<PAGE>
- --------------------------------------------------------------------------------
MORGAN STANLEY
DEAN WITTER
HIGH YIELD
FUND, INC.
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 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 William G. Morton, Jr.
OF DIRECTORS DIRECTOR
Michael F. Klein Stefanie V. Chang
PRESIDENT AND DIRECTOR VICE PRESIDENT
Peter J. Chase Harold J. Schaaff, Jr.
DIRECTOR VICE PRESIDENT
John W. Croghan Joseph P. Stadler
DIRECTOR VICE PRESIDENT
David B. Gill Mary E. Mullin
DIRECTOR SECRETARY
Graham E. Jones Belinda A. Brady
DIRECTOR TREASURER
John A. Levin Robin L. Conkey
DIRECTOR 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
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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.
<PAGE>
LETTER TO SHAREHOLDERS
- ----------------------
For the year ended December 31, 1999, the Morgan Stanley Dean Witter High Yield
Fund, Inc. (the "Fund") had a total return, based on net asset value per share,
of 6.34% compared to 3.28% for the CS First Boston High Yield Index (the
"Index"). For the period from the Fund's commencement of operations on November
30, 1993 through December 31, 1999, the Fund's total return, based on net asset
value per share, was 83.62% compared to 54.80% for the Index. On December 31,
1999, the closing price of the Fund's shares on the New York Stock Exchange was
$11 1/16, representing a 13.1% discount to the Fund's net asset value per share.
High yield bonds experienced a mixed year in 1999 but still managed to
outperform higher quality bonds for the year. Higher interest rates, Y2K fears
and higher default rates all caused the prices of most high yield bonds to fall
during the year. However, the high current income generated by the market
resulted in positive returns for the Index and enabled high yield bonds to
outperform treasuries and high quality corporate bonds.
The high yield market began the year with a rally in January, and it remained
fairly strong through April. The market then experienced difficulties for the
next six months as a large supply of new issues hit the market at the same time
that investors and dealers pulled away from the market due to Y2K concerns,
higher interest rates and an increase in defaults. Finally, the year ended with
a rally as investors returned to the market as Y2K fears diminished and default
rates leveled off.
Results relative to the Index were positively impacted by exposure to non-U.S.
issues and an overweighting in the telecommunications sector. Emerging markets
debt recovered well in 1999, experiencing the highest returns of any fixed
income asset class. The telecommunications sector was one of the best performing
sectors in the high yield market led by strong growth and a high level of merger
and investment activity. We also did a good job of avoiding problem credits
throughout the year. Negatively impacting our performance was our underweighting
of the energy and paper sectors, which performed well in 1999.
The Fund remains overweighted in the telecommunications and emerging market
sectors, where we continue to find the most value, and, to a lessor extent, in
the gaming and healthcare sectors. We have less-than-index exposure to the
consumer, media, commodity and cyclical sectors. We are also finding value in
securities of selected Western European issuers. As a result of our valuation
discipline, the Fund continues to maintain an average credit quality that is
higher than that of the Index, while the interest-rate sensitivity is close to
that of the Index.
Even with the rebound we saw in November and December, spreads on high yield
bonds still remain historically wide. We believe that the high-yield market is
undervalued at a time when the fundamental credit quality of most high-yield
issuers is quite strong and the U.S. and global economies continue to show
strength. Consequently, we believe the high yield market should perform well in
the near future, and we continue to find attractive investment opportunities in
this market using our strict valuation criteria.
Finally, the Fund completed its rights offering in late September and raised
approximately $30.9 million in net proceeds. With the cash raised from the
offering, we have been systematically buying for the Fund, adding to some of our
current positions and buying attractive new names, as well. The weak technical
factors in the market prior to the rights offering provided many attractive
opportunities in the marketplace. We have aggressively deployed the cash raised,
and are hopeful for a strong market in the months ahead.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
January 2000
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A
RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED.
- -------------------------------------------------------------------------------
DAILY NET ASSET AND MARKET VALUES, AS WELL AS MONTHLY PORTFOLIO INFORMATION
FOR THE FUND, ARE AVAILABLE ON OUR WEBSITE AT
www.mdsw.com/institutional/investmentmanagement.
2
<PAGE>
Morgan Stanley Dean Witter High Yield Fund, Inc.
Investment Summary as of December 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
- -----------------------------------------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3)
---------------------- ----------------------- -------------------------
ANNUAL ANNUAL ANNUAL
CUMULATIVE AVERAGE CUMULATIVE AVERAGE CUMULATIVE AVERAGE
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
One Year -18.14% -18.14% 6.34%+ 6.34%+ 3.28% 3.28%
Five Year 77.58 12.17 94.36+ 14.21+ 54.38 9.07
Since Inception* 48.75 6.74 83.62+ 10.50+ 54.80 7.44
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1993* 1994 1995 1996 1997 1998 1999
----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Morgan Stanley Dean Witter High Yeild Fund, Inc. (2)
CS First Boston High Yield Index (3)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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 $12.73
Market Value Per Share . . . . . . . $14.75 $11.38 $12.88 $14.63 $16.06 $15.38 $11.06
Premium/(Discount) . . . . . . . . . 4.6% -4.8% -5.5% 1.3% 5.7% 12.9% -13.1%
Income Dividends . . . . . . . . . . -- $ 1.37 $ 1.27 $ 1.42 $ 1.36 $ 1.42 $ 1.38
Capital Gains Distributions. . . . . -- -- -- -- $ 0.48 $ 0.83 --
Fund Total Return (2). . . . . . . . 0.00% -5.53% 26.07% 17.52% 18.48% 4.12% 6.34%+
Index Total Return (1)(3). . . . . . 1.26% -0.98% 17.39% 12.40% 12.65% 0.58% 3.28%
</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.
+ This return does not include the effect of the rights issued in connection
with the Rights offering.
3
<PAGE>
Morgan Stanley Dean Witter High Yield Fund, Inc.
