<PAGE>
------------------------------------------------------------
MORGAN STANLEY
DEAN WITTER
HIGH YIELD
FUND, INC.
------------------------------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 1999
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
INVESTMENT ADVISER
MORGAN STANLEY DEAN WITTER
HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs
CHAIRMAN OF THE BOARD
OF DIRECTORS
Michael F. Klein
PRESIDENT AND DIRECTOR
Peter J. Chase
DIRECTOR
John W. Croghan
DIRECTOR
David B. Gill
DIRECTOR
Graham E. Jones
DIRECTOR
John A. Levin
DIRECTOR
William G. Morton, Jr.
DIRECTOR
Stefanie V. Chang
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
ASSISTANT TREASURER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------------------------------
CUSTODIANS
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
- --------------------------------------------------------------------------------
LEGAL COUNSEL
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726 or visit our website at
www.msdw.com/institutional/investmentmanagement.
2
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the six months ended June 30, 1999, the Morgan Stanley Dean Witter High
Yield Fund, Inc. (the "Fund") had a total return, based on net asset value per
share, of 2.85% compared to 2.82% for the CS First Boston High Yield Index
(the "Index"). For the period since the Fund's commencement of operations on
November 30, 1993 through June 30, 1999, the Fund's total return, based on net
asset value per share, was 77.60% compared to 54.11% for the Index. On
June 30, 1999, the closing price of the Fund's share s on the New York Stock
Exchange was $15 3/4, representing a 17.8% premium to the Fund's net asset value
per share.
The Fund slightly outperformed the Index for the second quarter ended June 30th.
Initially, in the second quarter, high yield bonds performed well, supported by
merger and investment activity in the telecommunications and cable industries,
and positive fund flows. By May, liquidity concerns, technical conditions, and
rising rates contributed to lower prices. Exposure to non-U.S. issues and
telecommunications and cable sectors had the largest positive impact on results.
Holdings in healthcare, retail an d gaming sectors also helped performance.
Underweighting in the commodity and cyclical sectors, which performed well, and
security selection detracted from returns. The Fund continued to benefit from
merger and investment activities in telecommunications and cable sectors that
have been generally favorable for credit quality. Prices of many issues not
directly involved in transactions have also benefited.
The Fund remains overweighted in the telecommunications and cable sectors, where
we continue to find value. We continue to selectively add to commodity and
cyclical issues, where we remain underweighted, and are finding value in the
gaming sector. The Fund remains overweighted in health care and retail, and
maintains exposure to non-U.S. issues.
We expect economic growth to moderate and inflation to remain close to current
levels, which should be an attractive environment for high yield bonds. We
continue to believe that high yield bonds offer attractive value on a
risk-adjusted expected return basis.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
July 1999
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED.
- --------------------------------------------------------------------------------
DAILY NET ASSET AND MARKET VALUES, AS WELL AS MONTHLY PORTFOLIO INFORMATION FOR
THE FUND, ARE AVAILABLE ON OUR WEBSITE AT
www.msdw.com/institutional/investmentmanagement.
<PAGE>
Morgan Stanley Dean Witter High Yield Fund, Inc.
Investment Summary as of June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL TOTAL RETURN (%)
INFORMATION -----------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3)
--------------------- --------------------- ---------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
FISCAL YEAR TO DATE 7.33% -- 2.85% -- 2.82% --
ONE YEAR 16.28 16.28% 1.94 1.94% -0.85 -0.85%
FIVE YEAR 116.21 16.67 86.55 13.28 56.08 9.31
SINCE INCEPTION* 95.04 12.71 77.60 10.83 54.11 8.06
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED
JUNE 30,
1993* 1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share.... $14.10 $11.96 $13.63 $14.45 $15.19 $13.62 $13.37
Market Value Per Share...... $14.75 $11.38 $12.88 $14.63 $16.06 $15.38 $15.75
Premium/(Discount).......... 4.6% -4.8% -5.5% 1.3% 5.7% 12.9% 17.8%
Income Dividends............ -- $1.37 $ 1.27 $ 1.42 $ 1.36 $ 1.42 $ 0.69
Capital Gains Distributions.. -- -- -- -- $ 0.48 $ 0.83 --
Fund Total Return (2)........ 0.00% -5.53% 26.07% 17.52% 18.48% 4.12% 2.85%
Index Total Return (1)(3).... 1.26% -0.97% 17.39% 12.39% 12.65% 0.58% 2.82%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
(3) The CS First Boston High Yield Index is an unmanaged index of high yield
corporate bonds.
* The Fund commenced operations on November 30, 1993.
3
<PAGE>
Morgan Stanley Dean Witter High Yield Fund, Inc.
Portfolio Summary as of June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Debt Securities (93.2%)
Equity Securities (3.1%)
Short-Term Investments (3.7%)
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
[CHART]
<TABLE>
<S> <C>
Cable (7.5%)
Communications (21.5%)
Gaming (4.9%)
General Industrial (7.6%)
Health Care (6.8%)
Media & Entertainment (3.3%)
Packaging (3.9%)
Retail (6.6%)
Sovereign and Emerging Markets (14.5%)
Transportation (3.2%)
Other (20.2%)
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
INVESTMENTS
-----------
<S> <C>
1. Nextel Communications, Inc.
0.00%,9/15/07 2.2%
2. DR Securitized Lease Trust
7.60%, 8/15/07 2.1
3. Station Casinos, Inc.
10.125%, 3/15/06 1.8
4. TV Azteca 'B'
10.50%, 2/15/07. 1.7
5. Columbia/HCA Healthcare
6.91%, 6/15/05 1.7
6. Intermedia Communications, Inc. 'B'
0.00%, 7/15/07 1.6
7. HMH Properties 'A'
7.875%, 8/1/05 1.6
8. SD Warren Co. 'B'
12.00%, 12/15/04 1.6
9. Chancellor Media Corp. 'B'
8.125%, 12/15/07 1.6
10. Occidente y Caribe
0.00%, 3/15/04 1.4
----
17.3%
----
----
</TABLE>
* Excludes short-term investments.
