<PAGE>
------------------------------------------------------------
MORGAN STANLEY
DEAN WITTER
HIGH YIELD
FUND, INC.
------------------------------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 2000
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
Harold J. Schaaff, Jr.
PRESIDENT AND DIRECTOR
John D. Barrett II
DIRECTOR
Gerard E. Jones
DIRECTOR
Graham E. Jones
DIRECTOR
John A. Levin
DIRECTOR
Andrew McNally IV
DIRECTOR
William G. Morton, Jr.
DIRECTOR
Samuel T. Reeves
DIRECTOR
Fergus Reid
DIRECTOR
Frederick O. Robertshaw
DIRECTOR
Stefanie V. Chang
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
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
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
--------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
================================================================================
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/im.
<PAGE>
LETTER TO SHAREHOLDERS
---------
For the six months ended June 30, 2000, the Morgan Stanley Dean Witter High
Yield Fund, Inc. (the "Fund") had a total return, based on net asset value per
share, of -3.09% compared to -0.84% 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 June 30, 2000, the Fund's total return, based on net
asset value per share, was 77.94% compared to 53.50% for the Index. On June 30,
2000, the closing price of the Fund's shares on the New York Stock Exchange was
$11 5/8, representing a 0.3% discount to the Fund's net asset value per share.
The high yield market underperformed higher quality bonds in the first half of
2000. Stock market volatility and several rate hikes by the Federal Reserve
caused investors to move money into higher quality fixed income assets.
Furthermore, there continued to be large outflows from high yield mutual funds
early in the second quarter of 2000 as individual investors continued to invest
heavily in high-tech equity funds. This outflow of funds, almost $4 billion in
the first five months of 2000, has caused high yield mutual funds to sell
securities and create a poor technical situation in the market. Fortunately, the
situation improved in June 2000 as almost $1 billion was added to high yield
mutual funds, the largest gain in some time. The spread on the Index widened by
155 basis points in the first six months of 2000 to 728 basis points over
treasuries.
An overweight position in the telecommunications sector was the biggest drag on
performance as this sector performed poorly primarily due to the NASDAQ
volatility. Higher exposure than the Index to non-U.S. issues was another
negative factor that impacted our results.
Our higher quality portfolio than the Index benefited our returns as BB
securities outperformed lower rated bonds during the second quarter. Our
overweight allocation to the gaming sector also increased returns as this sector
was one of the best performing sectors in the U.S. high yield market.
In terms of portfolio activity, we participated in several new deals as issuers
had to price their deals very cheaply to get investors' attention. We increased
our exposure slightly in the cable and telecom sectors where we found good
value. We lowered our target weighting in HCA -- The Healthcare Corp. and
eliminated positions in several issuers during the first half of 2000, including
Metromedia Fiber, Sequa, Voicestream, Snyder Oil and Algoma Steel.
We are optimistic about attaining better returns in the high yield market over
the coming months. The high yield market continues to trade at spread levels
only surpassed during the last U.S. recession in the early 1990's. This has
occurred at the same time that the global economies continue to expand and the
default rate has stabilized. Evidence is starting to appear that the Federal
Reserve might be able to stop or slow down the restrictive stance that they have
had for over the past year. The supply in the new issue market for high yield
has slowed considerably this year with issuance down over 50% from the same
period last year. Stability is what the high yield market needs: a Federal
Reserve on hold, less volatile interest rates and stock market, continued
moderate new issue supply, and less outflows (or possibly inflows) from high
yield mutual funds. We are hopeful that this stability will emerge soon.
Sincerely,
/s/ Harold J. Schaaff
Harold J. Schaaff, Jr.
PRESIDENT AND DIRECTOR
July 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.
HIGH YIELD FIXED INCOME SECURITIES, ALSO KNOWN AS "JUNK BONDS" ARE CONSIDERED
SPECULATIVE, INVOLVE GREATER RISK OF DEFAULT AND TEND TO BE MORE VOLATILE THAN
INVESTMENT GRADE FIXED INCOME SECURITIES.
--------------------------------------------------------------------------------
DAILY NET ASSET AND MARKET VALUES, AS WELL AS MONTHLY PORTFOLIO INFORMATION FOR
THE FUND, ARE AVAILABLE ON OUR WEBSITE AT www.msdw.com/im.
2
<PAGE>
Morgan Stanley Dean Witter High Yield Fund, Inc.