Portfolio Summary as of December 31, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Debt Securities (96.5%)
Equity Securities (3.4%)
Short-Term Investments (0.1%)
</TABLE>
- --------------------------------------------------------------------------------
INDUSTRIES
[CHART]
<TABLE>
<S> <C>
Communications (24.7%)
Sovereign and Emerging Markets (10.5%)
Cable (8.4%)
Health Care (7.5%)
Gaming (6.7%)
Retail (6.5%)
General Industrial (6.3%)
Media & Entertainment (4.1%)
Packaging (3.8%)
Metals (3.7%)
Other (17.8%)
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
INVESTMENTS
- --------------------------------------------------------------------------------
<S> <C>
1. Columbia/HCA Healthcare 4.2%
2. Nextel Communications, Inc. 2.7
3. Aldelphia Communications 2.3
4. DR Securitized Lease Trust 2.2
5. RSL Communications Ltd. 2.2
6. Tenet Healthcare Corp. 2.1
7. Station Casinos, Inc. 2.0
8. Intermedia Communications, Inc. 1.9
9. Waste Management, Inc. 1.8
10. Chancellor Media Corp. 1.7
----
23.1%
----
----
</TABLE>
* Excludes short-term investments.
4
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS
(SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
- ---------
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS AND NOTES (84.5%)
- -------------------------------------------------------------------------------
CABLE (8.4%)
Adelphia Communications 'B'
7.75%, 1/15/09 U.S.$ 1,300 U.S.$ 1,165
(e,d)8.375%, 2/1/08 2,050 1,912
9.375%, 11/15/09 1,250 1,231
(e)9.875%, 3/1/07 200 203
CSC Holdings, Inc.
7.25%, 7/15/08 1,600 1,520
(d)9.875%, 5/15/06 1,470 1,547
(d)Lenfest Communications, Inc.
7.625%, 2/15/08 800 780
8.375%, 11/1/05 625 638
(b)NTL, Inc.
0.00%, 4/1/08 2,325 1,598
(b)NTL, Inc. 'B'
0.00%, 4/1/08 GBP 750 809
Rogers Cablesystems
10.125%, 9/1/12 U.S.$ 1,400 1,496
(b) Telewest Communication plc
0.00%, 4/15/09 GBP 2,100 2,105
(e)United Pan-Europe Communications NV
10.875%, 8/1/09 U.S.$ 1,400 1,414
-------------------
16,418
-------------------
- --------------------------------------------------------------------------------
CHEMICALS (2.6%)
(e)Huntsman ICI Chemicals
10.125%, 7/1/09 EUR 750 781
10.125%, 7/1/09 U.S.$ 750 774
(d)ISP Holdings, Inc. 'B'
9.00%, 10/15/03 2,450 2,413
(e)Lyondell Chemical Co.
9.625%, 5/1/07 1,000 1,023
-------------------
4,991
-------------------
- --------------------------------------------------------------------------------
COMMUNICATIONS (22.4%)
(e)American Cellular Corp.
10.50%, 5/15/08 1,355 1,494
(e)AMSC Acquisition Co., Inc. 'B'
12.25%, 4/1/08 1,810 1,421
(e)Centennial Cellular
10.75%, 12/15/08 1,755 1,878
(d,e)Dobson Communications Corp.
11.75%, 4/15/07 1,045 1,207
(b) Dolphin Telecommunications plc
0.00%, 6/1/08 EUR 1,520 759
(e) 0.00%, 5/15/09 U.S.$ 2,000 930
Espirit Telecom Group 'DM'
11.50%, 12/15/07 EUR 665 684
(d)Global Crossing Holdings Ltd.
9.625%, 5/15/08 U.S.$ 1,720 1,716
(d)Globalstar LP
11.375%, 2/15/04 U.S.$ 1,050 U.S.$ 693
Hermes Europe Railtel B.V.
10.375%, 1/15/09 1,125 1,114
11.50%, 8/15/07 945 973
(b,d,e)Hyperion Telecommunications, Inc.
0.00%, 4/15/03 1,580 1,404
(b,d,e)Intermedia Communications, Inc. 'B'
0.00%, 7/15/07 4,860 3,621
(c) Iridium LLC/Capital Corp. 'A'
13.00%, 7/15/05 1,650 74
(d,e)Metromedia Fiber Network
10.00%, 12/15/09 EUR 1,550 1,618
Nextel Communications, Inc.
(b,d,e)0.00%, 9/15/07 U.S.$ 6,125 4,594
(b,e)0.00%, 2/15/08 500 352
(f) 9.75%, 8/15/04 315 324
NEXTLINK Communications, Inc.
(b) 0.00%, 4/15/08 3,050 1,998
(d)10.75%, 11/15/08 225 232
(d,e)Primus Telecommunications Group, Inc.
11.25%, 1/5/09 1,500 1,451
(e)Primus Telecommunications Group, Inc. 'B'
9.875%, 5/15/08 1,000 920
(d,e)PSINet, Inc.
11.00%, 8/1/09 960 979
(e)PSINet, Inc. 'B'
10.00%, 2/15/05 960 950
(b,d)RCN Corp.
0.00%, 10/15/07 3,200 2,280
(b,e)Rhythms NetConnections, Inc. 'B'
0.00%, 5/15/08 1,785 964
(b,e)RSL Communications Ltd.
0.00%, 3/15/08 EUR 1,380 884
(e)RSL Communications Plc
(b)0.00%, 3/1/08 U.S.$ 1,500 922
9.125%, 3/1/08 1,700 1,513
12.00%, 11/1/08 900 909
12.25%, 11/15/06 88 90
(e)Tele1 Europe B.V.
13.00%, 5/15/09 1,910 1,982
(b,d)Viatel, Inc.
0.00%, 4/15/08 1,800 1,134
(e)Voicestream Wire Co.
10.375%, 11/15/09 565 582
(b) WAM! Net, Inc. 'B'
0.00%, 3/1/05 1,875 1,125
-------------------
43,771
-------------------
- --------------------------------------------------------------------------------
ENERGY (2.3%)
(b) Husky Oil Ltd.