4
<PAGE>
FINANCIAL STATEMENTS
- --------
STATEMENT OF NET ASSETS (UNAUDITED)
(SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
- --------
JUNE 30, 1999
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS AND NOTES (76.1%)
- -------------------------------------------------------------------------------
CABLE (7.5%)
Adelphia Communications 'B'
(b)7.50%, 1/15/04 U.S.$ 160 U.S. $153
(b)8.375%, 2/1/08 1,100 1,059
9.875%, 3/1/07 200 208
(e)CSC Holdings, Inc.
9.875%, 5/15/06 1,470 1,562
(e)Global Crossing Holdings Ltd.
9.625%, 5/15/08 1,220 1,287
Lenfest Communications, Inc.
7.625%, 2/15/08 800 822
(e)8.375%, 11/1/05 625 663
(d)NTL, Inc.
0.00%, 4/1/08 2,325 1,575
Rogers Cablesystems
10.125%, 9/1/12 650 701
Rogers Cablesystems 'B'
(e)10.00%, 3/15/05 1,505 1,622
Rogers Communications, Inc.
8.875%, 7/15/07 750 759
(e)9.125%, 1/15/06 800 814
-------------
11,225
-------------
- -------------------------------------------------------------------------------
CHEMICALS (1.0%)
ISP Holdings, Inc. 'B'
9.00%, 10/15/03 1,550 1,544
-------------
- -------------------------------------------------------------------------------
COMMUNICATIONS (19.2%)
(b)American Cellular Corp.
10.50%, 5/15/08 805 825
AMSC Acquisition Co., Inc. 'B'
12.25%, 4/1/08 1,725 1,320
(b)Centennial Cellular
10.75%, 12/15/08 1,005 1,038
(d)Dial Call Communications 'B'
10.25%, 12/15/05 560 571
Dobson Communications Corp.
11.75%, 4/15/07 1,045 1,097
(d)Dolphin Telecommunications plc
0.00%, 6/1/08 ECU 1,520 777
(b,e)Echostar DBS Corp.
9.375%, 2/1/09 U.S.$ 1,625 1,651
Espirit Telecom Group 'DM'
11.50%, 12/15/07 ECU 665 743
Globalstar LP
11.375%, 2/15/04 U.S.$ 1,050 693
(b)Hermes Europe Railtel B.V.
10.375%, 1/15/09 250 254
(d)Hyperion Telecommunications, Inc.
0.00%, 4/15/03 1,920 1,586
(d,e)Intermedia Communications, Inc. 'B'
0.00%, 7/15/07 3,400 2,427
(e)Iridium LLC/Capital Corp. 'A'
13.00%, 7/15/05 1,650 330
- -------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
(b)Metromedia Fiber Network
10.00%, 11/15/08 U.S.$ 790 U.S.$ 813
Nextel Communications, Inc.
(d,e)0.00%, 9/15/07 4,620 3,373
(d)0.00%, 2/15/08 500 344
(d,e,f)9.75%, 8/15/04 315 320
NEXTLINK Communications, Inc.
(d)0.00%, 4/15/08 2,500 1,494
(b)10.75%, 11/15/08 225 230
Primus Telecommunications
Group, Inc.
(b)11.25%, 1/15/09 560 568
Primus Telecommunications
Group, Inc. 'B'
9.875%, 5/15/08 1,000 949
PSINet, Inc. 'B'
10.00%, 2/15/05 800 795
(d,e)RCN Corp.
0.00%, 10/15/07 2,200 1,474
(d)Rhythms NetConnections Inc. 'B'
0.00%, 5/15/08 1,335 704
RSL Communications plc
(e,f)9.125%, 3/1/08 1,165 1,069
(b)12.00%, 11/1/08 900 945
RSL Communications, Ltd.
(d)0.00%, 3/15/08 ECU 1,380 878
12.25%, 11/15/06 U.S.$ 88 92
(b)Tele1 Europe B.V.
13.00%, 5/15/09 590 614
(d)Viatel, Inc.
0.00%, 4/15/08 1,335 858
-------------
28,832
-------------
- -------------------------------------------------------------------------------
ENERGY (3.1%)
CMS Energy Corp.
7.50%, 1/15/09 1,520 1,423
(d)Husky Oil Ltd.
8.90%, 8/15/28 885 851
Snyder Oil Corp.
8.75%, 6/15/07 1,700 1,674
Vintage Petroleum, Inc.
8.625%, 2/1/09 185 177
(b,e)9.75%, 6/30/09 485 496
-------------
4,621
-------------
- -------------------------------------------------------------------------------
FINANCIAL (1.8%)
(b,d)Fuji JGB Investment LLC
9.87%, 12/31/49 800 700
(b,d,e)SB Treasury Co. LLC
9.40%, 12/29/49 1,010 982
Smithfield Foods, Inc.
7.625%, 2/15/08 1,175 1,069
-------------
2,751
-------------
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
GAMING (4.9%)
(e)Harrahs Operating Co., Inc.
7.875%, 12/15/05 U.S.$ 1,625 U.S.$ 1,576
(b,e)Horeshoe Gaming Holding
8.652%, 5/15/09 1,750 1,693
(e)Park Place Entertainment
7.875%, 12/15/05 1,565 1,487
(b,e)Station Casinos, Inc.
10.125%, 3/15/06 2,555 2,635
-------------
7,391
-------------
- -------------------------------------------------------------------------------
GENERAL INDUSTRIAL (7.6%)
Allied Waste North America 'B'
7.875%, 1/1/09 475 440
Applied Power Inc.
8.75%, 4/1/09 670 650
Axia, Inc.
10.75%, 7/15/08 585 578
(b)CEX Holdings, Inc.
9.625%, 6/1/08 1,065 1,001
Geberit International
10.125%, 4/15/07 ECU 869 1,042
(b)Hayes Lemmerz International, Inc.