Investment Summary as of June 30, 2000 (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>
YEAR TO DATE 11.10% -- -3.09% -- -0.84% --
ONE YEAR -15.29 -15.29% 0.17+ 0.17%+ -0.40 -0.40%
FIVE YEAR 70.94 11.32 62.85+ 10.24+ 38.19 6.68
SINCE INCEPTION* 65.26 7.93 77.94+ 9.14+ 53.50 6.73
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
--------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[CHART]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED
JUNE 30,
1993* 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----------
<S> <C> <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 $11.67
Market Value Per Share ........ $14.75 $11.38 $12.88 $14.63 $16.06 $15.38 $11.06 $11.63
Premium/(Discount) ............ 4.6% -4.8% -5.5% 1.3% 5.7% 12.9% -13.1% -0.3%
Income Dividends .............. -- $1.37 $1.27 $1.42 $1.36 $1.42 $1.38 $0.64
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%+ -3.09%
Index Total Return (1)(3) ..... 1.26% -0.98% 17.39% 12.40% 12.65% 0.58% 3.28% -0.84%
</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 June 30, 2000 (Unaudited)
================================================================================
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Debt Securities (94.0%)
Equity Securities (4.0%)
Short-Term Investments (2.0%)
</TABLE>
--------------------------------------------------------------------------------
INDUSTRIES
[CHART]
<TABLE>
<S> <C>
Cable (11.3%)
Communications: Fixed (17.7%)
Communications: Mobile (10.1%)
Gaming (6.5%)
Health Care (6.2%)
Media (4.9%)
Paper & Packaging (3.3%)
Retail (5.1%)
Services (2.9%)
Telephones (3.7%)
Other (28.3%)
</TABLE>
--------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
INVESTMENTS
-----------
<S> <C>
1. Nextel Communications, Inc. 2.9%
2. HCA -- The Healthcare Corp. 2.9
3. Adelphia Communications 2.3
4. DR Securitized Lease Trust 2.2
5. Station Casinos, Inc. 2.0
6. Intermedia Communication, Inc. 2.0
7. Tenet Healthcare Corp. 2.0
8. Chancellor Media Corp. 1.8
9. Winstar Communications Inc. 1.8
10. RSL Communications Ltd. 1.6
----
21.5%
====
</TABLE>
* Excludes short-term investments.
4
<PAGE>
FINANCIAL STATEMENTS
---------
STATEMENT OF NET ASSETS (UNAUDITED)
(SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
---------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS AND NOTES (90.8%)
--------------------------------------------------------------------------------
AUTOMOTIVE (2.2%)
(d,e)Hayes Lemmerz International, Inc.
8.25%, 12/15/08 U.S.$ 2,850 U.S.$ 2,408
(e)Tenneco Automotive, Inc.
11.625%, 10/15/09 1,950 1,731
------------
4,139
------------
--------------------------------------------------------------------------------
CABLE (11.3%)
Adelphia Communications 'B'
(d)7.75%, 1/15/09 1,300 1,095
(d,e)8.375%, 2/1/08 2,050 1,814
(d)9.375%, 11/15/09 1,250 1,156
(e)9.875%, 3/1/07 200 192
(e)Cablevison SA
13.75%, 5/1/09 750 683
(e)Callahan Nordrhein Westfalen
14.00%, 7/15/10 2,100 2,100
(e)Charter Communications Holdings
10.25%, 1/15/10 2,100 2,030
(d)CSC Holdings, Inc.
9.875%, 5/15/06 1,470 1,487
(d,e)Echostar Dbs Corp.
9.375%, 2/1/09 1,900 1,838
(d)Multicanal
10.50%, 2/1/07 1,705 1,449
(b,d)NTL, Inc.
0.00%, 4/1/08 2,325 1,465
(b)NTL, Inc. 'B'
0.00%, 4/1/08 GBP 750 698
(b,d)RCN Corp.
0.00%, 10/15/07 U.S.$ 3,200 1,984
Rogers Cablesystems
10.125%, 9/1/12 1,400 1,423
(e)United Pan-Europe Communications NV
10.875%, 8/1/09 1,825 1,601
------------
21,015
------------
--------------------------------------------------------------------------------
CHEMICALS (2.8%)
(e)Huntsman ICI Chemicals
10.125%, 7/1/09 EUR 1,600 1,569
(d)ISP Holdings, Inc. 'B'
9.00%, 10/15/03 U.S.$ 2,450 2,279
(e)Lyondell Chemical Co.