8.90%, 8/15/28 1,175 1,107
(e)Paiton Energy Funding B.V.
9.34%, 2/15/14 1,260 252
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
ENERGY (CONTINUED)
(d)Snyder Oil Corp.
8.75%, 6/15/07 U.S.$ 2,200 U.S.$ 2,195
Vintage Petroleum, Inc.
8.625%, 2/1/09 185 179
(d,e)9.75%, 6/30/09 775 794
-------------------
4,527
-------------------
- -------------------------------------------------------------------------------
FINANCIAL (0.5%)
Golden State Holdings
7.125%, 8/1/05 1,185 1,056
-------------------
- -------------------------------------------------------------------------------
FOOD AND BEVERAGE (0.8%)
Smithfield Foods, Inc.
7.625%, 2/15/08 1,700 1,530
-------------------
- -------------------------------------------------------------------------------
GAMING (6.7%)
(d)Harrahs Operating Co., Inc.
7.875%, 12/15/05 3,000 2,887
(d,e)Horseshoe Gaming Holding
8.625%, 5/15/09 2,060 1,978
(d,e)International Game Technology
8.375%, 5/15/09 2,400 2,300
(d)Park Place Entertainment
7.875%, 12/15/05 2,200 2,095
Station Casinos, Inc.
8.875%, 12/1/08 600 578
(d,e)10.125%, 3/15/06 3,200 3,260
-------------------
13,098
-------------------
- -------------------------------------------------------------------------------
GENERAL INDUSTRIAL (6.3%)
Applied Power, Inc.
8.75%, 4/1/09 670 652
Axia, Inc.
10.75%, 7/15/08 585 537
(d,e)Hayes Lemmerz International, Inc.
8.25%, 12/15/08 2,850 2,617
(d) Norcal Waste Systems, Inc.
13.50%, 11/15/05 1,655 1,754
(d)Sequa Corp.
9.00%, 8/1/09 1,340 1,296
(e)Tenneco Automotive, Inc.
11.625%, 10/15/09 1,950 1,989
Waste Management, Inc.
(e)6.875%, 5/15/09 180 152
7.00%, 10/15/06 2,100 1,857
7.125%, 10/1/07 960 840
7.125%, 12/15/17 350 275
7.65%, 3/15/11 375 324
-------------------
12,293
-------------------
- -------------------------------------------------------------------------------
HEALTH CARE (7.5%)
(d)Columbia/HCA Healthcare
6.91%, 6/15/05 U.S.$ 5,190 U.S.$ 4,726
7.00%, 7/1/07 2,025 1,799
7.58%, 9/15/25 2,120 1,715
Fresenius Medical Capital Trust II
7.875%, 2/1/08 1,860 1,725
(e)Sirona Dental Systems
9.125%, 7/15/08 EUR 844 655
(d)Tenet Healthcare Corp.
8.625%, 1/15/07 U.S.$ 2,100 2,027
(d,e)Tenet Healthcare Corp. 'B'
8.125%, 12/1/08 2,150 2,010
-------------------
14,657
-------------------
- -------------------------------------------------------------------------------
HOTELS/LODGING/RESTAURANTS (3.0% )
Hilton Hotels
7.95%, 4/15/07 3,000 2,820
(d)HMH Properties 'A'
7.875%, 8/1/05 3,130 2,911
(e)Host Marriott LP
8.375%, 2/15/06 250 234
-------------------
5,965
-------------------
- -------------------------------------------------------------------------------
MEDIA & ENTERTAINMENT (3.5%)
Chancellor Media Corp.
9.00%, 10/1/08 925 960
(d,e)Chancellor Media Corp. 'B'
8.125%, 12/15/07 2,420 2,408
(d,e)Echostar Dbs Corp.
9.375%, 2/1/09 1,900 1,906
(d)Outdoor Systems, Inc.
8.875%, 6/15/07 1,480 1,532
-------------------
6,806
-------------------
- -------------------------------------------------------------------------------
METALS (3.7%)
Glencore Nickel Property Ltd.
9.00%, 12/1/14 515 439
(e)Impress Metal Packaging
9.875%, 5/29/07 EUR 1,406 1,368
9.875%, 5/29/07 205 199
(e)Murrin Murrin Holdings Property Ltd.
9.375%, 8/31/07 U.S.$ 2,600 2,327
(d,e)National Steel Corp. 'D'
9.875%, 3/1/09 2,425 2,492
(e)Republic Technology Capital
13.75%, 7/15/09 500 330
-------------------
7,155
-------------------
- -------------------------------------------------------------------------------
PACKAGING (3.8%)
(d)Norampac, Inc.
9.50%, 2/1/08 2,080 2,132
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
PACKAGING (CONTINUED)
(e)Pacifica Papers, Inc.
10.00%, 3/15/09 U.S.$ 2,065 U.S.$ 2,127
(d)SD Warren Co. 'B'
12.00%, 12/15/04 2,235 2,338
Tembec Industries, Inc.
8.625%, 6/30/09 830 832
-------------------
7,429
-------------------
- -------------------------------------------------------------------------------
REAL ESTATE/BUILDING (2.6%)
American Standard Cos., Inc.
7.125%, 6/1/06 EUR 1,105 1,111
7.375%, 2/1/08 U.S.$ 750 685
(d)D.R. Horton, Inc.
8.00%, 2/1/09 1,490 1,371
(e)Nortek, Inc.
8.875%, 8/1/08 2,075 1,982
-------------------
5,149
-------------------
- -------------------------------------------------------------------------------
RETAIL (6.1%)
(e)CA FM Lease Trust
8.50%, 7/15/17 1,372 1,276
DR Securitized Lease Trust
6.66%, 8/15/10 1,250 1,090
7.60%, 8/15/07 3,006 2,816
9.35%, 8/15/19 500 457
(e)HMV Media Group plc
10.25%, 5/15/08 345 304
(e)HMV Media Group plc 'B'
10.875%, 5/15/08 GBP 1,035 1,538
Musicland Group, Inc.
