current market
price. In a case where the Plan Agent has terminated open market purchases and
the Fund has issued the remaining shares, the number of shares received by each
participant in respect of the dividend or distribution will be based on the
weighted average of prices paid for shares purchased in the open market and the
price at which the Fund issues the remaining shares. The Valuation Date shall be
the dividend or distribution payment date or, if that date is not a New York
Stock Exchange trading day, the next preceding trading day.
3. Whenever the directors of the Fund declare an income dividend or
capital gains distribution payable only in cash, the Plan Agent, as agent for
the participants, will buy shares of the Fund's common stock on the open market,
on the New York Stock Exchange or elsewhere in the United States, with the cash
in respect of such dividend or distribution for the participants' accounts, on,
or shortly after, the payment date. To the extent the market price exceeds the
net asset value of the common stock when the Plan Agent makes such purchases,
participants may receive fewer shares of common stock than if the dividend or
distribution had been payable in common stock issued by the Fund.
4. Participants in the Plan have the option of making additional
cash payments to the Plan Agent, monthly, in any amount from $100 to $3,000, for
investment in shares of common stock of the Fund. The Plan Agent will use all
funds received from participants (as well as any dividends or distributions
received in cash) to purchase Fund shares of common stock on the open market, on
or about the payment date for each monthly dividend or distribution (which is
expected to be approximately the 15th day of each month). To avoid unnecessary
cash accumulations, and also to allow ample time for receipt
2
<PAGE>
and processing by the Plan Agent, participants should send in voluntary cash
payments to be received by the Plan Agent approximately ten days before the 15th
day of each month. Any voluntary cash payments received more than ten days prior
to any such date will be returned by the Plan Agent, and interest will not be
paid on any such uninvested cash payment amounts. A participant may withdraw a
voluntary cash payment by written notice, if the notice is received by the Plan
Agent not less than forty-eight hours before such payment is to be invested. All
voluntary cash payments should be made by check drawn on a U.S. bank, (or a non-
U.S. bank, if the U.S. currency is imprinted on the check) payable in U.S.
dollars, and should be mailed to the Plan Agent, along with a properly executed
cash remittance form (copies of which will be provided by the Plan Agent to
participants), at American Stock Transfer & Trust Company, Dividend Reinvestment
Unit, 40 Wall Street, New York, New York 10005. If any check is returned unpaid
for any reason, the Plan Agent will be entitled to sell any number of shares
from the participant's account required to recoup any funds expended to purchase
shares for such participant's account.
5. The Plan Agent will apply all cash received as a dividend or
distribution or as a voluntary cash payment to purchase shares of common stock
on the open market as soon as practicable after the payment date of the dividend
or distribution, but in no event later than 30 days after such payment date,
except where necessary to comply with applicable provisions of the federal
securities laws. No participant will have any authority to direct the time or
price at which the Plan Agent may purchase shares of the Fund's common stock on
such participant's behalf.
6. For all purposes of the Plan: (a) the market price of shares of
common stock of the Fund on a particular date shall be the last sales price on
the New York Stock Exchange at the close of the previous trading day or, if
there is no sale on the New York Stock Exchange on that date, then the mean
between the closing bid and asked quotations for such stock on the New York
Stock Exchange on such date, (b) each Valuation Date shall be the dividend or
distribution payment date or, if that date is not a New York Stock Exchange
trading day, the next preceding trading day, and (c) the net asset value per
share of common stock on a particular date shall be as determined by or on
behalf of the Fund.
3
<PAGE>
7. The open-market purchases provided for above may be made on any
securities exchange in the United States where the shares of common stock of the
Fund are traded, in the over-the counter market or in negotiated transactions,
and may be on such terms as to price, delivery and otherwise as the Plan Agent
shall determine. Funds held by the Plan Agent will not bear interest. In
addition, it is understood that the Plan Agent shall have no liability (other
than as provided in paragraph 15 hereof) in connection with any inability to
purchase shares of common stock within 30 days after the payment date of any
dividend or distribution as herein provided or with the timing of any purchases
effected. The Plan Agent shall have no responsibility as to the value of the
shares of common stock of the Fund acquired for any Shareholder's account.
8. The Plan Agent will hold shares of common stock acquired pursuant
to the Plan in non-certificated form in the name of the Shareholder for whom
such shares are being held, and each Shareholder's proxy will include those
shares of common stock held pursuant to the Plan. The Plan Agent will forward to
each Shareholder participating in the Plan any proxy solicitation material
received by it. 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 such Shareholders as representing the total amount registered in the
names of such Shareholders and held for the account of beneficial owners who
participate in the Plan. Upon a Shareholder's written request, the Plan Agent
will deliver to her or him, without charge and within ten days, a certificate or
certificates representing all full shares of common stock held by the Plan Agent
pursuant to the Plan for the benefit of such Shareholder.
9. The Plan Agent will confirm, in writing, each acquisition made
for the account of a Shareholder as soon as practicable, but in any event not
later than 60 days after the date thereof. Such confirmation will indicate the
number of shares purchased and the price per share paid, and will include any
applicable tax information pertaining to such Shareholder's account. It is
understood that the reinvestment of dividends and distributions does not relieve
the participant of any income tax which may be payable on such dividends and
distributions. Any Shareholder who is subject to U.S. backup
4
<PAGE>
withholding tax, or who is a foreign Shareholder subject to U.S. income tax
withholding, will have the applicable tax withheld from all dividends and
distributions received and only the net amount will be reinvested in shares of
the Fund's common stock. Although a Shareholder may from time to time have an
undivided fractional interest (computed to three decimal places) in a share of
common stock of the Fund, no certificates for fractional shares will be issued.
However, distributions and dividends on fractional shares of common stock will
be credited to each Shareholder's account. In the event of termination of a
Shareholder's account under the Plan, the Plan Agent will adjust for any such
undivided fractional interest in cash at the current market value of the shares
of common stock at the time of termination.
10. Any stock dividends or split shares distributed by the Fund on
shares of common stock held by the Plan Agent for a Shareholder will be credited
to the Shareholder's account. In the event that the Fund makes available to
Shareholders rights to purchase additional shares of common stock or other
securities, the Plan Agent will forward to each Shareholder participating in the
Plan any materials received by it relating to such rights.
11. There is no charge to Shareholders for reinvesting dividends or
capital gains distributions. The Plan Agent's fees for the handling of the
reinvestment of dividends and distributions will be paid by the Fund. However,
each Shareholder will be charged a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in connection
with the reinvestment of dividends or distributions. A Shareholder will also pay
brokerage commissions incurred in connection with purchases from voluntary cash
payments made by the Shareholder. Brokerage charges for purchasing small amounts
of stock for individual accounts through the Plan are expected to be less than
the usual brokerage charges for such transactions because the Plan Agent will be
purchasing stock for all participants in large blocks and prorating the lower
commission thus attainable.
12. A Shareholder may terminate her or his participation in the Plan
by notifying the Plan Agent. Such notifications should be made in writing on a
properly executed withdrawal/termination form (copies of which will be provided
by the Plan Agent to participants) mailed to the Plan Agent at American Stock
Transfer & Trust Company, Dividend Reinvestment Unit, 40 Wall Street, New York,
New
5
<PAGE>
York 10005. Such termination will be effective immediately if notice is received
by the Plan Agent prior to any dividend or distribution record date; otherwise
such termination will be effective, with respect to any subsequent dividend or
distribution, on the first trading day after the dividend or distribution paid
for such record date shall have been credited to such Shareholder's account. The
Plan may be terminated by the Plan Agent or the Fund with respect to any
voluntary cash payments made or any dividends or distributions paid subsequent
to the notice of termination in writing mailed to the Shareholders at least 90
days prior to the monthly contribution date, in the case of voluntary cash
payments, or the record date for the payment of any dividend or distribution by
the Fund. Upon any termination, the Plan Agent will cause a certificate or
certificates for the full shares held for a Shareholder under the Plan, and cash
adjustment for any fractional shares to be delivered to her or him or, upon the
request of such Shareholder, will sell all of the shares held for the
Shareholder under the Plan, within ten days of receiving the Shareholder's
instructions, and will deliver the proceeds less any brokerage commissions and
transfer taxes to the Shareholder.
13. If any Shareholder has withdrawn shares from the Plan, or
acquires shares which have been withdrawn from the Plan, and wishes to have such
shares held through and subject to the Plan, such Shareholder may resubmit such
shares by notifying the Plan Agent at American Stock Transfer & Trust Company,
Dividend Reinvestment Unit, 40 Wall Street, New York, New York 10005.
14. These terms and conditions may be amended or supplemented by the
Plan Agent or the Fund at any time or times but, except when necessary or
appropriate to comply with applicable law or the rules or policies of the
Securities and Exchange Commission or any other regulatory authority, only by
mailing to the Shareholders appropriate written notice at least 90 days prior to
the effective date thereof. The amendment or supplement shall be deemed to be
accepted by the Shareholders unless, prior to the effective date thereof, the
Plan Agent receives written notice of the termination of a Shareholder's account
under the Plan. Any such amendment may include an appointment by the Plan Agent
in its place and stead of a successor Plan Agent under these terms and
conditions, with full power and authority to perform all or any of the acts to
be performed by the Plan Agent under these terms and conditions. Upon any such
appointment of a successor Plan Agent for the purpose of receiving dividends and
distributions, the Fund
6
<PAGE>
will be authorized to pay to such successor Plan Agent, for the Shareholders'
accounts, all dividends and distributions payable on the shares of common stock
held in the Shareholders' name or under the Plan for retention or application by
such successor Plan Agent as provided in these terms and conditions.
15. The Plan Agent shall at all times act in good faith and agree to
use its best efforts within reasonable limits to ensure the accuracy of all
services performed under this Plan and to comply with applicable law, but
assumes no responsibility and shall not be liable for loss or damage due to
errors unless such error is caused by its negligence, bad faith or willful
misconduct or that of its employees.
7
<PAGE>
Exhibit (2)(g)
INVESTMENT ADVISORY AND
MANAGEMENT AGREEMENT
AGREEMENT, dated as of March 13, 1997, between THE MORGAN STANLEY HIGH
YIELD FUND, INC., a Maryland corporation (the "Fund"), and MORGAN STANLEY ASSET
MANAGEMENT INC., a Delaware corporation (the "Investment Manager").
WHEREAS, the Fund is a closed-end, non-diversified management
investment company registered under the U.S. Investment Company Act of 1940, as
amended (the "1940 Act"), shares of common stock of which are registered under
the Securities Act of 1933, as amended; and
WHEREAS, the Fund's primary investment objective is to seek high
current income. As a secondary objective, the Fund will seek capital
appreciation. In seeking to achieve these objectives, the Fund, under normal
market conditions, will invest at least 65% of its total assets in high yield
securities issued by U.S. corporations. In addition, the Fund may invest up to
35% of its total assets in high yield securities issued by non-U.S. corporations
and by government and government-related issuers located in developing
countries, provided that no more than 20% of the Fund's total assets may be
invested in high yield securities issued by government and government-related
issuers in developing countries. (The Fund's investment objectives are more
fully described in the Prospectus dated November 22, 1993 (the "Prospectus")
contained in the Fund's Registration Statement on Form N-2 (File Nos. 33-69454
and 811-8044) (the "Registration Statement"); and
WHEREAS, the Fund desires to retain the Investment Manager to render
investment management services with respect to its assets and the Investment
Manager is willing to render such services.
NOW, THEREFORE, in consideration of the mutual covenants hereafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. Appointment of Investment Manager. (a) The Fund hereby employs
the Investment Manager for the period and on the terms and conditions set forth
herein, subject at all times to the supervision of the Board of Directors of the
Fund, to:
(i) Make all investment decisions for the assets of the Fund
and manage the investment and reinvestment of those assets in accordance with
the investment objective and policies of the Fund, as set forth in the Fund's
Prospectus, and subject always to the restrictions of the Fund's Articles of
Incorporation and By-Laws, as amended or restated from time to time, the
provisions of the 1940 Act and the Fund's investment objective and policies and
investment restrictions, as the same are set forth in the Fund's Prospectus.
Should the Board of Directors of the Fund at any time make any definite
determination as to investment policy and notify the Investment Manager thereof,
the Investment Manager shall be bound by such determination for the period, if
any, specified in such notice or until similarly notified that such
determination has been revoked. The Investment Manager shall take, on behalf of
the Fund, all actions which it deems necessary to implement the investment
policies of the Fund and to place all orders for the purchase or sale of
portfolio securities for the Fund with brokers or dealers selected by it, and in
connection therewith, the Investment Manager is authorized as agent of the Fund
to give instructions to the custodians from time to time of the Fund's assets as
to deliveries of securities and payments of cash for the account of the Fund. In
connection with the selection of such brokers or dealers and the placing of such
orders, the Investment Manager is directed at all times to seek to obtain for
the Fund the most favorable net results as determined by the Board of Directors
of the Fund. Subject to this requirement and the provisions of the 1940 Act, the
U.S. Securities Exchange Act of 1934, as amended, and any other applicable
provisions of law, nothing shall prohibit the Investment Manager from selecting
<PAGE>
brokers or dealers with which it or the Fund is affiliated or which provide the
Investment Manager with investment research services as described in the Fund's
Prospectus;
(ii) Prepare and make available to the Fund research and
statistical data in connection therewith; and
(iii) Maintain or cause to be maintained for the Fund all books
and records required under the 1940 Act, to the extent that such books and
records are not maintained or furnished by administrators, custodians or
other agents of the Fund.