8.25%, 12/15/08 U.S.$ 1,545 1,468
Huntsman ICI Chemicals
(b)10.125%, 7/1/09 750 777
(b)10.125%, 7/1/09 750 753
(b)Lyondell Chemical Co.
9.625%, 5/1/07 220 224
(b)National Steel Corp. 'D'
9.875%, 3/1/09 1,070 1,086
(d,e)Norcal Waste Systems, Inc.
13.50%, 11/15/05 1,600 1,768
(b)Nortek, Inc.
8.875%, 8/1/08 915 901
(b)Sirona Dental Systems
9.125%, 7/15/08 ECU 844 802
-------------
11,490
-------------
- -------------------------------------------------------------------------------
HEALTH CARE (6.8%)
Columbia/HCA Healthcare
(e)6.91%, 6/15/05 U.S.$ 2,760 2,553
(e)7.00%, 7/1/07 2,025 1,830
7.58%, 9/15/25 2,120 1,741
Fresenius Medical Capital Trust II
7.875%, 2/1/08 1,195 1,123
Tenet Healthcare Corp.
(b,e)8.125%, 12/1/08 430 406
(e)8.625%, 1/15/07 2,100 2,053
Tenet Healthcare Corp. 'B'
8.125%, 12/1/08 570 538
-------------
10,244
-------------
- -------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
HOTELS/LODGING/RESTAURANTS (2.8%)
Hilton Hotels
7.95%, 4/15/07 U.S.$ 1,510 U.S.$ 1,528
(e)HMH Properties 'A'
7.875%, 8/1/05 2,530 2,391
(b)Host Marriott LP
8.375%, 2/15/06 250 242
-------------
4,161
-------------
- -------------------------------------------------------------------------------
MEDIA & ENTERTAINMENT (2.6%)
(e)Chancellor Media Corp. 'B'
8.125%, 12/15/07 2,420 2,347
(e)Outdoor Systems, Inc.
8.875%, 6/15/07 1,480 1,545
-------------
3,892
-------------
- -------------------------------------------------------------------------------
METALS (1.9%)
Impress Metal Packaging
(b)9.875%, 5/29/07 ECU 1,406 1,608
(b)9.875%, 5/29/07 205 234
(b)Murrin Murrin Holdings
Property Ltd.
9.375%, 8/31/07 U.S.$ 1,075 946
-------------
2,788
-------------
- -------------------------------------------------------------------------------
PACKAGING (3.9%)
Norampac, Inc.
9.50%, 2/1/08 1,485 1,519
(b)Pacific Papers, Inc.
10.00%, 3/15/09 1,365 1,406
(e)SD Warren Co. 'B'
12.00%, 12/15/04 2,235 2,380
Tembec Industries, Inc.
8.625%, 6/30/09 520 517
-------------
5,822
-------------
- -------------------------------------------------------------------------------
REAL ESTATE/BUILDING (1.7%)
American Standard, Inc.
7.125%, 6/1/06 1,105 1,148
(e)D.R. Horton Inc.
8.00%, 2/1/09 1,490 1,401
-------------
2,549
-------------
- -------------------------------------------------------------------------------
RETAIL (6.6%)
(b)CA FM Lease Trust
8.50%, 7/15/17 1,398 1,300
DR Securitized Lease Trust
6.66%, 8/15/10 1,287 1,197
7.60%, 8/15/07 3,141 3,082
9.35%, 8/15/19 500 505
(b)HMV Media Group plc
10.875%, 5/15/08 GBP 1,035 1,692
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
RETAIL (CONTINUED)
Musicland Group, Inc.
9.00%, 6/15/03 U.S.$ 590 U.S.$ 572
(e)Musicland Group, Inc. 'B'
9.875%, 3/15/08 1,600 1,568
-------------
9,916
-------------
- -------------------------------------------------------------------------------
TRANSPORTATION (3.2%)
(f)Aircraft Lease Portfolio
Securitization Ltd. 1996-1 P1D
12.75%, 6/15/06 1,594 1,594
Jet Equipment Trust 'C1'
11.79%, 6/15/13 1,500 1,859
Jet Equipment Trust 'D-95'
11.44%, 11/1/14 1,100 1,354
-------------
4,807
-------------
- -------------------------------------------------------------------------------
UTILITIES (1.5%)
AES Corp.
8.50%, 11/1/07 1,430 1,346
(b)RAS Laffan Liquid Natural Gas
8.294%, 3/15/14 950 871
-------------
2,217
-------------
- -------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost U.S.$116,721) 114,250
-------------
- -------------------------------------------------------------------------------
ASSET BACKED SECURITIES (1.3%)
- -------------------------------------------------------------------------------
Long Beach Auto 1997-1, 'B'
14.22%, 10/26/03 973 967
OHA Auto Grantor Trust 1997-1, 'B'
11.00%, 9/15/03 1,045 1,040
-------------
- -------------------------------------------------------------------------------
TOTAL ASSET BACKED SECURITIES
(Cost U.S.$2,031) 2,007
-------------
- -------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATION(1.4%)
- -------------------------------------------------------------------------------
DLJ Mortgage Acceptance Corp.
1997-CF2 S
0.357%, 10/15/30 32,592 697
(b)First Home Mortgage
Acceptance Corp.,
7.929%, 11/1/18 1,312 999
GMAC IO 1996-C1 CL X2 REMIC
3.051%, 3/15/21 6,323 410
- -------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATION
(Cost U.S.$2,509) 2,106
-------------
- -------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
SOVEREIGN AND EMERGING MARKETS (14.3%)
- -------------------------------------------------------------------------------
(e)TV Azteca 'B'
10.50%, 2/15/07 U.S.$3,460 U.S.$2,604
APP Fin II Mauritius Ltd.
12.00%, 2/15/04 865 567
(b)AST Research Inc.
7.45%, 10/1/02 925 887
(b)Cablevision S.A.