9.00%, 6/15/03 U.S.$ 590 569
(d)Musicland Group, Inc. 'B'
9.875%, 3/15/08 2,400 2,184
Stater Bros Hldgs
10.75%, 8/15/06 1,750 1,768
-------------------
12,002
-------------------
- -------------------------------------------------------------------------------
TRANSPORTATION (2.3%)
(e)Aircraft Lease Portfolio Securitization Ltd.
1996-1 P1D
12.75%, 6/15/06 1,526 1,526
(e)Jet Equipment Trust 'C1'
11.79%, 6/15/13 1,500 1,728
(e)Jet Equipment Trust 'D-95'
11.44%, 11/1/14 1,100 1,249
-------------------
4,503
-------------------
- -------------------------------------------------------------------------------
UTILITIES (2.0%)
(d)AES Corp.
8.50%, 11/1/07 U.S.$ 1,800 U.S.$ 1,683
(d)CMS Energy Corp.
7.50%, 1/15/09 1,510 1,377
(e)RAS Laffan Liquid Natural Gas
8.294%, 3/15/14 855 806
-------------------
3,866
-------------------
- -------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $169,551) 165,216
-------------------
- -------------------------------------------------------------------------------
ASSET BACKED SECURITIES (0.9%)
(e)Long Beach Auto 1997-1, 'B'
14.22%, 10/26/03 740 730
(e)OHA Auto Grantor Trust 1997-1, 'B'
11.00%, 9/15/03 1,034 989
- -------------------------------------------------------------------------------
TOTAL ASSET BACKED SECURITIES
(Cost $1,784) 1,719
-------------------
- -------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS (0.7%)
(e)DLJ Mortgage Acceptance Corp.
1997-CF2 S IO 0.357%, 10/15/30 32,245 633
Federal Home Mortgage Acceptance Corp.,
7.929%, 11/1/18 1,312 460
GMAC Commercial Mortgage Securities, Inc.
1996-C1 X2 IO 1.967%, 3/15/21 5,943 354
- -------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $2,452) 1,447
-------------------
- -------------------------------------------------------------------------------
SOVEREIGN & EMERGING MARKETS (10.4%)
(e)Bayan Telecommunications
13.50%, 7/15/06 1,875 1,650
(e)Cablevison SA
13.75%, 5/1/09 750 735
Cellco Finance NV
12.75%, 8/1/05 900 931
(b) CTI Holdings
0.00%, 4/15/08 2,750 1,595
Federative Republic of Brazil 'C' Bond PIK
8.00%, 4/15/14 1,831 1,368
(d)Indah Kiat Finance
10.00%, 7/1/07 1,950 1,443
(d)Multicanal
10.50%, 2/1/07 1,705 1,473
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
SOVEREIGN & EMERGING MARKETS (CONTINUED)
(c,e,g)NSM Steel, Inc.
12.25%, 2/1/08 U.S.$ 825 U.S.$ 1
(e)Nuevo Grupo Iusacell SA
14.25%, 12/1/06 1,200 1,248
(e)PTC International Finance B.V.
11.25%, 12/1/09 EUR 1,290 1,340
(b)Occidente y Caribe
0.00%, 3/15/04 U.S.$ 3,125 1,562
(d,e)Pindo Deli Finance (Mauritius)
10.75%, 10/1/07 1,955 1,437
(e)Satelites Mexicanos 'B'
10.125%, 11/1/04 940 639
(d)Republic of Columbia
9.75%, 4/23/09 930 864
(d,e)TV Azetca `B'
10.50%, 2/15/07 3,500 3,027
United Mexican States
6.25%, 12/31/19 500 394
United Mexican States Par
Bond 'W-A'
6.25%, 12/31/19 770 607
- -------------------------------------------------------------------------------
TOTAL SOVEREIGN & EMERGING MARKETS
(Cost $22,839) 20,314
-------------------
- -------------------------------------------------------------------------------
SHARES
- -------------------------------------------------------------------------------
PREFERRED STOCK (3.0%)
- -------------------------------------------------------------------------------
COMMUNICATIONS (2.0%)
(e)Concentric Communications Corp.,
PIK 13.50% 9,379 929
(e)Dobson Communications Corp.,
PIK 13.00% 10,222 1,114
IXC Communications, Inc.'B',
PIK 12.50% 1,409 1,564
Nextel Communications, Inc. 'D',
PIK 13.00% 250 270
-------------------
3,877
-------------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
MEDIA & ENTERTAINMENT (0.6%)
Paxson Communications Corp., PIK
13.25% 11,931 U.S.$ 1,220
-------------------
- -------------------------------------------------------------------------------
RETAIL (0.4%)
Kmart Financing, 7.75% 16,150 712
-------------------
- -------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost $4,755) 5,809
-------------------
- -------------------------------------------------------------------------------
NO. OF
WARRANTS
- -------------------------------------------------------------------------------
WARRANTS (0.4%)
- -------------------------------------------------------------------------------
COMMUNICATIONS(0.3%)
(a,e)American Mobile Satellite
Corp., expiring 4/1/08 17,250 69
(a,e) Globalstar Telecom, expiring
2/15/04 1,000 150
(a,e)Iridium World Communications,
Inc., expiring 7/15/05 840 -- @
(a,e)Tele1 Europe B.V., expiring 5/15/09 19,100 325
-------------------
544
-------------------
- -------------------------------------------------------------------------------
SOVEREIGN AND EMERGING MARKETS (0.1%)
(a,e,g)NSM Steel, Inc., expiring 2/1/08 5,223,013 5
(a,e)Occidente y Caribe, expiring
3/15/04 125,000 188
-------------------
193
-------------------
- -------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost $54) 737
-------------------
- -------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (0.1%)
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Chase Securities, Inc., 2.60%, dated
12/31/99, due 1/3/00, to be
repurchased at U.S.$254,
collateralized
by U.S.$260 United States
Treasury Note, 6.125%,
due 12/31/01, valued at U.S.
$259 U.