(b) The Investment Manager accepts such employment and agrees during
the term of this Agreement to render such services, to permit any of its
directors, officers or employees to serve without compensation as directors or
officers of the Fund if elected to such positions, and to assume the obligations
set forth herein for the compensation herein provided. The Investment Manager
shall for all purposes herein provided be deemed to be an independent contractor
and, unless otherwise expressly provided or authorized, shall have no authority
to act for or represent the Fund in any way or otherwise be deemed an agent of
the Fund.
2. Compensation. For the services and facilities described in
Section 1, the Fund agrees to pay in United States dollars to the Investment
Manager, a fee, computed weekly and payable monthly, at an annual rate of .70%
of the Fund's average weekly net assets. For the month and year in which this
Agreement becomes effective or terminates, there shall be an appropriate
proration on the basis of the number of days that this Agreement is in effect
during such month and year, respectively.
3. Investment in Fund Stock. The Investment Manager agrees that it
will not make a short sale of any capital stock of the Fund, or purchase any
share of the capital stock of the Fund other than for investment.
4. Non-Exclusivity of Services. Nothing herein shall be construed as
prohibiting the Investment Manager from providing investment advisory services
to, or entering into investment advisory agreements with, any other clients
(including other registered investment companies), including clients which may
invest in high yield securities, so long as the Investment Manager's services to
the Fund are not impaired thereby.
5. Standard of Care; Indemnification. The Investment Manager may
rely on information reasonably believed by it to be accurate and reliable.
Neither the Investment Manager nor its officers, directors, employees, agents or
controlling persons (as defined in the 1940 Act) shall be subject to any
liability for any act or omission, error of judgment or mistake of law, or for
any loss suffered by the Fund, in the course of, connected with or arising out
of any services to be rendered hereunder, except by reason of willful
misfeasance, bad faith or gross negligence on the part of the Investment Manager
in the performance of its duties or by reason of reckless disregard on the part
of the Investment Manager of its obligations and duties under this Agreement.
Any person, even though also employed by the Investment Manager, who may be or
become an employee of the Fund shall be deemed, when acting within the scope of
his employment by the Fund, to be acting in such employment solely for the Fund
and not as an employee or agent of the Investment Manager.
The Fund agrees to indemnify and hold harmless the Investment Manager,
its officers, directors, employees, agents, shareholders, controlling persons or
other affiliates (each an "Indemnified Party"), for any losses, costs and
expenses incurred or suffered by any Indemnified Party arising from any action,
proceeding or claims which may be brought against such Indemnified Party in
connection with the performance or non-performance in good faith of its
functions under this Agreement, except losses, costs and expenses resulting from
willful misfeasance, bad faith or gross negligence in the performance of such
Indemnified Party's duties or from reckless disregard on the part of such
Indemnified Party of such Indemnified Party's obligations and duties under this
Agreement.
2
<PAGE>
6. Allocation of Charges and Expenses. (a) The Investment Manager
shall assume and pay for maintaining its staff and personnel, and shall, at its
own expense, provide the equipment, office space and facilities necessary to
perform its obligations hereunder. The Investment Manager shall pay the
salaries and expenses of such of the Fund's officers and employees, and fees and
expenses of such of the Fund's directors who are directors, officers or
employees of the Investment Manager or any of its affiliates, provided, however,
that the Fund, and not the Investment Manager, shall bear travel expenses or an
appropriate fraction thereof of directors and officers of the Fund who are
directors, officers or employees of the Investment Manager or its affiliates to
the extent that such expenses relate to attendance at meetings of the Board of
Directors of the Fund or any committees thereof.
(b) In addition to the fee of the Investment Manager, the Fund
shall assume and pay the following expenses: organization expenses (but not the
overhead or employee costs of the Investment Manager); legal fees and expenses
of counsel to the Fund; auditing and accounting expenses; taxes and governmental
fees; New York Stock Exchange listing fees; dues and expenses incurred in
connection with membership in investment company organizations; fees and
expenses of the Fund's custodians, sub-custodians, transfer agents and
registrars; fees and expenses with respect to administration, except as may be
herein expressly provided otherwise or provided otherwise pursuant to
administration agreements; expenses for portfolio pricing services by a pricing
agent, if any; expenses of preparing share certificates and other expenses in
connection with the issuance, offering and underwriting of shares issued by the
Fund; expenses relating to investor and public relations; expenses of
registering or qualifying securities of the Fund for public sale; freight,
insurance and other charges in connection with the shipment of the Fund's
portfolio securities; brokerage commissions or other costs of acquiring or
disposing of any portfolio holding of the Fund; expenses of preparation and
distribution of reports, notices and dividends to stockholders; expenses of the
dividend reinvestment and cash purchase plan (except for brokerage expenses paid
by participants in such plan); costs of stationery; any litigation expenses; and
costs of stockholders' and other meetings.
7. Potential Conflicts of Interest. (a) Subject to applicable
statutes and regulations, it is understood that directors, officers or agents of
the Fund are or may be interested in the Investment Manager or its affiliates as
directors, officers, employees, agents, shareholders or otherwise, and that the
directors, officers, employees, agents or shareholders of the Investment Manager
may be interested in the Fund as a director, officer, agent or otherwise.
(b) If the Investment Manager considers the purchase or sale of
securities for the Fund and other advisory clients of the Investment Manager at
or about the same time, transactions in such securities will be made for the
Fund and such other clients in a manner equitable to the Fund and such other
clients or, insofar as feasible, in accordance with guidelines which may be
adopted by the Board of Directors of the Fund.
8. Duration and Termination. (a) This Agreement shall be effective
for a period of two years commencing on the later of (i) the date that the
requisite stockholder approval as required under Section 15 of the 1940 Act has
been obtained or (ii) the date that the Agreement and Plan of Merger, dated
February 4, 1997, between Dean Witter, Discover & Co. and Morgan Stanley Group
Inc. is consummated. Thereafter, this Agreement will continue in effect from
year to year, provided that such continuance is specifically approved at least
annually by (i) a vote of a majority of the members of the Fund's Board of
Directors who are neither parties to this Agreement nor interested persons of
the Fund or of the Investment Manager or of any entity regularly furnishing
investment advisory services with respect to the Fund pursuant to an agreement
with the Investment Manager, cast in person at a meeting called for the purpose
of voting on such approval, and (ii) a vote of a majority of either the Fund's
Board of Directors or the Fund's outstanding voting securities.
(b) This Agreement may nevertheless be terminated at any time,
without payment of penalty, by the Fund or by the Investment Manager upon 60
days' written notice. This
3
<PAGE>
Agreement shall automatically be terminated in the event of its assignment,
provided, however, that a transaction which does not, in accordance with the
1940 Act, result in a change of actual control or management of the Investment
Manager's business shall not be deemed to be an assignment for the purposes of
this Agreement.
(c) Termination of this Agreement shall not (i) affect the right
of the Investment Manager to receive payments of any unpaid balance of the
compensation described in Section 2 earned prior to such termination, or (ii)
extinguish the Investment Manager's right of indemnification under Section 5.
As used herein, the terms "interested person," "assignment," and "vote
of a majority of the outstanding voting securities" shall have the meanings set
forth in the 1940 Act.
9. Amendment. This Agreement may be amended by mutual agreement, but
only after authorization of such amendment by the affirmative vote of (i) the
holders of a majority of the outstanding voting securities of the Fund, and (ii)
a majority of the members of the Fund's Board of Directors who are not
interested persons of the Fund or of the Investment Manager, cast in person at a
meeting called for the purpose of voting on such approval.
10. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of New York, provided, however, that nothing herein
shall be construed as being inconsistent with the 1940 Act.
11. Notices. Any communication hereunder shall be in writing and
shall be delivered in person or by telex or facsimile (followed by mailing such
notice, air mail postage prepaid, on the date on which such telex or facsimile
is sent, to the address set forth below). Any communication or document to be
made or delivered by one person to another pursuant to this Agreement shall be
made or delivered to that other person at the following relevant address (unless
that other person has by fifteen (15) days' notice to the other specified
another address):
If to the Investment Manager:
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: General Counsel
Telephone No.: (212) 762-7188
Facsimile No.: (212) 762-7377
If to the Fund:
The Morgan Stanley High Yield Fund, Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: President
Telephone No.: (212) 296-7100
Facsimile No.: (212) 762-7326
Communications or documents made or delivered by personal delivery shall be
deemed to have been received on the day of such delivery. Communications or
documents made or delivered by telex or facsimile shall be deemed to have been
received, if by telex, when acknowledged by the addressee's correct answer
back code and, if by facsimile, upon production of a transmission report by
the machine from which the facsimile was sent which indicates that the
facsimile was sent in its entirety
4
<PAGE>
to the facsimile number of the recipient; provided that a hard copy of the
communication or document so made or delivered by telex or facsimile was
posted the same day as the communication or document was made or delivered by
electronic means.
12. Jurisdiction. Each party hereto irrevocably agrees that any
suit, action or proceeding against either of the Investment Manager or the Fund
arising out of or relating to this Agreement shall be subject exclusively to the
jurisdiction of the United States District Court for the Southern District of
New York or the Supreme Court of the State of New York, New York County, and
each party hereto irrevocably submits to the jurisdiction of each such court in
connection with any such suit, action or proceeding. Each party hereto waives
any objection to the laying of venue of any such suit, action or proceeding in
either such court, and waives any claim that such suit, action or proceeding has
been brought in an inconvenient forum. Each party hereto irrevocably consents to
service of process in connection with any such suit, action or proceeding by
mailing a copy thereof in English by registered or certified mail, postage
prepaid, to their respective addresses as set forth in this Agreement.
13. Representation and Warranty of the Investment Manager. The
Investment Manager represents and warrants that it is duly registered as an
investment adviser under the U.S. Investment Advisers Act of 1940, as amended,
and that it will use its reasonable efforts to maintain effective its
registration during the term of this Agreement.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties have executed this Investment Advisory
and Management Agreement by their officers thereunto duly authorized as of the
day and year first written above.
THE MORGAN STANLEY HIGH YIELD FUND, INC.
By: /s/ Warren J. Olsen
--------------------------
Name: Warren J. Olsen
Title: President
MORGAN STANLEY ASSET MANAGEMENT
INC.
By: /s/ Warren J. Olsen
--------------------------
Name: Warren J. Olsen
Title: Principal
5
<PAGE>
Exhibit (2)(j)(1)
DOMESTIC CUSTODY AGREEMENT
THE MORGAN STANLEY HIGH YIELD FUND, INC.
UNITED STATES TRUST COMPANY OF NEW YORK
November 30, 1993
<PAGE>
DOMESTIC CUSTODY AGREEMENT
--------------------------
THIS AGREEMENT is made as of November 30, 1993, by and between THE MORGAN
STANLEY HIGH YIELD FUND, INC., a Maryland corporation (the "Fund"), and UNITED
STATES TRUST COMPANY OF NEW YORK, a New York State chartered bank and trust
company ("U.S. Trust").
W I T N E S S E T H :
---------------------
WHEREAS, the Fund is registered as a closed-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund desires to retain U.S. Trust to serve as the Fund's
custodian for its assets held within the United States and U.S. Trust is willing
to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints U.S. Trust to act as custodian
-----------
of its portfolio securities, cash and other property held within the United
States on the terms set forth in this Agreement. U.S. Trust accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Paragraph 21 of this Agreement.
2. Delivery of Documents. The Fund will promptly furnish to U.S. Trust
---------------------
such copies, properly certified or authenticated, of contracts, documents and
other related information that U.S. Trust may request or requires to properly
discharge its duties. Such documents may include but are not limited to the
following:
(a) Resolutions of the Fund's Directors authorizing the appointment of
U.S. Trust as Custodian of the portfolio securities, cash and other property of
the Fund and approving this Agreement;
<PAGE>
(b) Incumbency and signature certificates identifying and containing the
signatures of the Fund's officers and/or the persons authorized to sign Written
Instructions, as hereinafter defined, on behalf of the Fund;
(c) The Fund's Articles of Incorporation filed with the Department of
Assessments of the State of Maryland and all amendments thereto (such Articles
of Incorporation, as currently in effect and as they shall from time to time be
amended, are herein called the "Articles");
(d) The Fund's By-Laws and all amendments thereto (such By-Laws, as
currently in effect and as they shall from time to time be amended, are herein
called the "By-Laws");
(e) Resolutions of the Fund's Directors and/or the Fund's stockholders
approving the Investment Advisory and Management Agreement between the Fund and
Morgan Stanley Asset Management Inc., the Fund's investment adviser (the
"Advisory Agreement");
(f) The Advisory Agreement; and
(g) The Fund's Registration Statement on Form N-2 under the 1940 Act and
the Securities Act of 1933, as amended (the "1933 Act") as filed with, and
declared effective by, the Securities and Exchange Commission (the "SEC") and
all amendments and supplements thereto.