13.75%, 5/1/09 750 690
(d)CTI Holdings
0.00%, 4/15/08 1,700 850
Glencore Nickel Property Ltd.
9.00%, 12/1/14 935 804
Hermes Europe Railtel B.V.
11.50%, 8/15/07 945 992
(e)Indah Kiat Finance
10.00%, 7/1/07 1,950 1,345
(e)Multicanal
10.50%, 2/1/07 1,705 1,401
(b)NSM Steel, Inc.
12.25%, 2/1/08 825 1
(d)Occidente y Caribe
0.00%, 3/15/04 3,125 2,094
(e)Philippine Long
Distance Telephone
9.25%, 6/30/06 1,725 1,647
(b,e)Pindo Deli Finance (Mauritius)
10.75%, 10/1/07 1,955 1,349
(d)PTC International Finance B.V.
0.00%, 7/1/07 1,330 983
Quezon Power Ltd.
8.86%, 6/15/17 400 322
(b)RBS Participacoes
11.00%, 4/1/07 850 569
(c)Republic of Argentina 'L'
5.938%, 3/31/05 1,772 1,515
Satelites Mexicanos 'B'
10.125%, 11/1/04 940 757
(d)Telewest Communication plc
0.00%, 4/15/09 GBP 1,550 1,565
United Mexican States
Par Bond 'W-A'
6.25%, 12/31/19 U.S.$ 770 574
- -------------------------------------------------------------------------------
TOTAL SOVEREIGN AND EMERGING MARKETS
(Cost $25,015) 21,516
-------------
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK (2.4%)
- -------------------------------------------------------------------------------
COMMUNICATIONS (1.7%)
(a)Concentric Network Corp. 'B' 8,777 U.S.$ 829
(a,b)Dobson Communications Corp. 13.00% 4,500 434
(a,f)IXC Communications, Inc. 'B' 1,325 1,279
-------------
2,542
-------------
- -------------------------------------------------------------------------------
MEDIA & ENTERTAINMENT (0.7%)
(f)Paxson Communications Corp. 11,196 1,008
-------------
- -------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost U.S.$3,237) 3,550
-------------
- -------------------------------------------------------------------------------
<CAPTION>
NO. OF
WARRANTS
- -------------------------------------------------------------------------------
<S> <C> <C>
WARRANTS (0.8%)
- --------------------------------------------------------------------------------
COMMUNICATIONS (0.6%)
(a,b)American Mobile Satellite Corp.,
expiring 4/1/08 17,250 63
(a,b)Globalstar Telecom,
expiring 2/15/04 1,000 52
(a,b)Iridium World Communications, Inc.,
expiring 7/15/05 840 8
(a,b)Rhythms NetConnections Inc.,
expiring 5/15/08 57,000 821
-------------
944
-------------
- --------------------------------------------------------------------------------
SOVEREIGN AND EMERGING MARKETS (0.2%)
(a,b)NSM Steel, Inc.,
expiring 2/1/08 5,223,013 5
(a,b)Occidente y Caribe,
expiring 3/15/04 125,000 211
-------------
216
-------------
- -------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost U.S.$928) 1,160
-------------
- -------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (3.7%)
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Chase Securities, Inc. 4.55%, dated
6/30/99, due 7/1/99, to be
repurchased at U.S.$5,586,
collateralized by U.S.$5,185
United States Treasury Bonds,
7.25%, due 5/15/16, valued at
U.S.$5,762
(Cost U.S.$5,585) U.S.$ 5,585 U.S.$ 5,585
-------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost U.S.$156,026) 150,174
-------------
- --------------------------------------------------------------------------------
OTHER ASSETS
Cash 17
Interest Receivable 2,950
Receivable for Investments Sold 839
Net Unrealized Gain on Foreign
Currency Exchange Contracts 313
Receivable for Daily Variation on
Futures Contracts 65
Other Assets 18 4,202
------------- -------------
- -------------------------------------------------------------------------------
LIABILITIES
Payable For:
Reverse Repurchase Agreements (34,785)
Dividends Declared (1,017)
Investments Purchased (100)
Investment Advisory Fees (68)
Custodian Fees (5)
Directors' Fees and Expenses (60)
Shareholder Reporting Expenses (40)
Professional Fees (35)
Administrative Fees (14)
Other Liabilities (32) (36,156)
------------- -------------
- -------------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 8,841,981, issued and
outstanding U.S.$ 0.01 par value shares
(100,000,000 shares authorized) U.S.$ 118,220
-------------
-------------
- -------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 13.37
-------------
-------------
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
(000)
- -------------------------------------------------------------------------------
<S> <C>
AT JUNE 30, 1999, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------
Common Stock U.S.$ 88
Capital Surplus 124,104
Accumulated Net Investment Loss (512)
Accumulated Net Realized Gain 158
Unrealized Depreciation on Investments
and Foreign Currency Translations (5,618)
- -------------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 118,220
-------------
- -------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing.
(b) -- 144A security - certain conditions for public sale may exist.
(c) -- Variable/floating rate security - rate disclosed is as of
June 30, 1999.
(d) -- Step Bond - coupon rate increases in increments to maturity. Rate
disclosed is as of June 30, 1999. Maturity date disclosed is the
ultimate maturity.
(e) -- Denotes all or a portion of securities subject to repurchase under
Reverse Repurchase Agreements as of June 30, 1999 - see note A-4 to
financial statements.
(f) -- Security valued at fair value - See note A-1 to financial statements.
PIK -- Payment-in-Kind. Income may be paid in additional securities or cash
at the discretion of the issuer.