(Cost U.S. $254) S.$ 254 254
-------------------
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
(000) (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (100.0%)
(Cost $201,689) U.S.$195,496
------------
- ----------------------------------------------------------------------------
OTHER ASSETS
Interest Receivable U.S.$ 4,584
Due from Broker 176
Net Unrealized Gain on
Foreign Currency Exchange
Contracts 92
Foreign Withholding Tax
Reclaim Receivable 13
Other Assets 6 4,871
--------- ------------
- ----------------------------------------------------------------------------
LIABILITIES
Payable For:
Reverse Repurchase Agreements (51,421)
Dividends Declared (1,330)
Investment Advisory Fees (88)
Directors' Fees and Expenses (63)
Bank Overdraft (54)
Professional Fees (49)
Shareholder Reporting
Expenses (37)
Administrative Fees (13)
Custodian Fees (8)
Other Liabilities (15) (53,078)
--------- ------------
- ----------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 11,568,696, issued and
outstanding U.S.$0.01 par value shares
(100,000,000 shares authorized) U.S.$ 147,289
-------------
-------------
- ----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 12.73
-------------
-------------
- ----------------------------------------------------------------------------
AT DECEMBER 31, 1999, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------
Common Stock U.S.$ 116
Capital Surplus 155,100
Distributions in Excess of Net Investment
Income (112)
Accumulated Net Realized Loss (1,708)
Unrealized Depreciation on Investments,
Futures and Foreign Currency Translations (6,107)
- ----------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 147,289
-------------
-------------
</TABLE>
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
(a) -- Non-income producing
(b) -- Step Bond -- coupon rate increases in increments to maturity. Rate
disclosed is as of December 31, 1999. Maturity date disclosed is
the ultimate maturity.
(c) -- Security is in default.
(d) -- Denotes all or a portion of securities subject to repurchase
under Reverse Repurchase Agreements as of December 31, 1999 -- see
note A-4 to financial statements.
(e) -- 144A Security -- certain conditions for public sale may exist.
(f) -- Denotes all or a portion of these securities was pledged to cover
margin requirements for futures contracts.
(g) -- Security valued at fair value -- see note A-1 to financial
statements.
@ -- Value is less than U.S. $500.
IO -- Interest Only.
PIK -- Payment-in-Kind. Income may be paid in additional securities or cash
at the discretion of the issuer.
- -------------------------------------------------------------------------------
DECEMBER 31, 1999 EXCHANGE RATES:
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
EUR Euro 0.992 = U.S.$1.00
GBP British Pound 0.619 = U.S.$1.00
</TABLE>
- --------------------------------------------------------------------------------
FUTURES CONTRACTS:
At December 31, 1999, the following futures contracts were open:
<TABLE>
<CAPTION>
NET
NUMBER NOTIONAL UNREALIZED
OF VALUE EXPIRATION GAIN
CONTRACTS (000) DATE (000)
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
SHORT:
Long Gilt 24 U.S.$ 4,343 Mar-00 U.S.$108
----- --------
----- --------
</TABLE>
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open
at December 31, 1999, the Fund is obligated to deliver foreign
currency in exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
NET
CURRENCY IN UNREALIZED
TO EXCHANGE GAIN
DELIVER VALUE SETTLEMENT FOR VALUE (LOSS)
(000) (000) DATE (000) (000) (000)
- ---------- -------------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
EUR 760 U.S.$ 768 01/26/00 U.S.$ 788 U.S.$ 788 U.S.$ 20
EUR 425 429 01/26/00 438 438 9
EUR 2,520 2,547 01/31/00 2,577 2,577 30
EUR 2,655 2,684 01/31/00 2,715 2,715 31
EUR 2,290 2,315 01/31/00 2,340 2,340 25
EUR 255 258 01/31/00 262 262 4
GBP 2,510 4,054 02/03/00 4,011 4,011 (43)
EUR 620 627 02/10/00 637 637 10
GBP 470 759 02/10/00 765 765 6
------------ ----------- ----------
U.S.$ 14,441 U.S.$14,533 U.S.$ 92
------------ ----------- ----------
------------ ----------- ----------
- -----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
STATEMENT OF OPERATIONS (000)
- ------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C>
Interest .............................................................. U.S.$ 15,711
Dividends ............................................................. 9
- ------------------------------------------------------------------------------------------------
Total Income ........................................................ 15,720
- ------------------------------------------------------------------------------------------------
EXPENSES
Interest Expense on Borrowings ........................................ 2,408
Investment Advisory Fees .............................................. 883
Administrative Fees ................................................... 173
Professional Fees ..................................................... 97
Shareholder Reporting Expenses ........................................ 80
Directors' Fees and Expenses .......................................... 37
Transfer Agent Fees ................................................... 27
Custodian Fees ........................................................ 25
Other Expenses ........................................................ 58
- ------------------------------------------------------------------------------------------------
Total Expenses ...................................................... 3,788
- ------------------------------------------------------------------------------------------------
Net Investment Income ............................................. 11,932
- ------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold ............................................ (1,050)
Foreign Currency Transactions ......................................... 1,122
Futures Contracts ..................................................... 110
- ------------------------------------------------------------------------------------------------
Net Realized Gain ................................................... 182
- ------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Depreciation on Investments ........................................... (3,380)
Appreciation on Foreign Currency Translations ......................... 16
Appreciation on Futures Contracts ..................................... 140
- ------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation ...................... (3,224)
- ------------------------------------------------------------------------------------------------
Net Realized Gain and Change in Unrealized Appreciation/Depreciation ..... (3,042)
- ------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................. U.S.$ 8,890
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income ...................................................... U.S.$ 11,932 U.S.$ 11,817
Net Realized Gain .......................................................... 182 6,280
Change in Unrealized Appreciation/Depreciation ............................. (3,224) (12,066)
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations ....................... 8,890 6,031
- ---------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income ...................................................... (13,027) (12,267)
In Excess of Net Investment Income ......................................... (112) (198)
Net Realized Gain .......................................................... -- (6,732)
In Excess of Net Realized Gain ............................................. -- (597)
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions ........................................................ (13,139) (19,794)
- ---------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Reinvestment of Distributions (48,132 and 42,301 shares, respectively) ..... 658 653
Common Stock Issued Through Rights Offering (2,720,275 and 0 shares,
respectively) .............................................................. 31,304 --