The Fund will furnish U.S. Trust from time to time with copies of all
amendments of or supplements to the foregoing, if any. The Fund will also
furnish U.S. Trust with a copy of the opinion of counsel for the Fund with
respect to the validity of the shares of common stock, par value $.01 per share
(the "Shares"), of the Fund and the status of such Shares under the 1933 Act as
registered with the SEC, and under any other applicable federal law or
regulation.
3. Definitions.
-----------
(a) "Authorized Person." As used in this Agreement, the term "Authorized
-----------------
Person" means the Fund's President, Vice-President, Treasurer and any other
person, whether or not any such person is an officer or employee of the Fund,
duly authorized by the Directors of the Fund to give Written Instructions on
behalf of the Fund and listed on Attachment B hereto which may be amended from
time to time.
2
<PAGE>
(b) "Book-Entry System." As used in this Agreement, the term "Book-Entry
-----------------
System" means the Federal Reserve/Treasury book-entry system for United
States and federal agency securities, its successor or successors and its
nominee or nominees.
(c) "Property." The term "Property," as used in this Agreement, means:
--------
(i) any and all securities, cash, and other property of the Fund
which the Fund may from time to time deposit, or cause to be deposited,
with U.S. Trust or which U.S. Trust may from time to time hold for the
Fund;
(ii) all income in respect of any such securities or other property;
(iii) all proceeds of the sales of any of such securities or other
property; and
(iv) all proceeds of the sale of securities issued by the Fund, which
are received by U.S. Trust from time to time from or on behalf of the Fund.
(d) "Securities Depository." As used in this Agreement, the term
---------------------
"Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC, or its successor or successors and its nominee
or nominees; and shall also mean any other registered clearing agency, its
successor or successors, specifically identified in a certified copy of a
resolution of the Fund's Directors approving deposits by U.S. Trust therein.
(e) "Written Instructions." Means instructions
--------------------
(i) delivered by mail, tested telegram, cable, telex or facsimile
sending device, and received by U.S. Trust, signed by two Authorized
Persons or by persons reasonably believed by U.S. Trust to be Authorized
Persons; or
(ii) transmitted electronically through the U.S. Trust Asset
Management System or any similar electronic instruction system acceptable
to U.S. Trust.
4. Delivery and Registration of the Property. The Fund will deliver or
-----------------------------------------
cause to be delivered to U.S. Trust all Property owned by it which is held
within the United States, including cash received for the issuance of its
Shares, at any time during the period of this Agreement, except for securities
and monies to be delivered to any subcustodian appointed pursuant to Paragraph 7
hereof. U.S. Trust will not
3
<PAGE>
be responsible for such securities and such monies until actually received, by
U.S. Trust or by any subcustodian. All securities delivered to U.S. Trust or to
any such subcustodian (other than in bearer form) shall be registered in the
name of the Fund or in the name of a nominee of the Fund or in the name of U.S.
Trust or any nominee of U.S. Trust (with or without indication of fiduciary
status) or in the name of any subcustodian or any nominee of such subcustodian
appointed pursuant to Paragraph 7 hereof or shall be properly endorsed and in
form for transfer satisfactory to U.S. Trust.
5. Voting Rights. With respect to all securities, however registered, it
-------------
is understood that the voting and other rights and powers shall be exercised by
the Fund. U.S. Trust's only duty shall be to mail to the Fund any documents
received, including proxy statements and offering circulars, with any proxies
for securities registered in a nominee name executed by such nominee. Where
warrants, options, tenders or other securities have fixed expiration dates, the
Fund understands that in order for U.S. Trust to act, U.S. Trust must receive
the Fund's instructions at its offices in New York City, addressed as U.S. Trust
may from time to time request, by no later than noon (New York City time) at
least one business day prior to the last scheduled date to act with respect
thereto (or such earlier date or time as permits the Fund a reasonable period of
time in which to respond after U.S. Trust notifies the Fund of such date or
time). Absent U.S. Trust's timely receipt of such instructions, such instruments
will expire without liability to U.S. Trust.
6. Receipt and Disbursement of Money.
---------------------------------
(a) U.S. Trust shall open and maintain a custody account for the Fund (the
"Account") subject only to draft or order by U.S. Trust acting pursuant to the
terms of this Agreement, and shall hold in such Account, subject to the
provisions hereof, all cash received by it from or for the Fund. U.S. Trust
shall make payments of cash to, or for the account of, the Fund from such cash
only (i) for the purchase of securities for the Fund as provided in paragraph 12
hereof; (ii) upon receipt of Written Instructions, for the payment of dividends
or other distributions of shares, or for the payment of interest, taxes,
administration, distribution or advisory fees or expenses which are to be borne
by the Fund under the terms of this Agreement, any Advisory Agreement, or any
administration agreement of the Fund; (iii)
4
<PAGE>
upon receipt of Written Instructions for payments in connection with the
conversion, exchange or surrender of securities owned or subscribed to by the
Fund and held by or to be delivered to U. S. Trust; (iv) to a subcustodian
pursuant to Paragraph 7 hereof; or (v) upon receipt of Written Instructions for
other corporate purposes.
(b) U.S. Trust is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received as custodian for the
Fund.
7. Receipt of Securities.
---------------------
(a) Except as provided by Paragraph 8 hereof, U.S. Trust shall hold all
securities and non-cash Property received by it for the Fund. All such
securities and non-cash Property are to be held or disposed of by U.S. Trust for
the Fund pursuant to the terms of this Agreement. In the absence of Written
Instructions accompanied by a certified resolution authorizing the specific
transaction by the Fund's Directors, U.S. Trust shall have no power or authority
to withdraw, deliver, assign, hypothecate, pledge or otherwise dispose of any
such securities and non-cash Property, except in accordance with the express
terms provided for in this Agreement. In connection with its duties under this
Paragraph 7, U.S. Trust may, at its own expense, enter into subcustodian
agreements with other U.S. banks or trust companies for the receipt of certain
securities and cash to be held by U.S. Trust for the account of the Fund
pursuant to this Agreement; provided that each such bank or trust company has an
aggregate capital, surplus and undivided profits, as shown by its last published
report, of not less than twenty million dollars ($20,000,000) and that such bank
or trust company agrees with U.S. Trust to comply with all relevant provisions
of the 1940 Act and applicable rules and regulations thereunder.
(b) Promptly after the close of business on each day, U.S. Trust shall
furnish the Fund with confirmations and a summary of all transfers to or from
the account of the Fund during said day. Where securities are transferred to the
account of the Fund established at a Securities Depository or the Book Entry
System pursuant to Paragraph 8 hereof, U.S. Trust shall also by book-entry or
otherwise identify as belonging to the Fund the quantity of securities that
belongs to the Fund that are part of a fungible bulk of securities registered in
the name of U.S. Trust (or its nominee) or shown in U.S. Trust's account on the
5
<PAGE>
books of a Securities Depository or the Book-Entry System. At least monthly and
from time to time, U.S. Trust shall furnish the Fund with a detailed statement
of the Property held for the Fund under this Agreement.
8. Use of Securities Depository or the Book-Entry System. The Fund shall
-----------------------------------------------------
deliver to U.S. Trust a certified resolution of the Directors of the Fund
approving, authorizing, and instructing U.S. Trust on a continuous and ongoing
basis until instructed to the contrary by Written Instructions actually received
by U.S. Trust (i) to deposit in a Securities Depository or the Book-Entry System
all securities of the Fund eligible for deposit therein and (ii) to utilize a
Securities Depository or the Book-Entry System to the extent possible in
connection with the performance of its duties hereunder, including without
limitation, settlements of purchases and sales of securities by the Fund, and
deliveries and returns of securities collateral in connection with borrowings.
Without limiting the generality of such use, it is agreed that the following
provisions shall apply thereto:
(a) Securities and any cash of the Fund deposited in a Securities
Depository or the Book-Entry System will at all times be segregated from any
assets and cash controlled by U.S. Trust in other than a fiduciary or custodian
capacity but may be commingled with other assets held in such capacities. U.S.
Trust will effect payment for securities and receive and deliver securities in
accordance with accepted industry practices in the place where the transaction
is settled, unless the Fund has given U.S. Trust Written Instructions to the
contrary.
(b) All Books and records maintained by U.S. Trust which relate to the
Fund's participation in a Securities Depository or the Book-Entry System will at
all times during U.S. Trust's regular business hours be open to the inspection
of the Fund's duly authorized employees or agents, and the Fund will be
furnished with all information in respect of the services rendered to it as it
may require.
9. Instructions Consistent With The Articles, etc. Unless otherwise
-----------------------------------------------
provided in this Agreement, U.S. Trust shall act only upon Written Instructions.
U.S. Trust may assume that any Written Instructions received hereunder are not
in any way inconsistent with any provision of the Articles or By-Laws of the
Fund or any vote or resolution of the Fund's Directors, or any committee
thereof. U.S. Trust
6
<PAGE>
shall be entitled to rely upon any Written Instructions actually received by
U.S. Trust pursuant to this Agreement. The Fund agrees that U.S. Trust shall
incur no liability in acting in good faith upon Written Instructions given to
U.S. Trust. In accord with instructions from the Fund, as required by accepted
industry practice or as U.S. Trust may elect in effecting the execution of Fund
instructions, advances of cash or other Property made by U.S. Trust, arising
from the purchase, sale, redemption, transfer or other disposition of Property
of the Fund, or in connection with the disbursement of funds to any party, or in
payment of fees, expenses, claims or liabilities owed to U.S. Trust by the Fund,
or to any other party which has secured judgment in a court of law against the
Fund which creates an overdraft in the accounts or over-delivery of Property
shall be deemed a loan by U.S. Trust to the Fund, payable on demand, bearing
interest at such rate customarily charged by U.S. Trust for similar loans. The
Fund agrees that test arrangements, authentication methods or other security
devices to be used with respect to instructions which the Fund may give by
telephone, telex, TWX, facsimile transmission, bank wire or through an
electronic instruction system, shall be processed in accordance with terms and
conditions for the use of such arrangements, methods or devices as U.S. Trust
may put into effect and modify from time to time. The Fund shall safeguard any
test keys, identification codes or other security devices which U.S. Trust makes
available to the Fund and agrees that the Fund shall be responsible for any
loss, liability or damage incurred by U.S. Trust or by the Fund as a result of
U.S. Trust's acting in accordance with instructions from any unauthorized person
using the proper security device unless such loss, liability or damage was
incurred as a result of U.S. Trust's negligence or willful misconduct. U.S.
Trust may electronically record, but shall not be obligated to so record, any
instructions given by telephone and any other telephone discussions with respect
to the Account. In the event that the Fund uses U.S. Trust's Asset Management
System ("AMS"), the Fund agrees that U.S. Trust is not responsible for the
consequences of the failure of the AMS to perform for any reason, beyond the
reasonable control of U.S. Trust, or the failure of any communications carrier,
utility, or communications network. In the event the AMS is inoperable, the Fund
agrees that it will accept the communication of transaction instructions by
telephone,
7
<PAGE>
facsimile transmission on equipment compatible to U.S. Trust's facsimile
receiving equipment or by letter, at no additional charge to the Fund.
10. Transactions Not Requiring Instructions. U.S. Trust is authorized to
---------------------------------------
take the following action without Written Instructions:
(a) Collection of Income and Other Payments. U.S. Trust shall:
---------------------------------------
(i) collect and receive for the account of the Fund, all income and
other payments and distributions, including (without limitation) stock
dividends, rights, warrants and similar items, included or to be included
in the Property of the Fund, and promptly advise the Fund of such receipt
and shall credit such income, as collected, to the Fund. From time to time,
U.S. Trust may elect, but shall not be so obligated, to credit the Account
with interest, dividends or principal payments on payable or contractual
settlement date, in anticipation of receiving same from a payor, central
depository, broker or other agent employed by the Fund or U.S. Trust. Any
such crediting and posting shall be at the Fund's sole risk, and U.S. Trust
shall be authorized to reverse any such advance posting in the event U.S.
Trust does not receive good funds from any such payor, central depository,
broker or agent of the Fund.