<TABLE>
- -------------------------------------------------------------------------------
JUNE 30, 1999 EXCHANGE RATES:
- -------------------------------------------------------------------------------
<S> <C>
ECU European Currency Unit 0.968 = U.S. $1.00
GBP British Pound 0.634 = U.S. $1.00
- -------------------------------------------------------------------------------
</TABLE>
FUTURES CONTRACTS:
At June 30, 1999, the following futures contracts were open:
<TABLE>
<CAPTION>
NET
NUMBER AGGREGATE UNREALIZED
OF FACE VALUE EXPIRATION LOSS
CONTRACTS (000) DATE (000)
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
SHORT:
Gilt 16 U.S.$ 2,860 Sep-99 U.S.$(34)
----- --------
----- --------
- -------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open
at June 30, 1999, the Fund is obligated to deliver foreign
currency in exchange for U.S. dollars as indicated below:
<CAPTION>
NET
CURRENCY IN UNREALIZED
TO EXCHANGE GAIN
DELIVER VALUE SETTLEMENT FOR VALUE (LOSS)
(000) (000) DATE (000) (000) (000)
--------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
ECU 425 U.S.$ 440 07/26/99 U.S.$ 454 U.S.$ 454 U.S.$ 14
ECU 2,105 2,178 07/27/99 2,251 2,251 73
ECU 1,385 1,433 07/27/99 1,484 1,484 51
ECU 1,100 1,138 07/27/99 1,166 1,166 28
ECU 750 776 07/27/99 777 777 1
ECU 1,495 1,547 07/30/99 1,595 1,595 48
ECU 255 264 08/10/99 277 277 13
ECU 620 643 08/20/99 659 659 16
GBP 135 213 08/09/99 216 216 3
GBP 2,010 3,172 09/03/99 3,238 3,238 66
------------ ------------ ----------
U.S.$ 11,804 U.S.$ 12,117 U.S.$ 313
------------ ------------ ----------
------------ ------------ ----------
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Interest ......................................................................................... 7,419
- -------------------------------------------------------------------------------------------------------------------------
Total Income................................................................................... 7,419
- -------------------------------------------------------------------------------------------------------------------------
EXPENSES
Interest Expense.................................................................................. 974
Investment Advisory Fees.......................................................................... 421
Administrative Fees............................................................................... 83
Shareholder Reporting Expenses.................................................................... 45
Professional Fees................................................................................. 37
Directors' Fees and Expenses...................................................................... 25
Custodian Fees.................................................................................... 15
Transfer Agent Fees............................................................................... 14
Other Expenses.................................................................................... 23
- -------------------------------------------------------------------------------------------------------------------------
Total Expenses................................................................................. 1,637
- -------------------------------------------------------------------------------------------------------------------------
Net Investment Income....................................................................... 5,782
- -------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN
Investment Securities Sold........................................................................ 3
Foreign Currency Transactions..................................................................... 675
Futures Contracts................................................................................. 77
- -------------------------------------------------------------------------------------------------------------------------
Net Realized Gain.............................................................................. 755
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Depreciation on Investments....................................................................... (3,039)
Appreciation on Foreign Currency Translations..................................................... 304
- -------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation................................................. (2,735)
- -------------------------------------------------------------------------------------------------------------------------
Net Realized Gain and Change in Unrealized Appreciation/Depreciation................................. (1,980)
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................................. U.S.$ 3,802
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income.................................................... U.S.$ 5,782 U.S.$ 11,817
Net Realized Gain........................................................ 755 6,280
Change in Unrealized Appreciation/Depreciation........................... (2,735) (12,066)
- -------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations...................... 3,802 6,031
- -------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income.................................................... (6,096) (12,267)
In Excess of Net Investment Income....................................... -- (198)
Net Realized Gain........................................................ -- (6,732)
In Excess of Net Realized Gain........................................... -- (597)
- -------------------------------------------------------------------------------------------------------------------------
Total Distributions......................................................... (6,096) (19,794)
- -------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Reinvestment of Distributions (38,971 and 42,301 shares, respectively)...... 574 653
- -------------------------------------------------------------------------------------------------------------------------
Total Decrease.............................................................. (1,720) (13,110)
NET ASSETS:
Beginning of Period......................................................... 119,940 133,050
- -------------------------------------------------------------------------------------------------------------------------
End of Period (including accumulated net investment loss / distribution
in excess of net investment income of
U.S.$(512) and U.S.$(198), respectively)................................ U.S.$ 118,220 U.S.$ 119,940
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999
(UNAUDITED)
STATEMENT OF CASH FLOWS (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM INVESTING AND OPERATING ACTIVITIES:
Proceeds from Sales of Investments................................................................ U.S.$ 39,626
Purchases of Investments.......................................................................... (41,507)
Net Increase in Short-Term Investments............................................................ (2,729)
Investment Income................................................................................. 6,510
Interest Expense Paid............................................................................. (738)
Operating Expenses Paid........................................................................... (657)
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Investing and Operating Activities........................................... 505
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Received for Reverse Repurchase Agreements............................................... 13,191
Cash Distributions Paid (net of reinvestment of U.S.$574)..................................... (13,726)
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Used for Financing Activities............................................................ (535)
- -------------------------------------------------------------------------------------------------------------------------
Net Decrease in Cash.............................................................................. (30)
- -------------------------------------------------------------------------------------------------------------------------
CASH AT BEGINNING OF PERIOD.......................................................................... 47
- -------------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD................................................................................ U.S.$ 17
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY INVESTING AND OPERATING ACTIVITIES:
- -------------------------------------------------------------------------------------------------------------------------
Net Investment Income............................................................................. U.S.$ 5,782
Proceeds from Sales of Investments................................................................ 39,626
Purchases of Investments.......................................................................... (41,507)
Net Increase in Short-Term Investments............................................................ (2,729)
Net Decrease in Receivables Related to Operations................................................. 302
Net Increase in Payables Related to Operations.................................................... 253
Accretion/Amortization of Discounts and Premiums.................................................. (1,222)
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Investing and Operating Activities........................................... U.S.$ 505
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
SELECTED PER SHARE JUNE 30, 1999 --------------------------------------------------------------------------
DATA AND RATIOS: (UNAUDITED) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... U.S.$ 13.62 U.S.$ 15.19 U.S.$ 14.45 U.S.$ 13.63 U.S.$ 11.96 U.S.$ 14.10
- -----------------------------------------------------------------------------------------------------------------------------------
Offering Costs.......................... -- -- -- -- -- (0.01)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income................... 0.65 1.34 1.37 1.35 1.34 1.32
Net Realized and Unrealized Gain
(Loss) on Investments................ (0.21) (0.66) 1.21 0.89 1.60 (2.08)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations.. 0.44 0.68 2.58 2.24 2.94 (0.76)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income................ (0.69) (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............... (0.69) (2.25) (1.84) (1.42) (1.27) (1.37)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... U.S.$ 13.37 U.S.$ 13.62 U.S.$ 15.19 U.S.$ 14.45 U.S.$ 13.63 U.S.$ 11.96
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD... U.S.$ 15.75 U.S.$ 15.38 U.S.$ 14.63 U.S.$ 14.63 U.S.$ 12.88 U.S.$ 11.38
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value......................... 7.33% 11.15% 25.92% 25.92% 25.21% (14.11)%
Net Asset Value (1).................. 2.85% 4.12% 17.52% 17.52% 26.07% (5.53)%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS)... U.S.$118,220 U.S.$119,940 U.S.$126,330 U.S.$126,330 U.S.$118,863 U.S.$104,260
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses before Interest
Expense to Average Net Assets........ 1.10%* 1.10% 1.12% 1.12% 1.11% 1.12%
Ratio of Expenses After Interest
Expense to Average Net Assets........ 2.72%* 2.23% 2.46% 2.46% 2.79% 2.78%
Ratio of Net Investment Income to
Average Net Assets................... 9.61%* 9.00% 9.82% 9.82% 10.29% 10.18%
Portfolio Turnover Rate................. 26% 78% 136% 136% 84% 32%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
(1) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. This percentage is not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
- --------
Morgan Stanley Dean Witter High Yield Fund, Inc. (formerly The Morgan
Stanley High Yield Fund, Inc.) (the "Fund") was incorporated on September 23,
1993 and is registered as a non-diversified, closed-end management investment
company under the Investment Company Act of 1940, as amended. The Fund's primary
objective is to produce high current income and as a secondary objective, to
seek capital appreciation, through investments primarily in high yield
securities.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results may differ from those estimates.
1. SECURITY VALUATION: In valuing the Fund's assets, all listed securities for
which market quotations are readily available are valued at the last sales
price on the valuation date, or if there was no sale on such date, at the
mean between the current bid and asked prices. Securities which are traded
over-the-counter are valued at the average of the mean of the current bid
and asked prices obtained from reputable brokers. 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. Short-term securities which mature in
60 days or less are valued at amortized cost. All other securities and
assets for which market values are not readily available (including
investments which are subject to limitations as to their sale) are valued
at fair value as determined in good faith under procedures approved by the
Board of Directors (the "Board"), although the actual calculations may be
done by others.
2. U.S. FEDERAL INCOME TAXES: It is the Fund's intention to continue to
qualify as a regulated investment company and distribute all of its taxable
income. Accordingly, no provision for U.S. Federal income taxes is required
in the financial statements.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, with a market value at least equal to the amount of
the repurchase transaction, including principal and accrued interest. To
the extent that any repurchase transaction exceeds one business day, the
value of the collateral is marked-to-market on a daily basis to determine
the adequacy of the collateral. In the event of default on the obligation
to repurchase, the Fund has the right to liquidate the collateral and apply
the proceeds in satisfaction of the obligation. In the event of default or
bankruptcy by the counterparty to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal
proceedings.
4. REVERSE REPURCHASE AGREEMENTS: The Fund may enter into reverse repurchase
agreements with institutions that the Fund's investment adviser has
determined are creditworthy. Under a reverse repurchase agreement, the Fund
sells securities and agrees to repurchase them at a mutually agreed upon
date and price. Reverse repurchase agreements involve the risk that the
market value of the securities purchased with the proceeds from the sale of
securities received by the Fund may decline below the price of the
securities the Fund is obligated to repurchase. Reverse repurchase
agreements also involve credit risk with the counter party to the extent
that the value of securities subject to repurchase exceed the Fund's
liability under the reverse repurchase agreement. Securities subject to
repurchase under reverse repurchase agreements are designated as such in
the Statement of Net Assets.
At June 30, 1999, the Fund had reverse repurchase agreements outstanding as
follows:
<TABLE>
<CAPTION>
MATURITY IN
LESS THAN
365 DAYS
-----------
<S> <C>
Value of Securities Subject to
Repurchase $45,895,000
Liability Under Reverse
Repurchase Agreement $34,785,000
Weighted Average Interest Rate 5.78%
</TABLE>
The average weekly balance of reverse repurchase agreements outstanding
during the six months ended June 30, 1999 was approximately $34,004,000 at
a weighted average interest rate of 5.78%.
5. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars at the mean of the bid and asked prices of such currencies
against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income at the prevailing rates
of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the period, the Fund does not
isolate that por-
13
<PAGE>
tion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the
market prices of the securities held at period end. Similarly, the Fund
does not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of securities sold
during the period. Accordingly, realized and unrealized foreign currency
gains (losses) are included in the reported net realized and unrealized
gains (losses) on investment transactions and balances.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of foreign
currency exchange contracts, disposition of foreign currencies, currency
gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid. Net
unrealized currency gains (losses) from valuing foreign currency
denominated assets and liabilities at period end exchange rates are
reflected as a component of unrealized appreciation (depreciation) on
investments and foreign currency translations in the Statement of Net
Assets. The change in net unrealized currency gains (losses) for the period
is reflected in the Statement of Operations.
The Fund may use derivatives to achieve its investment objectives. The Fund may
engage in transactions in futures contracts on foreign currencies, stock
indices, as well as in options, swaps and structured notes. Consistent with the
Fund's investment objectives and policies, the Fund may use derivatives for
non-hedging as well as hedging purposes.