9.625%, 5/1/07 1,475 1,460
------------
5,308
------------
--------------------------------------------------------------------------------
COMMUNICATIONS: FIXED (16.1%)
(d,e)Bayan Telecommunications
13.50%, 7/15/06 1,875 1,181
Espirit Telecom Group 'DM'
11.50%, 12/15/07 EUR 665 482
(e)Exodus Communications, Inc.
11.625%, 7/15/10 U.S.$ 1,415 U.S.$ 1,422
(d)Global Crossing Holding Ltd.
9.625%, 5/15/08 1,975 1,921
(b,e)GT Group Telecom
0.00%, 2/1/10 2,145 1,190
Hermes Europe Railtel BV
10.375%, 1/15/09 1,125 937
11.50%, 8/15/07 945 822
(b,d,e)Hyperion Telecommunications, Inc.
0.00%, 4/15/03 1,580 1,465
Intermedia Communications
8.50%, 1/15/08 200 184
(b,d)Intermedia Communications, Inc. 'B'
0.00%, 7/15/07 4,610 3,599
(e)Maxcom Corporation
13.75%, 4/1/07 1,400 1,242
NEXTLINK Communications, Inc.
(b,d)0.00%, 4/15/08 3,050 1,921
(b,e)0.00%, 12/1/09 850 497
(e)Primus Telecommunications Group, Inc.
11.25%, 1/5/09 1,500 1,223
(d)Primus Telecommunications Group, Inc. 'B'
9.875%, 5/15/08 1,000 775
(d,e)PSINet, Inc.
11.00%, 8/1/09 470 443
(e)PSINet, Inc. 'B'
10.00%, 2/15/05 2,060 1,916
(e)Rhythms NetConnections, Inc.
14.00%, 2/15/10 900 653
(b,e)Rhythms NetConnections, Inc. 'B'
0.00%, 5/15/08 2,785 1,142
RSL Communications plc
(b)0.00%, 3/1/08 1,500 623
(b)0.00%, 3/15/08 EUR 1,380 560
9.125%, 3/1/08 U.S.$ 1,700 1,105
(e)12.00%, 11/1/08 900 666
(e)12.25%, 11/15/06 88 70
(e)Tele1 Europe BV
13.00%, 5/15/09 1,910 1,924
(b,d)Viatel, Inc.
0.00%, 4/15/08 2,400 1,104
(b)WAM! Net, Inc. 'B'
13.25%, 3/1/05 1,875 1,050
------------
30,117
------------
--------------------------------------------------------------------------------
COMMUNICATIONS: MOBILE (8.9%)
(e)Cellco Finance NV
12.75%, 8/1/05 900 929
(d,e)Centennial Cellular
10.75%, 12/15/08 1,755 1,707
(b,d)CTI Holdings SA
0.00%, 4/15/08 2,250 1,297
--------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS: MOBILE (CONTINUED)
(b)Dolphin Telecommunications plc
0.00%, 6/1/08 EUR 1,520 U.S.$ 522
(e)0.00%, 5/15/09 U.S.$ 2,000 710
(d)Globalstar LP
11.375%, 2/15/04 1,050 299
Grupo Iusacell SA de CV
14.25%, 12/1/06 1,615 1,663
Motient Corp.
12.25%, 4/1/08 1,810 1,367
(b,d)Nextel Communications, Inc.
0.00%, 9/15/07 5,500 4,311
0.00%, 2/15/08 500 365
(b)Occidente y Caribe
14.00%, 3/15/04 3,125 2,203
(e)PTC International Finance BV
11.25%, 12/1/09 EUR 1,290 1,289
------------
16,662
------------
--------------------------------------------------------------------------------
ENERGY (1.2%)
(b)Husky Oil Ltd.
8.90%, 8/15/28 U.S.$ 1,175 1,115
Vintage Petroleum, Inc.
8.625%, 2/1/09 185 177
(d,e)9.75%, 6/30/09 875 886
------------
2,178
------------
--------------------------------------------------------------------------------
FINANCIAL (0.6%)
Golden State Holdings
7.125%, 8/1/05 1,185 1,063
--------------------------------------------------------------------------------
FOOD & BEVERAGES (1.0%)
Smithfield Foods, Inc.
7.625%, 2/15/08 2,100 1,869
--------------------------------------------------------------------------------
GAMING (6.5%)
(d)Harrah's Operating Co., Inc.