(ii) with respect to securities of foreign issuers held in custody by
U.S. Trust hereunder, if any, effect collection of dividends, interest and
other income, and to notify the Fund of any call for redemption, offer of
exchange, right of subscription, reorganization, or other proceedings
affecting such securities, or any default in payments due thereon. It is
understood, however, that U.S. Trust shall be under no responsibility for
any failure or delay in effecting such collections or giving such notice
with respect to securities of foreign issuers, regardless of whether or not
the relevant information is published in any financial service available to
U.S. Trust unless such failure or delay is due to its negligence or willful
misconduct; provided that this sub-paragraph (ii) shall not be construed as
creating any such responsibility with respect to securities of non-foreign
issuers. Collections of income in foreign currency are, to the extent
possible, to be converted into United States Dollars unless otherwise
instructed in writing, and in
8
<PAGE>
effecting such conversion U.S. Trust may use such methods or agencies as it
may see fit, including the facilities of its own foreign division at
customary rates. All risk and expenses incident to such collection and
conversion is for the account of the Fund and U.S. Trust shall have no
responsibility for fluctuations in exchange rates affecting any such
conversion.
(iii) endorse and deposit for collection in the name of the Fund,
checks, drafts, or other orders for the payment of money on the same day as
received;
(iv) receive and hold for the account of the Fund all securities
received by the Fund as a result of a stock dividend, share split-up or
reorganization, recapitalization, readjustment or other rearrangement or
distribution of rights or similar securities issued with respect to any
portfolio securities of the Fund held by U.S. Trust hereunder; and
(v) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed or retired, or otherwise
become payable on the date such securities become payable;
(vi) take any action which may be necessary and proper in connection
with the collection and receipt of such income and other payments and the
endorsement for collection of checks, drafts and other negotiable
instruments;
(vii) with respect to domestic securities, to exchange securities in
temporary form for securities in definitive form, to effect an exchange of
the shares where the par value of stock is changed, and to surrender
securities at maturity or when advised of earlier call for redemption,
against payment therefor in accordance with accepted industry practice. The
Fund understands that U.S. Trust subscribes to one or more nationally
recognized services that provide information with respect to calls for
redemption of bonds or other corporate actions. U.S. Trust shall not be
liable for failure to redeem any called bond or to take other action if
notice of such call or action was not provided by any service to which it
subscribes provided that U.S. Trust shall have acted in good faith without
negligence and in accordance with "Street Practice" (as is customary in
industry). U.S. Trust shall have no duty to notify the Fund of any rights,
duties, limitations,
9
<PAGE>
conditions or other information set forth in any security (including
mandatory or optional put, call and similar provisions), but U.S. Trust
shall forward to the Fund any notices or other documents subsequently
received in regard to any such security. When fractional shares of stock of
a declaring corporation are received as a stock distribution, unless
specifically instructed to the contrary in writing, U.S. Trust is
authorized to sell the fraction received and credit the Fund's account.
Unless specifically instructed to the contrary in writing, U.S. Trust is
authorized to exchange securities in bearer form for securities in
registered form. If any Property registered in the name of a nominee of
U.S. Trust is called for partial redemption by the issuer of such Property,
U.S. Trust is authorized to allot the called portion to the respective
beneficial holders of the Property in such manner deemed to be fair and
equitable by U.S. Trust in its sole discretion.
(b) Miscellaneous Transactions. U.S. Trust is authorized to deliver or
--------------------------
cause to be delivered Property against payment or other consideration or written
receipt therefor in the following cases:
(i) for examination by a broker selling for the account of the Fund
in accordance with street delivery custom;
(ii) for the exchange of interim receipts or temporary securities for
definitive securities;
(iii) for transfer of securities into the name of the Fund or U.S.
Trust or a nominee of either, or for exchange of securities for a different
number of bonds, certificates, or other evidence, representing the same
aggregate face amount or number of units bearing the same interest rate,
maturity date and call provisions, if any; provided that, in any such case,
the new securities are to be delivered to U.S. Trust.
11. Transactions Requiring Instructions. Upon receipt of Written
-----------------------------------
Instructions and not otherwise, U.S. Trust, directly or through the use of a
Securities Depository or the Book-Entry System, shall:
10
<PAGE>
(a) Execute and deliver to such persons as may be designated in such
Written Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities may be
exercised;
(b) Deliver any securities held for the Fund against receipt of other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(c) Deliver any securities held for the Fund to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
corporation, against receipt of such certificates of deposit, interim receipts
or other instruments or documents as may be issued to it to evidence such
delivery;
(d) Make such transfers or exchanges of the assets of the Fund and take
such other steps as shall be stated in said instructions to be for the purpose
of effectuating any duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund;
(e) Release securities belonging to the Fund to any bank or trust company
for the purpose of pledge or hypothecation to secure any loan incurred by the
Fund; provided, however, that securities shall be released only upon payment to
U.S. Trust of the monies borrowed, except that in cases where additional
collateral is required to secure a borrowing already made, subject to proper
prior authorization, further securities may be released for that purpose; and
pay such loan upon redelivery to it of the securities pledged or hypothecated
therefor and upon surrender of the note or notes evidencing the loan;
(f) Deliver any securities held for the Fund upon the exercise of a
covered call option written by the Fund on such securities; and
(g) Deliver securities held for the Fund pursuant to separate security
lending agreements concerning the lending of the Fund's securities into which
the Fund may enter, from time to time.
12. Purchase of Securities. Promptly after each purchase of securities by
----------------------
the Investment Adviser (or any sub-adviser), the Fund shall deliver to U.S.
Trust (as Custodian) Written Instructions specifying with respect to each such
purchase: (a) the name of the issuer and the title of the securities, (b)
11
<PAGE>
the number of shares or the principal amount purchased and accrued interest, if
any, (c) the dates of purchase and settlement, (d) the purchase price per unit,
(e) the total amount payable upon such purchase and (f) the name of the person
from whom or the broker through whom the purchase was made. U.S. Trust shall
upon receipt of securities purchased by or for the Fund pay out of the moneys
held for the account of the Fund the total amount payable to the person from
whom or the broker through whom the purchase was made, provided that the same
conforms to the total amount payable as set forth in such Written Instructions.
13. Sales of Securities. Promptly after each sale of securities by the
-------------------
Investment Adviser, the Fund shall deliver to U.S. Trust (as Custodian) Written
Instructions, specifying with respect to each such sale: (a) the name of the
issuer and the title of the security, (b)
the number of shares or principal amount sold, and accrued interest, if any, (c)
the date of sale, (d) the sale price per unit, (e) the total amount payable to
the Fund upon such sale and (f) the name of the broker through whom or the
person to whom the sale was made. U.S. Trust shall deliver the securities upon
receipt of the total amount payable to the Fund upon such sale, provided that
the same conforms to the total amount payable as set forth in such Written
Instructions. Subject to the foregoing, U.S. Trust may accept payment in such
form as shall be satisfactory to it, and may deliver securities and arrange for
payment in accordance with the customs prevailing among dealers in securities.
14. Authorized Shares. The Fund has a fixed number of shares of each class
-----------------
of its securities.
15. Records. The books and records pertaining to the Fund which are in the
-------
possession of U.S. Trust shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act; other
applicable federal and state securities laws and rules and regulations; and, any
state or federal regulatory body having appropriate jurisdiction. The Fund, or
the Fund's authorized representatives, shall have access to such books and
records at all times during U.S. Trust's normal business hours, and such books
and records shall be surrendered to the Fund promptly upon request. Upon
reasonable request of the Fund, copies of any such books and records shall be
provided by U.S. Trust to the Fund or the Fund's authorized representative at
the Fund's expense.
12
<PAGE>
16. Cooperation with Accountants. U.S. Trust shall cooperate with the
----------------------------
Fund's independent certified public accountants and shall take all reasonable
action in the performance of its obligations under this Agreement to assure that
the necessary information is made available to such accountants for the
expression of their unqualified opinion, including but not limited to the
opinion included in the Fund's semiannual report on Form N-SAR.
17. Confidentiality. U.S. Trust agrees on behalf of itself and its
---------------
employees to treat confidentially and as the proprietary information of the Fund
all records and other information relative to the Fund and its prior, present or
potential Shareholders and relative to the investment advisers and its prior,
present or potential customers, and not to use such records and information for
any purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Fund, which
approval shall not be unreasonably withheld and may not be withheld where U.S.
Trust may be exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Fund. Nothing contained herein,
however, shall prohibit U.S. Trust from advertising or soliciting the public
generally with respect to other products or services, regardless of whether such
advertisement or solicitation may include prior, present or potential
Shareholders of the Fund.
18. Equipment Failures. In the event of equipment failures beyond U.S.
------------------
Trust's control, U.S. Trust shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions but shall not have liability
with respect thereto. U.S. Trust shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provision for
back up emergency use of electronic data processing equipment to the extent
appropriate equipment is available.
19. Right to Receive Advice.
-----------------------
(a) Advice of Fund. If U.S. Trust shall be in doubt as to any action to be
--------------
taken or omitted by it, it may request, and shall receive, from the Fund
clarification or advice.
13
<PAGE>
(b) Advice of Counsel. If U.S. Trust shall be in doubt as to any question
-----------------
of law involved in any action to be taken or omitted by U.S. Trust, it may
request advice at its own cost from counsel of its own choosing (who may be
counsel for the Fund or U.S. Trust, at the option of U.S. Trust).
(c) Conflicting Advice. In case of conflict between directions or advice
------------------
received by U.S. Trust pursuant to subparagraph (a) of this paragraph and advice
received by U.S. Trust pursuant to subparagraph (b) of this paragraph, U.S.
Trust shall be entitled to rely on and follow the advice received pursuant to
the latter provision alone.
(d) Protection of U.S. Trust. U.S. Trust shall be protected in any action
------------------------
or inaction which it takes or omits to take in reliance on any directions or
advice received pursuant to subparagraph (a) of this section which U.S. Trust,
after receipt of any such directions or advice, in good faith believes to be
consistent with such directions or advice. However, nothing in this paragraph
shall be construed as imposing upon U.S. Trust any obligation (i) to seek such
directions or advice, or (ii) to act in accordance with such directions or
advice when received, unless, under the terms of another provision of this
Agreement, the same is a condition to U.S. Trust's properly taking or omitting
to take such action. Nothing in this subparagraph shall excuse U.S. Trust when
an action or omission on the part of U.S. Trust constitutes willful misfeasance,
bad faith, gross negligence or reckless disregard by U.S. Trust of its duties
under this Agreement.
20. Compliance with Governmental Rules and Regulations. The Fund assumes
--------------------------------------------------
full responsibility for insuring that the contents of its registration statement
on Form N-2, as filed with, and declared effective by, the SEC, and all
amendments thereto, comply with all applicable requirements of the 1933 Act, the
1940 Act, and any laws, rules and regulations of governmental authorities having
jurisdiction.
21. Compensation. As compensation for the services described within this
------------
Agreement and rendered by U.S. Trust during the term of this Agreement, the Fund
will pay to U.S. Trust, in addition to reimbursement of its out-of-pocket
expenses, monthly fees as outlined in Attachment A.
14
<PAGE>
22. Indemnification. The Fund, as sole owner of the Property, agrees to
---------------
indemnify and hold harmless U.S. Trust and its nominees from all taxes, charges,
expenses, assessments, claims, and liabilities (including, without limitation,
liabilities arising under the 1933 Act, the Securities Exchange Act of 1934 as
amended, the 1940 Act, and any state and foreign securities and blue sky laws,
all as or to be amended from time to time) and expenses, including (without
limitation) attorney's fees and disbursements, arising directly or indirectly
(a) from the fact that securities included in the Property are registered in the
name of any such nominee or (b) without limiting the generality of the foregoing
clause (a) from any action or thing which U.S. Trust takes or does or omits to
take or do (i) at the request or on the direction of or in reliance on the
advice of the Fund given in accordance with the terms of this Agreement, or (ii)
upon Written Instructions; provided, that neither U.S. Trust nor any of its
nominees or subcustodians shall be indemnified against any liability to the Fund
or to its Shareholders (or any expenses incident to such liability) arising out
of (x) U.S. Trust's or such nominee's or subcustodian's own willful misfeasance,
bad faith, gross negligence or reckless disregard of its duties under this
Agreement or any agreement between U.S. Trust and any nominee or subcustodian or
(y) U.S. Trust's own or its subcustodian's negligent failure to perform its
duties under this Agreement. In the event of any advance of cash for any
purpose made by U.S. Trust resulting from orders or Written Instructions of the
Fund, or in the event that U.S. Trust or its nominee or subcustodian shall incur
or be assessed any taxes, charges, expenses, assessments, claims or liabilities
in connection with the performance of this Agreement, except such as may arise
from its or its nominee's or subcustodian's own negligent action, negligent
failure to act, willful misconduct, or reckless disregard of its duties under
this Agreement or any agreement between U.S. Trust and any nominee or
subcustodian, the Fund shall promptly reimburse U.S. Trust for such advance of
cash or such taxes, charges, expenses, assessments, claims or liabilities.