Following is a description of derivative instruments that the Fund may utilize
and their associated risks:
6. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into foreign
currency exchange contracts generally to attempt to protect securities and
related receivables and payables against changes in future foreign exchange
rates and, in certain situations, to gain exposure to a foreign currency. A
foreign currency exchange contract is an agreement between two parties to
buy or sell currency at a set price on a future date. The market value of
the contract will fluctuate with changes in currency exchange rates. The
contract is marked-to-market daily and the change in market value is
recorded by the Fund as unrealized gain or loss. The Fund records realized
gains or losses when the contract is closed equal to the difference between
the value of the contract at the time it was opened and the value at the
time it was closed. Risk may arise upon entering into these contracts from
the potential inability of counterparties to meet the terms of their
contracts and is generally limited to the amount of unrealized gain on the
contracts, if any, at the date of default. Risks may also arise from
unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
7. WHEN-ISSUED/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, and no income accrues
to the Fund on such securities prior to delivery. When the Fund enters into
a purchase transaction on a when-issued or delayed delivery basis, it
either establishes a segregated account in which it maintains liquid assets
in an amount at least equal in value to the Fund's commitments to purchase
such securities or denotes such assets on the Fund's Custody account as
segregated. Purchasing securities on a when-issued or delayed delivery
basis may involve a risk that the market price at the time of delivery may
be lower than the agreed-upon purchase price, in which case there could be
an unrealized loss at the time of delivery.
8. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The Fund
may make forward commitments to purchase or sell securities. Payment and
delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not to exceed 120 days)
after the date of the transaction. Additionally, the Fund may purchase
securities on a when-issued or delayed delivery basis. Securities purchased
on a when-issued or delayed delivery basis are purchased for delivery
beyond the normal settlement date at a stated price and yield, and no
income accrues to the Fund on such securities prior to delivery. When the
Fund enters into a purchase transaction on a when-issued or delayed
delivery basis, it either establishes a segregated account in which it
maintains liquid assets in an amount at least equal in value to the Fund's
commitments to purchase such securities or denotes such securities on the
custody statement for its regular custody account. Purchasing securities on
a forward commitment or when-issued or delayed-delivery basis may involve a
risk that the market price at the time of delivery may be lower than the
agreed upon purchase price, in which case there could be an unrealized loss
at the time of delivery.
9. SWAP AGREEMENTS: The Fund may enter into swap agreements to exchange the
return generated by one security, instrument or basket of instruments for
the return generated by another security, instrument or basket of
instruments. The following summarizes swaps which may be entered into by
the Fund:
INTEREST RATE SWAPS: Interest rate swaps involve the exchange of
commitments to pay and receive interest
14
<PAGE>
based on a notional principal amount. Net periodic interest payments to be
received or paid are accrued daily and are recorded in the Statement of
Operations as an adjustment to interest income. Interest rate swaps are
marked-to-market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized appreciation or depreciation in
the Statement of Operations.
TOTAL RETURN SWAPS: Total return swaps involve commitments to pay interest
in exchange for a market-linked return based on a notional amount. To the
extent the total return of the security, instrument or basket of
instruments underlying the transaction exceeds or falls short of the
offsetting interest obligation, the Fund will receive a payment from or
make a payment to the counterparty, respectively. Total return swaps are
marked-to-market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gains or losses in the Statement
of Operations. Periodic payments received or made at the end of each
measurement period, but prior to termination, are recorded as realized
gains or losses in the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and
total return swaps are presented in the Statement of Operations. Because
there is no organized market for these swap agreements, the value reported
in the Statement of Net Assets may differ from that which would be realized
in the event the Fund terminated its position in the agreement. Risks may
arise upon entering into these agreements from the potential inability of
the counterparties to meet the terms of the agreements and are generally
limited to the amount of net interest payments to be received and/or
favorable movements in the value of the underlying security, instrument or
basket of instruments, if any, at the date of default.
10. STRUCTURED SECURITIES: The Fund may invest in interests in entities
organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations. This type of
restructuring involves the deposit with or purchase by an entity of
specified instruments and the issuance by that entity of one or more
classes of securities ("Structured Securities") backed by, or representing
interests in, the underlying instruments. Structured Securities generally
will expose the Fund to credit risks of the underlying instruments as well
as of the issuer of the Structured Security. Structured Securities are
typically sold in private placement transactions with no active trading
market. Investments in Structured Securities may be more volatile than
their underlying instruments, however, any loss is limited to the amount of
the original investment.
11. OVER-THE-COUNTER TRADING: Derivative instruments that may be purchased or
sold by the Fund are expected to regularly consist of instruments not
traded on an exchange. The risk of nonperformance by the obligor on such an
instrument may be greater, and the ease with which the Fund can dispose of
or enter into closing transactions with respect to such an instrument may
be less, than in the case of an exchange-traded instrument. In addition,
significant disparities may exist between bid and asked prices for
derivative instruments that are not traded on an exchange. Derivative
instruments not traded on exchanges are also not subject to the same type
of government regulation as exchange traded instruments, and many of the
protections afforded to participants in a regulated environment may not be
available in connection with such transactions.
12. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Interest
income is recognized on the accrual basis except where collection is in
doubt. Discounts and premiums on investments purchased are accreted or
amortized in accordance with the effective yield method over their
respective lives. Dividend income and distributions to shareholders are
recorded on the ex-dividend date.
The amount and character of income and capital gain distributions to be
paid are determined in accordance with Federal income tax regulations which
may differ from generally accepted accounting principles. These differences
are primarily due to differing book and tax treatments of the timing of the
recognition of losses on securities and non-deductible expenses.
Permanent book and tax basis differences relating to shareholder
distributions may result in reclassifications to undistributed net
investment income (loss), accumulated net realized gain (loss) and capital
surplus.