Offering Costs ............................................................. (364) --
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Capital Share Transactions ....... 31,598 653
- ---------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) .................................................. 27,349 (13,110)
Net Assets:
Beginning of Period ........................................................ 119,940 133,050
- ---------------------------------------------------------------------------------------------------------------------------
End of Period (including distributions in excess of net investment income of
U.S.$(112) and U.S.$(198), respectively) ................................. U.S.$ 147,289 U.S.$ 119,940
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
STATEMENT OF CASH FLOWS (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM INVESTING AND OPERATING ACTIVITIES:
Proceeds from Sales of Investments ......................................... U.S.$ 65,521
Purchases of Investments ................................................... (118,005)
Net Decrease in Short-Term Investments ..................................... 2,602
Net Realized Gain for Foreign Currency Transactions ........................ 1,122
Investment Income .......................................................... 11,776
Interest Expense Paid ...................................................... (1,727)
Operating Expenses Paid .................................................... (1,343)
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing and Operating Activities ........................ (40,054)
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Portfolio Share Transactions (net of offering cost of U.S. $364) 30,940
Net Cash Received for Reverse Repurchase Agreements ........................ 28,811
Cash Dividends and Distributions Paid (net of reinvestment of U S.$658) (19,798)
Net Cash Received from Bank ................................................ 54
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided for Financing Activities ................................. 40,007
- ---------------------------------------------------------------------------------------------------------------------------
Net Decrease in Cash ....................................................... (47)
CASH AT BEGINNING OF PERIOD ................................................... 47
- ---------------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD ......................................................... U.S.$ --
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY INVESTING AND OPERATING ACTIVITIES:
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income ...................................................... U.S.$ 11,932
Proceeds from Sales of Investments ......................................... 65,521
Purchases of Investments ................................................... (118,005)
Net Decrease in Short-Term Investments ..................................... 2,602
Net Realized Gain for Foreign Currency Transactions ........................ 1,122
Net Increase in Receivables Related to Operations .......................... (1,333)
Net Increase in Payables Related to Operations ............................. 717
Accretion/Amortization of Discounts and Premiums ........................... (2,610)
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing and Operating Activities ........................ U.S.$ (40,054)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS: 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD U.S.$ 13.62 U.S.$ 15.19 U.S.$ 14.45 U.S.$ 13.63 U.S.$ 11.96
- ------------------------------------------------------------------------------------------------------------------------------------
Offering Costs ................................... (0.03) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income ............................ 1.28 1.34 1.37 1.35 1.34
Net Realized and Unrealized Gain (Loss) on
Investments ..................................... (0.44) (0.66) 1.21 0.89 1.60
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations ............. 0.84 0.68 2.58 2.24 2.94
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income .......................... (1.37) (1.40) (1.36) (1.42) (1.27)
In Excess of Net Investment Income ............. (0.01) (0.02) -- -- --
Net Realized Gain .............................. -- (0.76) (0.48) -- --
In Excess of Net Realized Gain ................. -- (0.07) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions .......................... (1.38) (2.25) (1.84) (1.42) (1.27)
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease in Net Asset Value due to Shares
Issued through Rights Offering .................. (0.32) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ...................U.S.$ 12.73 U.S.$13.62 U.S.$ 15.19 U.S.$ 14.45 U.S.$ 13.63
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD ............U.S.$ 11.06 U.S.$15.38 U.S.$ 14.63 U.S.$ 14.63 U.S.$ 12.88
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value ................................... (18.14)%+ 11.15% 23.79% 25.92% 25.21%
Net Asset Value (1) ............................ 6.34%+ 4.12% 18.48% 17.52% 26.07%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS) ............U.S.$147,289 U.S.$119,940 U.S.$133,050 U.S.$126,330 U.S.$118,863
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets .......... 2.99% 2.23% 2.76% 2.46% 2.79%
Ratio of Expenses Excluding Interest
Expense to Average
Net Assets ..................................... 1.09% 1.10% 1.06% 1.12% 1.11%
Ratio of Net Investment Income to
Average Net Assets ............................. 9.43% 9.00% 8.98% 9.82% 10.29%
Portfolio Turnover Rate .......................... 40% 78% 94% 136% 84%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ This return does not include the effect of the rights issued in connection
with the Rights offering.
(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
DECEMBER 31, 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. The prices provided by a pricing
service take into account broker dealer market price quotations for
institutional size trading in similar groups of securities, security
quality, maturity, coupon and other security characteristics as well as any
developments related to the specific securities. Short-term securities
which mature in 60 days or less are valued at amortized cost. All other
securities and assets for which market values are not readily available
(including investments which are subject to limitations as to their sale)
are valued at fair value as determined in good faith under procedures
approved by the Board of Directors, although the actual calculations may be
done by others.
2. TAXES: It is the Fund's intention to continue to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly,
no provision for U.S. Federal income taxes is required in the financial
statements.
The Fund may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on either income earned or repatriated. The
Fund accrues such taxes when the related income is earned.
3. REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements under
which the Fund lends excess cash and takes possession of securities with an
agreement that the counterparty will repurchase such securities. In
connection with transactions in repurchase agreements, a bank as custodian
for the Fund takes possession of the underlying securities (collateral),
with a market value at least equal to the amount of the repurchase
transaction, including principal and accrued interest. To the extent that
any repurchase transaction exceeds one business day, the value of the
collateral is marked-to-market on a daily basis to determine the adequacy
of the collateral. In the event of default on the obligation to repurchase,
the Fund has the right to liquidate the collateral and apply the proceeds
in satisfaction of the obligation. In the event of default or bankruptcy by
the counterparty to the agreement, realization and/or retention of the
collateral or proceeds may be subject to legal proceedings.