23. Responsibility of U.S. Trust. U.S. Trust shall be under no duty to
----------------------------
take any action on behalf of the Fund except as specifically set forth herein or
as may be specifically agreed to by U.S. Trust in writing. In the performance of
its duties hereunder, U.S. Trust shall be obligated to exercise care and
diligence and to act in good faith and to use its best efforts within reasonable
limits to insure the accuracy
15
<PAGE>
of all services performed under this Agreement. U.S. Trust shall be responsible
for its own negligent failure or that of any subcustodian it shall appoint to
perform its duties under this Agreement but to the extent that duties,
obligations and responsibilities are not expressly set forth in this Agreement,
U.S. Trust shall not be liable for any act or omission which does not constitute
willful misfeasance, bad faith, or gross negligence on the part of U.S. Trust or
reckless disregard of such duties, obligations and responsibilities. Without
limiting the generality of the foregoing or of any other provision of this
Agreement, U.S. Trust in connection with its duties under this Agreement shall
not be under any duty or obligation to inquire into and shall not be liable for
or in respect of (a) the validity or invalidity or authority or lack thereof of
any advice, direction, notice or other instrument which conforms to the
applicable requirements of this Agreement, if any, and which U.S. Trust believes
to be genuine, (b) the validity of the issue of any securities purchased or sold
by the Fund, the legality of the purchase or sale thereof or the propriety of
the amount paid or received therefor, (c) the legality of the issue or sale of
any Shares, or the sufficiency of the amount to be received therefor, (d) the
legality of the redemption of any Shares, or the propriety of the amount to be
paid therefor, (e) the legality of the declaration or payment of any dividend or
distribution on Shares, or (f) delays or errors or loss of data occurring by
reason of circumstances beyond U.S. Trust's control, including acts of civil or
military authority, national emergencies, labor difficulties, fire, mechanical
breakdown (except as provided in Paragraph 18), flood or catastrophe, acts of
God, insurrection, war, riots, or failure of the mail, transportation systems,
communication systems or power supply.
24. Collection. All collections of monies or other property in respect, or
----------
which are to become part, of the Property (but not the safekeeping thereof upon
receipt by U.S. Trust) shall be at the sole risk of the Fund. In any case in
which U.S. Trust does not receive any payment due the Fund within a reasonable
time after U.S. Trust has made proper demands for the same, it shall so notify
the Fund in writing, including copies of all demand letters, any written
responses thereto, and memoranda of all oral responses thereto, and to
telephonic demands, and await instructions from the Fund. U.S. Trust shall not
be obliged to take legal action for collection unless and until reasonably
indemnified to its satisfaction.
16
<PAGE>
U.S. Trust shall also notify the Fund as soon as reasonably practicable whenever
income due on securities is not collected in due course.
25. Duration and Termination. This Agreement shall be effective as of the
------------------------
date hereof and shall continue until termination by the Fund or by U.S. Trust on
90 day's written notice. Upon any termination of this Agreement, pending
appointment of a successor to U.S. Trust or a vote of the Shareholders of the
Fund to dissolve or to function without a custodian of its cash, securities or
other property, U.S. Trust shall not deliver cash, securities or other property
of the Fund to the Fund, but may deliver them to a bank or trust company of its
own selection, having aggregate capital, surplus and undivided profits, as shown
by its last published report of not less than twenty million dollars
($20,000,000) as a successor custodian for the Fund to be held under terms
similar to those of this Agreement, provided, however, that U.S. Trust shall not
be required to make any such delivery or payment until full payment shall have
been made by the Fund of all liabilities constituting a charge on or against the
properties then held by U.S. Trust or on or against U.S. Trust and until full
payment shall have been made to U.S. Trust of all of its fees, compensation,
costs and expenses, subject to the provisions of Paragraph 21 of this Agreement.
26. Notices. All notices and other communications (collectively referred
-------
to as "Notice" or "Notices" in this paragraph) hereunder shall be in writing or
by confirm in telegram, cable, telex, or facsimile sending device. Notices shall
be addressed (a) if to U.S. Trust, at U.S. Trust's address, 114 W. 47th Street,
New York, New York, 10036; (b) if to the Fund, at the address of the Fund, 1221
Avenue of the Americas, New York, New York 10020; or (c) if to neither of the
foregoing, at such other address as shall have been notified to the sender of
any such Notice or other communication. If the location of the sender of a
Notice and the address of the addressee thereof are, at the time of sending,
more than 100 miles apart, the Notice may be sent by first-class mail, in which
case it shall be deemed to have been given three days after it is sent, or if
sent by confirming telegram, cable, telex or facsimile sending device, it shall
be deemed to have been given immediately, and, if the location of the sender of
a Notice and the address of the addressee thereof are, at the time of sending,
not more than 100 miles apart, the Notice may
17
<PAGE>
be sent by first-class mail, in which case it shall be deemed to have been given
two days after it is sent, of if sent by messenger, it shall be deemed to have
been given on the day it is delivered, or if sent by communicating telegram,
cable, telex or facsimile sending device, it shall be deemed to have been given
immediately. All postage, cable, telegram, telex and facsimile sending device
charges arising from the sending of a Notice hereunder shall be paid by the
sender.
27. Further Actions. Each party agrees to perform such further acts and
---------------
execute such further documents as are necessary to effectuate the purposes
hereof.
28. Amendments. This Agreement or any part hereof may be changed or waived
----------
only by an instrument in writing signed by the party against which enforcement
of such change or waiver is sought.
29. Miscellaneous. This Agreement embodies the entire Agreement and
-------------
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the parties hereto. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
THE MORGAN STANLEY HIGH YIELD FUND, INC.
Attest: /s/ Valerie Y. Lewis By: /s/ Warren J. Olsen
-------------------- ---------------------
Valerie Y. Lewis
Name: Warren J. Olsen
---------------------
Title: President
---------------------
UNITED STATES TRUST COMPANY OF NEW YORK
Attest:/s/ Jacqueline Binder By: /s/ Peter C. Arrighetti
--------------------- -------------------------
Vice President
Name: Peter C. Arrighetti
---------------------
Title: Senior Vice President
---------------------
19
<PAGE>
THE MORGAN STANLEY HIGH YIELD FUND, INC.
DOMESTIC CUSTODY AGREEMENT
NOVEMBER 30, 1993
ATTACHMENT A
Fees
For the services described in the Agreement, the Fund shall pay a custody
safekeeping fee and custody transaction fees as follows:
Domestic Custody Safekeeping Fees
0.01% of the average daily net assets of the Fund, computed and
payable monthly
There is no Minimum Fee for the Fund
Domestic Custody Transaction Fees
$15.00 per DTC, PTC or Fed Book Entry transaction
$40.00 per physical transaction
$40.00 per future or option wire
$8.00 per wire transfer
All out-of-pocket expenses related to the provision of services under the terms
of this Agreement will be billed to the Fund monthly and due upon billing.
A-1
<PAGE>
THE MORGAN STANLEY HIGH YIELD FUND, INC.
DOMESTIC CUSTODY AGREEMENT
NOVEMBER 30, 1993
ATTACHMENT B
Authorized Persons
B-1
<PAGE>
DOMESTIC CUSTODY AGREEMENT
THE MORGAN STANLEY HIGH YIELD FUND, INC.
Table of Contents
-----------------
<TABLE>
<CAPTION>
Section/Paragraph Page
- ----------------- ----
<S> <C> <C>
1. Appointment.......................................................... 1
2. Delivery of Documents................................................ 1
3. Definitions.......................................................... 2
4. Delivery and Registration of the Property............................ 3
5. Voting Rights........................................................ 4
6. Receipt and Disbursement of Money.................................... 4
7. Receipt of Securities................................................ 5
8. Use of Securities Depository or the Book-Entry System................ 6
9. Instructions Consistent With The Articles, etc....................... 6
10. Transactions Not Requiring Instructions.............................. 8
11. Transactions Requiring Instructions.................................. 10
12. Purchase of Securities............................................... 11
13. Sales of Securities.................................................. 12
14. Authorized Shares.................................................... 12
15. Records.............................................................. 12
16. Cooperation with Accountants......................................... 13
17. Confidentiality...................................................... 13
18. Equipment Failures................................................... 13
19. Right to Receive Advice.............................................. 13
20. Compliance with Governmental Rules and Regulations................... 14
21. Compensation......................................................... 14
22. Indemnification...................................................... 15
</TABLE>
i
<PAGE>
DOMESTIC CUSTODY AGREEMENT
THE MORGAN STANLEY HIGH YIELD FUND, INC.
Table of Contents(continued)
----------------------------
<TABLE>
<CAPTION>
Section/Paragraph Page
- ----------------- ----
<S> <C> <C>
23. Responsibility of U.S. Trust......................................... 15
24. Collection........................................................... 16
25. Duration and Termination............................................. 17
26. Notices.............................................................. 17
27. Further Actions...................................................... 18
28. Amendments........................................................... 18
29. Miscellaneous........................................................ 18
Signature............................................................ 19
</TABLE>
Attachment A -- Fees
Attachment B -- Authorized Persons
ii
<PAGE>
EXHIBIT (2)(j)(2)
CUSTODY AGREEMENT
-----------------
This Custody Agreement is dated November 22, 1993 between MORGAN STANLEY
TRUST COMPANY, a New York State chartered trust company (the "Custodian"), and
The Morgan Stanley High Yield Fund, Inc. (the "Client").
1. The Client hereby appoints the Custodian as a custodian of securities
and other property owned or under the control of the Client which are delivered
to the Custodian, or any Subcustodian as appointed below, from time to time to
be held in custody for the benefit of the Client. The Client instructs the
Custodian to establish on the books and records of the Custodian one or more
accounts (the "Accounts") in the name of the Client. The Custodian shall record
in the Accounts and shall have general responsibility for the safekeeping of all
securities ("Securities"), cash and other property (all such Securities, cash
and other property being collectively the "Property") of the Client so delivered
for custody. It is understood that certain procedures the Custodian will use in
carrying out its responsibilities under this Agreement are set forth in the
procedures manual (the "Procedures Manual") prepared by the Custodian and
delivered to the Client, as such Procedures Manual may be amended from time to
time by the Custodian by written notice to the Client. The Client acknowledges
that the Procedures Manual constitutes an integral part of this Agreement.
2. The Property may be held in custody and deposit accounts that have
been established by the Custodian with one or more domestic or foreign banks, or
through the facilities of one or more clearing agencies or central securities
depositories, as listed on Exhibit A hereto (the "Subcustodians"), as such
Exhibit may be amended from time to time by the Custodian by written notice to
the Client. The Custodian may hold Property for all of its clients with a
Subcustodian in a single account that is identified as belonging to the
Custodian for the benefit of its clients. Any Subcustodian may hold Property in
a securities depository and may utilize a clearing agency. The Client agrees
that the Property may be physically held outside the United States. The
Custodian shall not be liable for any loss resulting from cases of force majeure
----- -------
including, but not limited to, losses resulting from nationalization,
expropriation, exchange controls or acts of war or terrorism.
3. With respect to Property held by a Subcustodian pursuant to Section 2:
(a) The Custodian will identify on its books as belonging to the Client
any Property held by a Subcustodian for the Custodian's account;
(b) The Custodian will hold Property through a Subcustodian only if (i)
such Subcustodian and any securities depository or clearing agency in which
such Subcustodian holds Property, or any of their creditors, may not assert
any right, charge, security interest, lien, encumbrance or other claim of
any kind to such Property except a claim of payment for its safe custody or
administration and (ii) beneficial ownership of such Property may be freely
transferred without the payment of money or value other than for safe
custody or administration;
(c) The Custodian shall require that Property held by the Subcustodian for
the Custodian's account be identified on the Subcustodian's books as
separate from any property held by the Subcustodian other than property of
the Custodian's clients and as held solely for the benefit of clients of
the Custodian; and
(d) In the event that the Subcustodian holds Property in a securities
depository or clearing agency, such Subcustodian will be required by its
agreement with the Custodian to identify on its books such Property as
being held for the account of the Custodian as a custodian for its clients.
<PAGE>
4. The Custodian shall allow the Client's accountants reasonable access
to the Custodian's records relating to the Property held by the Custodian as
such accountants may reasonably require in connection with their examination of
the Client's affairs. The Custodian shall also obtain from any Subcustodian (and
will require each Subcustodian to use reasonable efforts to obtain from any
securities depository or clearing agency in which it deposits Property) an
undertaking, to the extent consistent with local practice and the laws of the
jurisdiction or jurisdictions to which such Subcustodian, securities depository
or clearing agency is subject, to permit independent public accountants such
reasonable access to the records of such Subcustodian, securities depository or
clearing agency as may be reasonably required in connection with the examination
of the Client's affairs or to take such other action as the Custodian in its
judgment may deem sufficient to ensure such reasonable access.
5. The Custodian shall provide such reports and other information to the
Client and to such persons as the Client directs as the Custodian and the Client
may agree from time to time.