Adjustments for permanent book-tax differences, if any, are not reflected
in ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
B. Morgan Stanley Dean Witter Investment Management Inc. (the "Adviser")
provides investment advisory services to the Fund under the terms of an
Investment Advisory Agreement (the "Agreement"). Under the Agreement, the
Adviser is paid a fee computed weekly and payable monthly at an annual rate of
0.70% of the Fund's average weekly net assets.
C. The Chase Manhattan Bank, through its corporate affiliate Chase Global
Funds Services Company (the "Administrator"), provides administrative services
to the Fund under an Administration Agreement. Under the Administration
Agreement, the Administrator is paid a fee
15
<PAGE>
computed weekly and payable monthly at an annual rate of 0.08% of the Fund's
average weekly net assets, plus $65,000 per annum. In addition, the Fund is
charged certain out-of-pocket expenses by the Administrator.
D. The Chase Manhattan Bank serves as custodian for the Fund. Custody fees are
payable monthly based on assets held in custody, investment purchases and sales
activity and account maintenance fees, plus reimbursement for certain
out-of-pocket expenses.
E. During the six months ended June 30, 1999, the Fund made purchases and
sales totaling, approximately $41,357,000 and $38,497,000, respectively, of
investment securities other than long-term U.S. Government securities and
short-term investments. There were no purchases and sales of long-term U.S.
Government securities. At June 30, 1999, the Federal income tax cost basis of
securities was $156,026,000 and, accordingly, net unrealized depreciation for
Federal income tax purposes was $5,852,000 of which $3,402,000 related to
appreciated securities and $9,254,000 related to depreciated securities.
F. At June 30, 1999, a substantial portion of the Fund's total investments
consist of high yield securities rated below investment grade. Investments in
high-yield securities are accompanied by a greater degree of credit risk and the
risk tends to be more sensitive to economic conditions than higher-rated
securities. These investments are often traded by one market maker who may also
be utilized by the Fund to provide pricing information used to value such
securities. The amounts which will be realized upon disposition of the
securities may differ from the value reflected on the statement of net assets
and the differences could be material.
G. Each Director of the Fund who is not an officer of the Fund or an
affiliated person as defined under the Investment Company Act of 1940, as
amended, may elect to participate in the Directors' Deferred Compensation Plan
(the "Plan"). Under the Plan, such Directors may elect to defer payment of a
percentage of their total fees earned as a Director of the Fund. These deferred
portions are treated, based on an election by the Director, as if they were
either invested in the Fund's shares or invested in U.S. Treasury Bills, as
defined under the Plan. The deferred fees payable, under the Plan, at June 30,
1999 totaled approximately $56,000 and are included in Payable for Directors'
Fees and Expenses on the Statement of Net Assets.
H. During June 1999, the Officers declared a distribution of $0.115, derived
from net investment income, payable on July 15, 1999, to shareholders of record
on June 30, 1999.
I. Supplemental Proxy Information
The Annual Meeting of the Stockholders of The Morgan Stanley High Yield Fund,
Inc. was held on June 21, 1999. The following is a summary of each proposal
presented and the total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES AUTHORITY VOTES
PROPOSAL: FAVOR OF AGAINST WITHHELD ABSTAINED
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<S> <C> <C> <C> <C>
1. To elect the following Directors: Peter J. Chase................... 7,976,201 -- 44,002 --
David B. Gill.................... 7,976,901 -- 43,302 --
Michael F. Klein................. 7,972,701 -- 47,502 --
2. To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of the Fund............................................. 7,976,944 21,435 -- 21,823
3. To approve an amendment to the Fund's Articles of Incorporation to
change the name of the Fund to Morgan Stanley Dean Witter High Yield
Fund, Inc........................................................... 7,891,017 98,431 -- 30,751
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YEAR 2000 DISCLOSURE (UNAUDITED):
The investment advisory services provided to the Fund by the Adviser 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 Adviser 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 Adviser will be successful. In addition, other unaffiliated service
providers may be faced with similar problems. The Adviser 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.
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
each shareholder may elect by providing written instructions to American Stock
Transfer & Trust Company (the "Plan Agent") to have all distributions
automatically reinvested in Fund Shares. Participants in the Plan have the
option of making additional voluntary cash payments to the Plan Agent, annually,
in any amount from $100 to $3,000, for investment in Fund shares.
Dividend and capital gain distributions will be reinvested on the
reinvestment date in full and fractional shares. If the market price per share
equals or exceeds net asset value per share on the reinvestment date, the Fund
will issue shares to participants at net asset value. If net asset value is less
than 95% of the market price on the reinvestment date, shares will be issued at
95% of the market price. If net asset value exceeds the market price on the
reinvestment date, participants will receive shares valued at market price. The
Fund may purchase shares of its Common Stock in the open market in connection
with dividend reinvestment requirements at the discretion of the Board of
Directors. Should the Fund declare a dividend or capital gain distribution
payable only in cash, the Plan Agent will purchase Fund shares for participants
in the open market as agent for the participants.
The Plan Agent's fees for the reinvestment of dividends and distributions
will be paid by the Fund. However, each participant's account will be charged a
pro rata share of brokerage commissions incurred on any open market purchases
effected on such participant's behalf. A participant will also pay brokerage
commissions incurred on purchases made by voluntary cash payments. Although
shareholders in the Plan may receive no cash distributions, participation in the
Plan will not relieve participants of any income tax which may be payable on
such dividends or distributions.
In the case of shareholders, such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are participating in the
Plan.
Participants who wish to withdraw from the Plan should notify the Plan
Agent in writing. There is no penalty for non-participation or withdrawal from
the Plan, and shareholders who have previously withdrawn from the Plan may
rejoin at any time. Requests for additional information or any correspondence
concerning the Plan should be directed to the Plan Agent at:
Morgan Stanley Dean Witter High Yield Fund, Inc.
American Stock Transfer & Trust Company
Dividend Reinvestment and Cash Purchase Plan
40 Wall Street
New York, NY 10005
1-800-278-4353
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