4. REVERSE REPURCHASE AGREEMENTS: The Fund may enter into reverse repurchase
agreements with institutions that the Fund's investment adviser has
determined are creditworthy. Under a reverse repurchase agreement, the Fund
sells securities and agrees to repurchase them at a mutually agreed upon
date and price. Reverse repurchase agreements involve the risk that the
market value of the securities purchased with the proceeds from the sale of
securities received by the Fund may decline below the price of the
securities the Fund is obligated to repurchase. Reverse repurchase
agreements also involve credit risk with the counterparty to the extent
that the value of securities subject to repurchase exceed the Fund's
liability under the reverse repurchase agreement. Securities subject to
repurchase under reverse repurchase agreements are designated as such in
the Statement of Net Assets.
At December 31, 1999, the Fund had reverse repurchase agreements
outstanding with Salomon Smith Barney as follows:
<TABLE>
<CAPTION>
MATURITY IN
LESS THAN
365 DAYS
-----------
<S> <C>
Value of Securities Subject to
Repurchase........................ $ 69,339,000
Liability Under Reverse
Repurchase Agreement.............. $ 51,421,000
Interest Rate...................... 6.67%
</TABLE>
The average weekly balance of reverse repurchase agreements outstanding
during the year ended Decemeber 31, 1999 was approximately $37,954,000 at a
weighted average interest rate of 6.60%.
13
<PAGE>
5. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars at the mean of the bid and asked prices of such currencies
against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities - at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income - at the prevailing
rates of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the period, the Fund does not
isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of the securities held at period end.
Similarly, the Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market
prices of securities sold during the period. Accordingly, realized and
unrealized foreign currency gains (losses) due to securities transactions
are included in the reported net realized and unrealized gains (losses) on
investment transactions and balances.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of foreign
currency exchange contracts, disposition of foreign currencies, currency
gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid. Net
unrealized currency gains (losses) from valuing foreign currency
denominated assets and liabilities at period end exchange rates are
reflected as a component of unrealized appreciation (depreciation) on
investments and foreign currency translations in the Statement of Net
Assets. The change in net unrealized currency gains (losses) on foreign
currency translations for the period is reflected in the Statement of
Operations.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S. dollar
denominated transactions as a result of, among other factors, the
possibility of lower levels of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
The Fund may use derivatives to achieve its investment objectives. The Fund may
engage in transactions in futures contracts on foreign currencies, stock
indices, as well as in options, swaps and structured notes. Consistent with the
Fund's investment objectives and policies, the Fund may use derivatives for
non-hedging as well as hedging purposes.
Following is a description of derivative instruments that the Fund may utilize
and their associated risks:
6. 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. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES:The Fund
may make forward commitments to purchase or sell securities. Payment and
delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not to exceed 120 days)
after the date of the transaction. Additionally, the Fund may purchase
securities on a when-issued or delayed delivery basis. Securities purchased
on a when-issued or delayed delivery basis are purchased for delivery
beyond the normal settlement date at a stated price and yield, and no
income accrues to the Fund on such securities prior to delivery. When the
Fund enters into a purchase transaction on a when-issued or delayed
delivery basis, it either establishes a segregated account in which it
maintains liquid assets in an amount at least equal in value to the Fund's
commitments to purchase such securities or denotes such assets as
segragated on the Fund's records. Purchasing securities on a forward
commitment or when-issued or delayed-delivery basis may involve a risk that
the market price at the time of delivery may be lower than the agreed upon
purchase price, in which case there could be an unrealized loss at the time
of delivery.
14
<PAGE>
8. SWAP AGREEMENTS: The Fund may enter into swap agreements to exchange the
return generated by one security, instrument or basket of instruments for
the return generated by another security, instrument or basket of
instruments. The following summarizes swaps which may be entered into by
the Fund:
INTEREST RATE SWAPS: Interest rate swaps involve the exchange of
commitments to pay and receive interest based on a notional principal
amount. Net periodic interest payments to be received or paid are accrued
daily and are recorded in the Statement of Operations as an adjustment to
interest income. Interest rate swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized appreciation or depreciation in the Statement of Operations.
TOTAL RETURN SWAPS: Total return swaps involve commitments to pay
interest in exchange for a market-linked return based on a notional amount.
To the extent the total return of the security, instrument or basket of
instruments underlying the transaction exceeds or falls short of the
offsetting interest obligation, the Fund will receive a payment from or
make a payment to the counterparty, respectively. Total return swaps are
marked-to-market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gains or losses in the Statement
of Operations. Periodic payments received or made at the end of each
measurement period, but prior to termination, are recorded as realized
gains or losses in the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and
total return swaps are presented in the Statement of Operations. Because
there is no organized market for these swap agreements, the value reported
in the Statement of Net Assets may differ from that which would be realized
in the event the Fund terminated its position in the agreement. Risks may
arise upon entering into these agreements from the potential inability of
the counterparties to meet the terms of the agreements and are generally
limited to the amount of net interest payments to be received and/or
favorable movements in the value of the underlying security, instrument or
basket of instruments, if any, at the date of default.
Risks also arise from potential losses from adverse market movements, and
such losses could exceed the related amounts shown in the Statement of Net
Assets.
9. 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.
10. FUTURES: The Fund may purchase and sell futures contracts. Futures
contracts provide for the sale by one party and purchase by another party
of a specified amount of a specified security, index, instrument or basket
of instruments. Futures contracts (secured by cash or government securities
deposited with brokers or custodians as "initial margin") are valued based
upon their quoted daily settlement prices; changes in initial settlement
value (represented by cash paid to or received from brokers as "variation
margin") are accounted for as unrealized appreciation (depreciation). When
futures contracts are closed, the difference between the opening value at
the date of purchase and the value at closing is recorded as realized gains
or losses in the Statement of Operations.
The Fund may use futures contracts in order to manage exposure to the stock
and bond markets, to hedge against unfavorable changes in the value of
securities or to remain fully invested and to reduce transaction costs.