6. The Custodian shall make or cause any Subcustodian to make payments
from monies being held in the Accounts only:
(a) upon the purchase of Securities and then, to the extent consistent
with practice in the jurisdiction in which settlement occurs, upon the
delivery of such Securities;
(b) for payments to be made in connection with the conversion, exchange or
surrender of Securities;
(c) upon a request of the Client that the Custodian return monies being
held in the Accounts;
(d) upon a request of the Client that monies be exchanged for or used to
purchase monies denominated in a different currency;
(e) as provided in Sections 8 and 12 hereof;
(f) upon termination of this Custody Agreement as hereinafter set forth;
and
(g) for any other purpose upon receipt of Authorized Instructions (as
hereinafter defined).
Except as provided in the last two sentences of this Section 6 and as
provided in Section 8, all payments pursuant to this Section 6 will be made only
upon receipt by the Custodian of Authorized Instructions. In the event that it
is not possible to make a payment in accordance with Authorized Instructions,
the Custodian shall proceed in accordance with the procedures set forth in the
Procedures Manual. Any payment pursuant to subsection (f) of this Section 6
will be made in accordance with Section 16.
7. The Custodian, will make or cause any Subcustodian to make transfers,
exchanges or deliveries of Securities only:
(a) upon sale of such Securities and then, to the extent consistent with
practice in the jurisdiction in which settlement occurs, upon receipt of
payment therefor;
(b) upon exercise of conversion, subscription, purchase, exchange or other
similar rights pertaining to such Securities and, if applicable to such
exercise and if consistent with practice in applicable jurisdiction, only
on receipt of substitute or additional securities to be received upon such
exercise;
2
<PAGE>
(c) as provided in Section 8 hereof;
(d) upon the termination of this Custody Agreement as hereinafter set
forth; and
(e) for any other purpose upon receipt of Authorized Instructions.
Except as provided in the last two sentences of this Section 7 and as
provided in Section 8, all transfers, exchanges or deliveries of Securities
pursuant to this Section 7 will be made only upon receipt by the Custodian of
Authorized Instructions. In the event that it is not possible to transfer
Securities in accordance with Authorized Instructions of the Client, the
Custodian shall proceed in accordance with the procedures set forth in the
Procedures Manual. Any transfer or delivery pursuant to subsection (d) of this
Section 7 will be made in accordance with Section 16.
8. In the absence of Authorized Instructions to the contrary, the
Custodian may, and may authorize any Subcustodian to:
(a) make payments to itself or others for expenses of handling Property or
other similar items relating to its duties under this Agreement, provided
that all such payments shall be accounted for to the Client;
(b) receive and collect all income and principal with respect to
Securities and to credit cash receipts to the Accounts;
(c) exchange Securities when the exchange is purely ministerial
(including, without limitation, the exchange of interim receipts or
temporary securities for securities in definitive form and the exchange of
warrants, or other documents of entitlement to securities, for the
securities themselves);
(d) surrender Securities at maturity or when called for redemption upon
receiving payment therefor;
(e) execute in the Client's name such ownership and other certificates as
may be required to obtain the payment of income from Securities;
(f) pay or cause to be paid, from the Accounts, any and all taxes and
levies in the nature of taxes imposed on Property by any governmental
authority in connection with custody of and transactions in such Property;
(g) endorse for collection, in the name of the Client, checks, drafts and
other negotiable instruments; and
(h) in general, attend to all nondiscretionary details in connection with
the custody, sale, purchase, transfer and other dealings with the Property.
9. "Authorized Instructions" of the Client shall mean instructions
received by telecopy, tested telex, electronic link or other electronic means or
by such other means as may be agreed in writing pursuant to the Procedures
Manual or otherwise in advance between the Client and the Custodian. The
Custodian shall be entitled to act, and shall have no liability for acting, in
accordance with the terms of this Agreement or upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Client.
3
<PAGE>
10. Securities which must be held in registered form may be registered in
the name of the Custodian's nominee or, in the case of Securities in the custody
of an entity other than the Custodian, in the name of such entity's nominee. The
Client agrees to hold the Custodian and Subcustodians and any such nominee
harmless from any liability arising out of any such person acting as a holder of
record of such Securities. The Custodian may without notice to the Client cause
any Securities to cease to be registered in the name of any such nominee and to
be registered in the name of the Client.
11. Unless the Client and the Custodian otherwise agree, all cash received
by the Custodian for the Accounts shall be placed in deposit accounts maintained
by the Custodian for the benefit of its clients with Subcustodians or other
domestic or foreign deposit taking institutions identified to the Client. The
Client understands that such deposit accounts may not be accompanied by the
benefit of any governmental insurance. If the Custodian and the Client have
agreed in writing in advance that certain cash in the Accounts shall bear
interest, the Custodian shall be responsible for crediting the Accounts with
interest on such cash at the rates and times as agreed between the Client and
the Custodian from time to time and such rates may be greater than or less than
the rates paid on deposits by the applicable deposit taking institution. To the
extent permitted by law, any difference between the interest so paid to the
Client and the interest so paid by the Subcustodians and other deposit taking
institutions shall be for the account of the Custodian.
12. From time to time, the Custodian may extend or arrange short-term
credit for the Client which is (i) necessary in connection with payment and
clearance of securities and foreign exchange transactions or (ii) pursuant to an
agreed schedule, as and if set forth in the Procedures Manual, of credits for
dividends and interest payments on Securities. All such extensions of credit
shall be repayable by the Client on demand. The Custodian shall be entitled to
charge the Client interest for any such credit extension at rates to be agreed
upon from time to time. In addition to any other remedies available, the
Custodian shall be entitled to a right of set-off against the Property to
satisfy the repayment of such credit extensions and the payment of accrued
interest thereon. The Custodian may act as the Client's agent in foreign
exchange transactions at such rates as are agreed from time to time between the
Client and the Custodian.
13. The Client represents that (i) the execution, delivery and performance
of this Agreement (including, without limitation, the ability to obtain the
short-term extensions of credit in accordance with Section 12) are within the
Client's power and authority and have been duly authorized by all requisite
action (corporate or otherwise) and (ii) this Agreement and each extension of
short-term credit extended or arranged for the benefit of the Client in
accordance with Section 12 will at all times constitute a legal, valid and
binding obligation of the Client and be enforceable against the Client in
accordance with their respective terns, except as may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
in general and subject to the effect of general principles of equity (regardless
of whether considered in a proceeding in equity or at law).
The Custodian represents that the execution, delivery and performance of
this Agreement is within the Custodian's power and authority and has been duly
authorized by all requisite action of the Custodian. This Agreement constitutes
the legal, valid and binding obligation of the Custodian enforceable against the
Custodian in accordance with its terms, except as may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
in general and subject to the effect of general principles of equity (regardless
of whether considered in a proceeding in equity or at law).
14. The Custodian shall be responsible for the performance of only such
duties as are set forth in this Agreement or the Procedures Manual or contained
in Authorized Instructions given to the Custodian which are not contrary to the
provisions of any relevant law or regulation. The Custodian shall not be liable
to the Client or to, any other person for any action taken or omitted to be
taken by it in connection with this Agreement in the absence of negligence or
willful misconduct on the part of the Custodian or
4
<PAGE>
Subcustodian. Upon the request of the Custodian, the Client agrees to deliver to
the Custodian a duly executed power of attorney, in form and substance
satisfactory to the Custodian, authorizing the Custodian to take any action or
execute any instrument on behalf of the Client as necessary or advisable to
accomplish the purposes of this Agreement.
15. The Client agrees to pay to the Custodian from time to time such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon from time to time and the Custodian's out-of-pocket or incidental
expenses. The Client hereby agrees to hold the Custodian harmless from any
liability or loss resulting from any taxes or other governmental charges, and
any expenses related thereto, which may be imposed or assessed with respect to
the Accounts or any Property held therein. The Custodian is and any
Subcustodians are authorized to charge the Accounts for such items and the
Custodian shall have a lien, charge and security interest on any and all
Property for any amount owing to the Custodian from time to time under this
Agreement.
16. This Agreement may be terminated by the Client or the Custodian by 60
days written notice to the other, sent by registered mail. If notice of
termination is given, the Client shall, within 30 days following the giving of
such notice, deliver to the Custodian a statement in writing specifying the
successor custodian or other person to whom the Custodian shall transfer the
Property. In either event the Custodian, subject to the satisfaction of any lien
it may have, will transfer the Property to the person so specified. If the
Custodian does not receive such statement the Custodian, at its election, may
transfer the Property to a bank or trust company established under the laws of
the United States or any state thereof to be held and disposed of pursuant to
the provisions of this Agreement or may continue to hold the Property until such
a statement is delivered to the Custodian. In such event the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian remains in possession of any Property and the provisions of this
Agreement relating to the duties and obligations of the Custodian shall remain
in full force and effect; provided, however, that the Custodian shall no longer
settle any transactions in securities for the Accounts.
17. The Custodian, its agents and employees will maintain the
confidentiality of information concerning the Property held in the Client's
account, including in dealings with affiliates of the Custodian. In the event
the Custodian or any Subcustodian is requested or required to disclose any
confidential information concerning the Property, the Custodian shall to the
extent practicable and legally permissible, promptly notify the Client of such
request or requirement so that the Client may seek a protective order or waive
the Custodian's or such Subcustodian's compliance with this Section 17. In the
absence of such a waiver, if the Custodian or such Subcustodian is compelled, in
the opinion of its counsel, to disclose any confidential information, the
Custodian or such Subcustodian may disclose such information to such persons as,
in the opinion of counsel, is so required.
18. Any notice or other communication from the Client to the Custodian,
unless otherwise provided by this Agreement, shall be sent by certified or
registered mail to Morgan Stanley Trust Company, One Pierrepont Plaza, Brooklyn,
New York, 11201, Attention: President, and any notice from the Custodian to the
Client is to be mailed postage prepaid, addressed to the Client at the address
appearing below, or as it may hereafter be changed on the Custodian's records in
accordance with notice from the Client.
19. The Custodian may assign all of its rights and obligations hereunder
to any other entity which is qualified to act as custodian under the terms of
this Agreement and majority-owned, directly or indirectly, by Morgan Stanley
Group Inc., and upon the assumption of the rights and obligations hereunder by
such entity, such entity shall succeed to all of the rights and obligations of,
and be substituted for, the Custodian hereunder as if such entity had been
originally named as custodian herein. The Custodian shall give prompt written
notice to the Client upon the effectiveness of any such assignment.
5
<PAGE>
This Agreement shall bind the successors and assigns of the Client and the
Custodian and shall be governed by the laws of the State of New York applicable
to contracts executed in and to be performed in that state.
THE MORGAN STANLEY
HIGH YIELD FUND, INC.
By /s/ Harold J. Schaaff, Jr.
--------------------------
Name: Harold J. Schaaff, Jr.
Title: Vice President
Address for record:_________________________________
_________________________________
Accepted:
MORGAN STANLEY TRUST COMPANY
By /s/ Daniel Rocatto
-----------------------------
Authorized Signature
6
<PAGE>
Exhibit 2(k)(1)
American Stock Transfer
&Trust Company
40 Wall Street
New York, NY 10005
212-936-5100
Fax: 718-236-4588
November 22, 1993
Mr. Warren J. Olsen
The Morgan Stanley High Yield Fund, Inc.
1251 Avenue of the Americas, 22/nd/ Floor
New York, New York 10020
Dear Mr. Olsen:
This is to confirm that American Stock Transfer & Trust Company will
provide The Morgan Stanley High Yield Fund, Inc. (the "Fund") with complete
Registrar, Transfer Agent, Dividend Reinvestment and Paying Agent Services for a
flat monthly fee of $1,500.00 (such fee includes out-of-pocket expenses such as
but not limited to line charges associated with toll-free telephone calls,
imprinting shareholder names on proxy cards, insurance, stationary and facsimile
charges). We guarantee this rate for a period of three years providing you have
up to 5,000 shareholders. In case the number of record holders exceeds 5,000,
your monthly fees will be increased proportionately. The term of this Agreement
shall be for three years commencing from the date first indicated above.
The following services are included in American Stock Transfer & Trust
Company's flat monthly fee:
CERTIFICATES
. Issuance, registration and cancellation of all stock certificates.
. Processing legal transfers and transactions requiring special handling,
including window items and mail items.
. Mailing certificates to shareholders as a result of transfers.
. Provide daily reports of processed transfers.
. Process indemnity bonds and replace lost certificates.
. Combine certificates in large denominations.
. Maintain stop transfers, including the placing and removing of same.
ACCOUNT MAINTENANCE
. Maintenance of all shareholder accounts.
. Processing address changes and other routine file maintenance adjustments.
. Opening of new accounts, closing and consolidation of existing accounts.
. Maintenance, placement and removal of stop transfers.
. Posting of all debits and credit certificate transactions.
. Social Security solicitation.
<PAGE>
. Handling of shareholder and broker inquiries.
MONTHLY CASH DISTRIBUTIONS
. Preparation and mailing of checks to shareholders.
. Insertion of all required enclosures.
. Issuance of replacement checks.
. Maintenance of Postal return items, including coding undeliverable accounts
to suppress mailing dividend check to same.
. Check reconciliation.
. Providing check registers to the Fund and providing photocopies of cancelled
checks when requested.
. Furnish requested dividend information to shareholders.
. Process address change requests.
. Processing and record keeping accumulated uncashed dividends.
DIVIDEND REINVESTMENT PLAN ADMINISTRATION
. Reinvestment and/or cash investment transactions of dividend reinvestment
plan participant account.
. Prepare and acknowledge cash receipts from shareholders.
. Prepare and mail dividend reinvestment and cash investment statements
(monthly).
. Correspondence with members of the plan and shareholder inquiries concerning
the plan.
. Process and mail proceeds to shareholders wishing to terminate the plan.
. Mailing year-end tax information to shareholders and IRS.
. Maintain existing accounts and establish new dividend reinvestment plan
accounts.
. Process withdrawal and redemption requests.
. Certificate depository and safekeeping.
. Supply summary reports for each reinvestment/investment to the Fund.
ANNUAL SHAREHOLDER MEETING
. Provide shareholders list as of the record date.
. Proxy vote solicitation for routine meetings.
. Printing of shareholder name on proxy cards.
. Verification of broker bills.
. Mailings to shareholders.
. Attend and act as Inspector of Election for Annual Meeting.
. Respond to inquiries as to whether specific accounts have yet voted.
PROXY DISTRIBUTION AND TALLYING
. Contact brokers and nominees for votes before annual meetings, including
mailing search cards and processing omnibus proxies received.
. Proxy tabulations, including receiving, opening and examining returned
proxies.
. Preparation of Proxy Tabulation Reports (daily).
. Provide final report on how each shareholder voted on each proposal.
2
<PAGE>
LISTS AND MAILINGS
. Providing various statistical reports as requested.
. Enclosing multiple proxy cards to same household in one envelope.
. Monitor undeliverable mail and suppress mailing until correct address is
located.
. Furnishing shareholder listings, in any sequence.
. Geographical detail reports showing all stocks issued and surrendered over a
specific period.
. Providing complete sets of mailing labels and reports.
. Address, enclosed and mail quarterly reports, semi-annual reports and annual
reports to shareholders.
REMOTE ACCESS
This Service gives you with the ability to directly access your shareholder
database. The following options are available:
. Shareholder maintenance.
. Proxy tabulation.
. Certificate information.
. Correspondence.
. Shareholder addresses.
TAX FORMS
. Prepare and file year-end 1099 forms and 1042 forms for non-residents.
. Furnishing year-end 1099 forms to shareholders.
. Replacing lost 1099 forms to shareholders.
. Escheatment reports furnished to various state agencies.
INTEREST AND DIVIDEND TAX COMPLIANCE ACT OF 1983
. Withholding tax from shareholder accounts not in compliance with the
provisions of the Act.
. Reconciling and reporting taxes withheld, including additional 1099 reporting
requirements, to the Internal Revenue Services.
. Responding to shareholder inquiries regarding the Regulations.
. Mailing to new accounts who have had taxes withheld, to inform them of
procedures to be followed to curtail subsequent back-up withholding.
. Annual mailing to pre-1984 account which have not yet been certified.
. Performing shareholder file adjustments to reflect certification of accounts.
All certificate issuances, reports, mailings, labels, transfers and
transactions, described above will be provided to you and your shareholders on
an unlimited basis.
This Agreement and the duties, obligations and services to be provided
herein, may not be assigned or otherwise transferred without the prior written
consent of the Fund.
3
<PAGE>
Termination of this Agreement may be made with thirty days written notice
by either party. If this Agreement is terminated, the Fund will pay a fee which
has accrued but has yet been paid related to the services rendered though the
date of termination.
Upon expiration of this Agreement, without termination by either party, it
shall continue in effect from month to month on the same terms unless and until
either party terminates by thirty days written notice to the other or until a
new agreement superseding this Agreement has been executed.
If the above meets with your approval, please sign below, return one copy
to us and retain one for your records.
Very truly yours,
AMERICAN STOCK TRANSFER
& TRUST COMPANY
/s/ Michael Karfunkel
---------------------
Michael Karfunkel
President
AGREED TO AND ACCEPTED THIS
22/nd/ DAY OF NOVEMBER, 1993
THE MORGAN STANLEY HIGH YIELD FUND, INC.
By /s/ Warren J. Olsen
--------------------
Warren J. Olsen, President
- -----------------------------------
Print Name and Title
4
<PAGE>
Exhibit 2(k)(2)
FUND ADMINISTRATION AGREEMENT
. Fund Administration Services
. Fund Accounting Services
THE MORGAN STANLEY HIGH YIELD FUND, INC.
UNITED STATES TRUST COMPANY OF NEW YORK
NOVEMBER 22, 1993
<PAGE>
FUND ADMINISTRATION AGREEMENT
The Morgan Stanley High Yield Fund, Inc.
Table of contents
-----------------
<TABLE>
<CAPTION>
Section/Paragraph Page
----------------- ----
<S> <C>
1. Appointment.......................................................... 1
2. Representations and Warranties....................................... 1
3. Delivery of Documents................................................ 2
4. Services Provided by the Administrator............................... 3
5. Fees; Expenses; Expense Reimbursement................................ 3
6. Proprietary and Confidential Information............................. 4
7. Duties, Responsibilities and Limitation of Liability................. 5
8. Term................................................................. 6
9. Hiring of Employees.................................................. 6
10. Notices.............................................................. 6
11. Assignability........................................................ 7
12. Waiver............................................................... 7
13. Force Majeure........................................................ 7
14. Use of Name.......................................................... 8
15. Amendments........................................................... 8
16. Severability......................................................... 8
17. Governing Law........................................................ 8
</TABLE>
-i-
<PAGE>
FUND ADMINISTRATION AGREEMENT
The Morgan Stanley High Yield Fund, Inc.
Table of contents
-----------------
<TABLE>
<CAPTION>
Section/Paragraph Page
----------------- ----
<S> <C>
SCHEDULE A - Fees and Expenses............................................. A-1
SCHEDULE B - Fund Administration Service Description....................... B-1
SCHEDULE C - Fund Accounting Service Description........................... C-1
</TABLE>
-ii-
<PAGE>
FUND ADMINISTRATION AGREEMENT
The Morgan Stanley High Yield Fund, Inc.
AGREEMENT made as of November 22, 1993 by and between The Morgan Stanley
High Yield Fund, Inc., a Maryland Corporation (the "Fund"), and United States
Trust Company of New York, a bank and trust company chartered under the laws of
the State of New York (the "Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is registered as a closed-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain the Administrator to provide certain
fund accounting and administration services, and the Administrator is willing to
furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Administrator to provide
-----------
certain fund accounting and fund administration services for the Fund, subject
to the supervision of the Board of Directors of the Fund (the "Board"), for the
period and on the terms set forth in this Agreement. The Administrator accepts
such appointment and agrees to furnish the services herein set forth in return
for the compensation as provided in Paragraph 5 of and Schedule A to this
Agreement.
2. Representations and Warranties.
------------------------------
(a) The Administrator represents and warrants to the Fund that:
(i) the Administrator is a bank and trust company duly
chartered, organized and existing and in good standing under the laws of the
State of New York;
(ii) the Administrator is duly qualified to carry on its
business in the State of New York;
(iii) the Administrator is empowered under applicable laws and
by its Certificate of Incorporation and By-Laws to enter into and perform this
Agreement;
(iv) all requisite corporate proceedings have been taken to
authorize the Administrator to enter into and perform this Agreement;
(v) the Administrator has, and will continue to have, access
to the facilities, personnel and equipment required to fully perform its duties
and obligations hereunder;
1
<PAGE>
(vi) no legal or administrative proceedings have been
instituted or threatened which would impair the Administrator's ability to
perform its duties and obligations under this Agreement; and
(vii) the Administrator's entrance into this Agreement shall not
cause a material breach or be in material conflict with any other agreement or
obligation of the Administrator or any law or regulation applicable to the
Administrator;
(b) The Fund represents and warrants to the Administrator that:
(i) the Fund is a Maryland corporation, duly organized and
existing and in good standing under the laws of the State of Maryland;
(ii) the Fund is empowered under applicable laws and by its
Articles of Incorporation and By-laws to enter into and perform this Agreement;
(iii) the Fund is an investment company properly registered
under the 1940 Act;
(iv) a registration statement under the Securities Act of 1933,
as amended ("1933 Act") and the 1940 Act on Form N-2 has been filed and will be
effective and will remain effective during the term of this Agreement, and all
necessary filings under the laws of the states will have been made and, as
applicable, will be current during the term of this Agreement;
(v) no legal or administrative proceedings have been
instituted or threatened which would impair the Fund's ability to perform its
duties and obligations under this Agreement; and
(vi) the Fund's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of the Fund or any applicable law or regulation.
3. Delivery of Documents. The Fund will promptly furnish to the
---------------------
Administrator such copies, properly certified or authenticated, of contracts,
documents and other related information that the Administrator may request or
requires to properly discharge its duties. Such documents may include but are
not limited to the following:
(a) Resolutions of the Board authorizing the appointment of the
Administrator to provide certain fund accounting and administration services to
the Fund and approving this Agreement;
(b) The Fund's Articles of Incorporation;
(c) The Fund's By-laws as currently in effect and as they shall from
time to time be amended; ("By-laws");
(d) The Fund's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission ("SEC");
2
<PAGE>
(e) The Fund's registration statement, including exhibits, on Form N-
2 (the "Registration Statement") under the 1933 Act and the 1940 Act, as filed
with, and declared effective by, the SEC and all amendments and supplements
thereto;
(f) Copies of the Investment Advisory and Management Agreement
between the Fund and The Morgan Stanley Asset Management Inc., the Fund's
investment adviser (the "Advisory Agreement");
(g) Opinions of counsel and auditors reports;
(h) The Fund's Prospectus and all amendments and supplements hereto
(such Prospectus as currently in use and such later prospectuses as may from
time to time be issued, herein called the "Prospectus"); and
(i) Such other agreements as the Fund may enter into from time to
time including securities lending agreements, futures and commodities account
agreements, brokerage agreements, and options agreements.
4. Services Provided by the Administrator. The Administrator will
--------------------------------------
provide the following services subject to the control, direction and supervision
of the Board and in compliance with the objectives, policies and limitations set
forth in the Fund's Registration Statement, Articles of Incorporation and By-
laws; applicable laws and regulations; and all resolutions and policies
implemented by the Board: (i) fund administration and (ii) fund accounting. A
detailed description of each of the above services is contained in Schedules B
and C, respectively, to this Agreement.
5. Fees; Expenses; Expense Reimbursement.
-------------------------------------
(a) As compensation for the services rendered to the Fund pursuant to
this Agreement, the Fund shall pay the Administrator monthly fees determined as
set forth in Schedule A to this Agreement. Such fees are to be computed weekly
and paid monthly on the first business day of the month following provision of
the services. Upon any termination of this Agreement before the end of any
month, the fee for the part of the month before such termination shall be
prorated according to the proportion which such part bears to the full monthly
period and shall be payable upon the date of termination of this Agreement.
(b) For the purpose of determining fees calculated as function of the
Fund's assets, the value of the Fund's assets and net assets shall be computed
as required by its Prospectus, generally accepted accounting principles and
resolutions of the Board.
(c) The Administrator will from time to time employ or associate with
such person or persons as may be appropriate to assist the Administrator in the
performance of this Agreement. Such person or persons may be officers and
employees who are employed or designated as officers by both the Administrator
and the Fund. The compensation of such person or persons for such employment
shall be paid by the Administrator and no obligation will be incurred by or on
behalf of the Fund in such respect.
3
<PAGE>
(d) The Administrator will generally bear all of its own expenses in
connection with the performance of its services under this Agreement. The Fund
agrees to promptly reimburse the Administrator for any equipment and supplies
specially ordered by or for the Fund through the Administrator and for any other
expenses not contemplated by this Agreement that the Administrator may incur on
the Fund's behalf at the Fund's request or as consented to by the Fund. Such
other expenses to be incurred in the operation of the Fund and to be borne by
the Fund, include, but are not limited to: taxes; interest; brokerage fees and
commissions; salaries and fees of officers and directors who are not officers,
directors, shareholders or employees of the Administrator or the Fund's
investment adviser; SEC and state Blue Sky registration and qualification fees,
levies, fines and other charges; advisory and administration fees; charges and
expenses of custodians; insurance premiums including fidelity bond premiums;
auditing and legal expenses; costs of maintenance of corporate existence;
expenses of typesetting and printing of registration statement amendments,
prospectuses and reports for regulatory purposes and for distribution to current
shareholders of the Fund; expenses of printing and production costs of
shareholders' reports and proxy statements and materials; costs and expenses of
Fund stationery and forms; costs and expenses of special telephone and data
lines and devices; costs associated with corporate, shareholder, and Board
meetings; and any extraordinary expenses and other customary Fund expenses. In
addition, the Administrator may utilize one or more independent pricing
services, approved from time to time by the Board, to obtain securities prices
and to act as backup to the primary pricing services, in connection with
determining the net asset values of the Fund, and the Fund will reimburse the
Administrator for the Fund's share of the cost of such services based upon the
actual usage, or a pro-rata estimate of the use, of the services for the benefit
of the Fund.