Futures contract involve market risk in excess of the amounts recognized in
the Statement of Net Assets. Risks arise from the possible movements in
security values underlying these instruments. The change in value of
futures contracts primarily corresponds with the value of their underlying
instruments, which may not correlate with the change in value of the hedged
investments. In addition, there is the risk that the Fund may not be able
to enter into a closing transaction because of an illiquid secondary
market.
11. OVER-THE-COUNTER TRADING: Securities and other derivative instruments that
may be purchased or sold by the Fund are expected to regularly consist of
instruments not traded on an exchange. The risk of nonperformance by the
obligor on such an instrument may be greater, and the ease with which the
Fund can dispose of or enter into closing transactions with respect to such
an instrument may be less than in the case of an exchange-traded
instrument. In addition, significant disparities may exist between bid and
asked prices for derivative instruments that are not traded on an exchange.
Derivative instruments not traded on exchanges are also not subject to the
same type of government regulation as exchange traded in-
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struments, and many of the protections afforded to participants in a
regulated environment may not be available in connection with such
transactions.
The Fund did not invest in Swap Agreements or Structured Securities or
participate in Over-the-Counter Trading during the year ended December 31, 1999.
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 by the Fund are determined in accordance with Federal income tax
regulations, which may differ from generally accepted accounting
principles. The book/tax differences are either considered temporary or
permanent in nature.
Temporary differences are attributable to differing book and tax treatments
for the timing of the recognition of gains and losses on certain investment
transactions and the timing of the deductibility of certain expenses.
Permanent book and tax basis differences may result in reclassifications
among undistributed net investment income (loss), accumulated net realized
gain (loss) and paid in capital.
Adjustments for permanent book- tax differences, if any, are not reflected
in ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
B. Morgan Stanley Dean Witter Investment Management Inc. (the "Adviser")
provides investment advisory services to the Fund under the terms of an
Investment Advisory 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 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 year ended December 31, 1999, the Fund made purchases and sales
totaling, approximately $117,755,000 and $63,744,000, respectively, of
investment securities other than long-term U.S. Government securities and short-
term investments. There were no purchases or sales of long-term U.S. Government
securities. At December 31, 1999, the Federal income tax cost basis of
securities was $201,753,000 and, accordingly, net unrealized depreciation for
Federal income tax purposes was $6,257,000 of which $4,286,000 related to
appreciated securities and $10,543,000 related to depreciated securities. At
December 31, 1999, the Fund had a capital loss carryforward for U.S. Federal
income tax purposes of approximately $1,337,000 available to offset future
capital gains which will expire on December 31, 2007. To the extent that capital
loss carryforwards are used to offset any future capital gains realized during
the carryforward period as provided by U.S. Federal income tax regulations, no
capital gains tax liability will be incurred by the Fund for gains realized and
not distributed. To the extent that capital gains are offset, such gains will
not be distributed to the shareholders. For the year ended December 31, 1999,
the Fund intends to elect to defer to January 1, 2000, for U.S. Federal income
tax purposes, post-October capital losses of $306,000.
F. 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. The Fund issued to its shareholders of record as of the close of business on
August 23, 1999 non-transferable Rights to subscribe for up to an aggregate of
2,960,000 shares of Common Stock of the Fund at a rate of one share of Common
Stock for three Rights held. During October 1999, the Fund issued a total of
2,720,275 shares of Common Stock on exercise of such Rights at the subscription
price of $11.71 per share, compared to a net asset value per share of $12.97 and
a market value per share of $12.38. Additionally, a sales load of $0.20 has been
charged to each share issued. Rights' offering costs of $364,000 were charged
directly against the proceeds of the Rights Offering.
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<PAGE>
H. Each Director of the Fund who is not an officer of the Fund or an affiliated
person as defined under the Investment Company Act of 1940, as amended, may
elect to participate in the Directors' Deferred Compensation Plan (the "Plan").
Under the Plan, such Directors may elect to defer payment of a percentage of
their total fees earned as a Director of the Fund. These deferred portions are
treated, based on an election by the Director, as if they were either invested
in the Fund's shares or invested in U.S. Treasury Bills, as defined under the
Plan. At December 31, 1999, the deferred fees payable, under the Plan, totaled
approximately $63,000 and are included in Payable for Directors' Fees and
Expenses on the Statement of Net Assets.
I. During December 1999, the Board of Directors declared a distribution of
$0.115 per share, derived from net investment income, payable on January 14,
2000, to shareholders of record on December 21, 1999.
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REPORT OF INDEPENDENT ACCOUNTANTS
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To the Shareholders and Board of Directors of
Morgan Stanley Dean Witter High Yield Fund, Inc.
(formerly, The Morgan Stanley High Yield Fund, Inc.)
In our opinion, the accompanying statement of net assets and the related
statements of operations, of changes in net assets and of cash flows and the
financial highlights present fairly, in all material respects, the financial
position of Morgan Stanley Dean Witter High Yield Fund, Inc. (the "Fund") at
December 31, 1999, the results of its operations and its cash flows for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 18, 2000
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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. If the market price per share equals or exceeds net asset
value per share on the reinvestment date, the Fund will issue shares to
participants at net asset value. If net asset value is less than 95% of the
market price on the reinvestment date, shares will be issued at 95% of the
market price. If net asset value exceeds the market price on the reinvestment
date, participants will receive shares valued at market price. The Fund may
purchase shares of its Common Stock in the open market in connection with
dividend reinvestment requirements at the discretion of the Board of Directors.
Should the Fund declare a dividend or capital gain distribution payable only in
cash, the Plan Agent will purchase Fund shares for participants in the open
market as agent for the participants.
The Plan Agent's fees for the reinvestment of dividends and distributions
will be paid by the Fund. However, each participant's account will be charged a
pro rata share of brokerage commissions incurred on any open market purchases
effected on such participant's behalf. A participant will also pay brokerage
commissions incurred on purchases made by voluntary cash payments. Although
shareholders in the Plan may receive no cash distributions, participation in the
Plan will not relieve participants of any income tax which may be payable on
such dividends or distributions.
In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are participating in the
Plan.
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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