6. Proprietary and Confidential Information. The Administrator agrees on
----------------------------------------
behalf of itself and its employees to treat confidentially and as proprietary
information of the Fund, all records and other information relative to the
Fund's prior, present or potential shareholders, and to not use such records and
information for any purpose other than performance of the Administrator's
responsibilities and duties hereunder. The Administrator may seek a waiver of
such confidentiality provisions by furnishing reasonable prior notice to the
Fund and obtaining approval in writing from the Fund, which approval shall not
be unreasonably withheld and may not be withheld where the Administrator may be
exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities. Waivers
of confidentiality are automatically effective without further action by the
Administrator with respect to Internal Revenue Service levies, subpoenas and
similar actions, or with respect to any request by the Fund.
4
<PAGE>
7. Duties, Responsibilities and Limitation of Liability.
----------------------------------------------------
(a) In the performance of its duties hereunder, the Administrator
shall be obligated to exercise due care and diligence and to act in good faith
in performing the services provided for under this Agreement. In performing its
services hereunder, the Administrator shall be entitled to rely on any oral or
written instructions, notices or other communications from the Fund and its
custodians, officers and directors, investors, agents, legal counsel and other
service providers which communications the Administrator reasonably believes to
be genuine, valid and authorized.
(b) Subject to the foregoing, the Administrator shall not be liable
for any error of judgement or mistake of law or for any loss or expense suffered
by the Fund, in connection with the matters to which this Agreement relates,
except for a loss or expense resulting from willful misfeasance, bad faith or
negligence on the Administrator's part in the performance of its duties or from
reckless disregard by the Administrator of its obligations and duties under this
Agreement. Any person, even though also an officer, director, partner, employee
or agent of the Administrator, who may be or become an officer, director,
partner, employee or agent of the Fund, shall be deemed when rendering services
to the Fund or acting on any business of the Fund (other than services or
business in connection with the Administrator's duties hereunder) to be
rendering such services to or acting solely for the Fund and not as an officer,
director, partner, employee or agent or person under the control or direction of
the Administrator even though paid by the Administrator.
(c) Subject to Paragraphs 7 (a) and (b) above, the Administrator
shall not be responsible for, and the Fund shall indemnify and hold the
Administrator harmless from and against, any and all losses, damages, costs,
reasonable attorneys' fees and expenses, payments, expenses and liabilities
arising out of or attributable to:
(i) all actions of the Administrator or its officers or agents
required to be taken pursuant to this Agreement;
(ii) the reliance on or use by the Administrator or its
officers or agents of information, records, or documents which are received by
the Administrator or its officers or agents and furnished to it or them by or on
behalf of the Fund, and which have been prepared or maintained by the Fund or
any other third party on behalf of the Fund;
(iii) the Fund's refusal or failure to comply with the terms of
this Agreement or the Fund's lack of good faith, or its actions, or lack
thereof, involving negligence or willful misfeasance;
(iv) the breach of any representation or warranty of the Fund
hereunder;
(v) the taping or other form of recording of telephone
conversations or other forms of electronic communications with other agents of
the Fund, its investors and shareholders, or reliance by the Administrator on
telephone or other electronic instructions of any person acting on behalf of
5
<PAGE>
a shareholder or shareholder account for which telephone or other electronic
services have been authorized; and
(vi) the offer or sale of shares by the Fund in violation of
any requirement under the Federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any stop order
or other determination or ruling by any Federal agency or any state agency with
respect to the offer or sale of such shares in such state resulting from
activities, actions, or omissions by the Fund's underwriters or arising out of
activities, actions or omissions by or on behalf of the Fund prior to the
effective date of this Agreement.
(d) The Administrator shall indemnify and hold the Fund harmless from
and against any and all losses, damages, costs, charges, reasonable attorneys'
fees and expenses, payments, expenses and liability arising out of or
attributable to the Administrator's refusal or failure to comply with the terms
of this Agreement; the Administrator's breach of any representation or warranty
made by it herein; or the Administrator's lack of good faith, or acts involving
negligence, willful misfeasance or reckless disregard of its duties.
8. Term. This Agreement shall become effective on the date first
----
hereinabove written. This Agreement may be modified or amended from time to time
by mutual agreement between the parties hereto. This Agreement shall continue in
effect unless terminated by either party on 60 days prior written notice. Upon
termination of this Agreement, the Fund shall pay to the Administrator such
compensation and any reimbursable expenses as may be due under the terms hereof
as of the date of termination or the date that the provision of services ceases,
whichever is later.
9. Hiring of Employees. The Fund and the Administrator agree that they
-------------------
will not enter into discussions of employment or make offers of employment to
each others' employees without written approval from the other.
10. Notices. Any notice required or permitted hereunder shall be in
-------
writing to the parties at the following address (or such other address as a
party may specify by notice to the other):
If to the Fund:
The Morgan Stanley High Yield Fund, Inc.
1221 Avenue of the Americas
New York, NY 10020
Attention: President
Fax: (212) 421-5477
6
<PAGE>
If to the Administrator:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Attention: Division Director, Mutual Funds
Fax: (212) 852-1529
with a copy to:
---------------
Mutual Funds Service Company
73 Tremont Street
Boston, MA 02108
Attention: General Counsel
Fax: (617) 557-8616
Notice shall be effective upon receipt if by mail, on the date of personal
delivery (by private messenger, courier service or otherwise) or upon confirmed
receipt of telex or facsimile, whichever occurs first.
11. Assignability. This Agreement shall not be assigned by any of the
-------------
parties hereto without the prior consent in writing of the other party;
provided, however, that the Administrator may in its own discretion and without
limitation or prior consent of the Fund, whenever and on such terms and
conditions as the Administrator deems necessary or appropriate, subcontract,
delegate or assign its rights, duties, obligations and liabilities to
subsidiaries or affiliates of the Administrator; provided, further, that any
such subcontract, agreement or understanding shall not discharge the
Administrator or its affiliates or subsidiaries, as the case may be, from its
obligations hereunder. Similarly, the Administrator or its affiliated
subcontractor, designee, or assignee may at its discretion, without notice to
the Fund, enter into such subcontracts, agreements and understandings, whenever
and on such terms and conditions as the Administrator or they deem necessary or
appropriate to perform services hereunder, with non-affiliated third parties;
provided, that such subcontract, agreement or understanding shall not discharge
the Administrator, or its subcontractor, designee, or assignee, as the case may
be, from the Administrator's obligations hereunder.
12. Waiver. The failure of a party to insist upon strict adherence to
------
any term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
13. Force Majeure. The Administrator shall not be responsible or liable
-------------
for any failure or delay in performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
control, including without limitation, acts of God, earthquakes, fires, floods,
7
<PAGE>
wars, acts of civil or military authorities, or governmental actions, nor shall
any such failure or delay give the Fund the right to terminate this Agreement.
14. Use of Name. The Fund and the Administrator agree not to use the
-----------
other's name nor the names of such other's affiliates, designees, or assignees
in any prospectus, sales literature or other printed material written in a
manner not previously, expressly approved in writing by the other or such
other's affiliates, designees, or assignees except where required by the SEC or
any state agency responsible for securities regulation.
15. Amendments. This Agreement may be modified or amended from time to
----------
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
16. Severability. If any provision of this Agreement is invalid or
------------
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
17. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of New York.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
THE MORGAN STANLEY HIGH YIELD FUND, INC.
Attest: /s/ Valerie Y. Lewis By: /s/ Warren J. Olsen
---------------------- --------------------------
Name: Valerie Y. Lewis Name: Warren J. Olsen
------------------------ ------------------------
Title: President
-----------------------
UNITED STATES TRUST COMPANY OF NEW YORK
Attest: /s/ Jacqueline Binder By: /s/ Peter C. Arrighetti
---------------------- --------------------------
Name: Jacqueline Binder Name: Peter C. Arrighetti
------------------------ ------------------------
Title: Senior Vice President
-----------------------
9
<PAGE>
FUND ADMINISTRATION AGREEMENT
The Morgan Stanley High Yield Fund, Inc.
November 22, 1993
SCHEDULE A
FEES AND EXPENSES
Fund Accounting and Administration Fees
For the services provided pursuant to this Agreement, the Fund shall pay to the
Administrator an annual fee of $65,000 plus 0.08% of the average weekly net
assets of the Fund, such fee to be computed weekly and payable monthly.
Out-of-pocket expenses including, but not limited to, the cost of security
pricing services, including backup pricing services, the preparation of Fund
Board materials and mailings, stationery and forms, statements and confirmation
forms, telecommunications and data facilities and lines, microfiche and proxy
processing, and postage will be billed to the Fund, payable upon receipt, on a
monthly basis.
A-1
<PAGE>
FUND ADMINISTRATION AGREEMENT
The Morgan Stanley High Yield Fund, Inc.
November 22, 1993
SCHEDULE B
DESCRIPTION OF FUND ACCOUNTING SERVICES
The Administrator shall provide the following accounting services to the Fund:
A. Maintenance of the books and records and accounting controls for the
Fund's assets, including records of all securities transactions;
B. Weekly calculation and transmission of the Fund's Net Asset Value to
such entities as directed by the Fund;
C. Accounting for dividends and interest received and distributions made
by the Fund; D. Preparation and filing of the Fund's tax returns and
Semiannual Reports on Form N-SAR;
E. Production of transaction data, financial reports and such other
periodic and special reports as the Board may reasonably request ;
F. The preparation of financial statements for the quarterly, semi-annual
and annual reports and other shareholder communications;
G. Liaison with the Fund's independent auditors; and
H. Monitoring and administration of arrangements with the Fund's
custodians and depository banks.
B-1
<PAGE>
FUND ADMINISTRATION AGREEMENT
The Morgan Stanley High Yield Fund, Inc.
November 22, 1993
SCHEDULE C
DESCRIPTION OF FUND ADMINISTRATION SERVICES
GENERAL ADMINISTRATION
A. Furnish a Chief Financial Officer or Treasurer for the Fund, to be
designated by the Administrator subject to reasonable Board approval.
B. Prepare Fund portfolio expense projections, establish accruals and
review on a periodic basis, including expenses based on a percentage of
Fund's average daily net assets (advisory and administrative fees) and
expenses based on actual charges annualized and accrued daily (audit
fees, directors' fees, etc.).
C. Coordinate communications and data collection with regards to any
regulatory examinations and yearly audits by independent accountants.
D. Provide office facilities with respect to the provision of the services
contemplated herein (which may be in the offices of the Administrator o
r a corporate affiliate of the Administrator).
E. Provide or otherwise obtain personnel sufficient, in the
Administrator's sole discretion, for provision of the services
contemplated herein.
F. Furnish equipment and other materials which the Administrator, in its
sole discretion, believes are necessary or desirable for provision of
the services contemplated herein.
G. Keep records relating to the services provided hereunder in such form
and manner as the Administrator may otherwise deem appropriate or
advisable, all in accordance with the 1940 Act. To the extent required
by Section 31 of the 1940 Act and the rules thereunder, the
Administrator agrees that all such records prepared or maintained by
the Administrator relating to the services provided hereunder are the
property of the Fund and will be preserved for the periods prescribed
under Rule 3la-2 under the 1940 Act, maintained at the Fund's expense,
and made available in accordance with such Section and Rule. The
Administrator further agrees to surrender promptly to the Fund upon its
request and cease to retain in its records and files those records and
documents created and maintained by the Administrator pursuant to this
Agreement.
C-1
<PAGE>
EXHIBIT (2)(p)
MORGAN STANLEY
MORGAN STANLEY
ASSET MANAGEMENT INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(212) 703-4000
November 17, 1993
The Morgan Stanley
High Yield Fund, Inc.
c/o Morgan Stanley Asset Management Inc
1221 Avenue of the Americas
New York, New York 10020
Ladies and Gentlemen:
Morgan Stanley Asset Management Inc. ("MSAM") agrees to purchase 7,093
shares of Common Stock, par value $.01 per share (the "Shares"), of the Fund at
a price of $14.10 per share. MSAM shall tender to the Fund the amount of
$100,000 in full payment for the Shares.
MSAM represents and warrants to the Fund that the Shares are being
acquired for investment and not with a view to distribution thereof, and that
MSAM has no present intention to redeem or dispose of any of the Shares.
Very truly yours,
MORGAN STANLEY ASSET
MANAGEMENT INC.
/s/ Peter A. Nadosy
-------------------
By: Peter A. Nadosy
Title: President