7.875%, 12/15/05 2,700 2,541
(d,e)Horseshoe Gaming Holding
8.625%, 5/15/09 2,060 1,936
(d,e)International Game Technology
8.375%, 5/15/09 2,200 2,091
Park Place Entertainment
(d)7.875%, 12/15/05 1,380 1,294
8.50%, 11/15/06 400 393
Station Casinos, Inc.
8.875%, 12/1/08 600 572
(d,e)10.125%, 3/15/06 3,200 3,240
------------
12,067
------------
--------------------------------------------------------------------------------
GENERAL INDUSTRIAL (0.7%)
Applied Power, Inc.
8.75%, 4/1/09 670 698
Axia, Inc.
10.75%, 7/15/08 U.S.$ 875 U.S.$ 683
------------
1,381
------------
--------------------------------------------------------------------------------
HEALTH CARE (6.2%)
Fresenius Medical Capital Trust II
7.875%, 2/1/08 2,195 1,997
(d)HCA-The Healthcare Corp.
6.91%, 6/15/05 4,825 4,406
7.00%, 7/1/07 1,045 932
(e)Sirona Dental Systems
9.125%, 7/15/08 EUR 534 418
(d)Tenet Healthcare Corp.
(e)8.125%, 12/1/08 U.S.$ 2,150 1,967
8.625%, 1/15/07 1,900 1,805
------------
11,525
------------
--------------------------------------------------------------------------------
HOTELS & LODGING (2.2%)
Hilton Hotels
7.95%, 4/15/07 2,000 1,873
(d)HMH Properties 'A'
7.875%, 8/1/05 2,150 1,978
(e)Host Marriott LP
8.375%, 2/15/06 250 234
------------
4,085
------------
--------------------------------------------------------------------------------
MEDIA (4.1%)
Chancellor Media Corp.
9.00%, 10/1/08 925 941
(d,e)Chancellor Media Corp. 'B'
8.125%, 12/15/07 2,420 2,432
(d)Outdoor Systems, Inc.
8.875%, 6/15/07 1,000 1,010
(e)Satelites Mexicanos 'B'
10.125%, 11/1/04 940 620
(d,e)TV Azteca 'B'
10.50%, 2/15/07 1,940 1,717
(e)XM Satellite Radio Holdings Inc.
14.00%, 3/15/10 1,000 875
------------
7,595
------------
--------------------------------------------------------------------------------
METALS (2.6%)
Glencore Nickel Property Ltd.
9.00%, 12/1/14 515 435
(e)Murrin Murrin Holdings Property Ltd.
9.375%, 8/31/07 2,600 2,262
(d,e)National Steel Corp. 'D'
9.875%, 3/1/09 2,425 2,061
(a,c,e)NSM Steel, Inc.
12.25%, 2/1/08 825 1
(e)Republic Technologies International
13.75%, 7/15/09 720 108
------------
4,867
------------
--------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
PAPER & PACKAGING (3.3%)
(d)Indah Kiat Finance
10.00%, 7/1/07 U.S.$ 1,950 U.S.$ 1,180
(d)Norampac, Inc.
9.50%, 2/1/08 2,080 2,007
(e)Pacifica Papers, Inc.
10.00%, 3/15/09 1,875 1,849
(d,e)Pindo Deli Finance (Mauritius)
10.75%, 10/1/07 1,955 1,163
------------
6,199
------------
--------------------------------------------------------------------------------
REAL ESTATE (2.7%)
Centex Corp.
9.75%, 6/15/05 1,300 1,316
(d)D.R. Horton, Inc.
8.00%, 2/1/09 1,105 956
(e)Lennar Corp.
9.95%, 5/1/10 1,115 1,092
(e)Nortek, Inc.
8.875%, 8/1/08 1,800 1,627
------------
4,991
------------
--------------------------------------------------------------------------------
RETAIL (4.7%)
DR Securitized Lease Trust
6.66%, 8/15/10 1,210 1,013
7.60%, 8/15/07 2,866 2,614
9.35%, 8/15/19 500 436
(e)Grupo Elektra SA
12.00%, 4/1/08 900 805
(e)HMV Media Group PLC
10.25%, 5/15/08 490 331
10.875%, 5/15/08 GBP 1,035 1,096
Musicland Group, Inc.
9.00%, 6/15/03 U.S.$ 590 537
(d)Musicland Group, Inc. 'B'
9.875%, 3/15/08 2,400 2,004
------------
8,836
------------
--------------------------------------------------------------------------------
SERVICES (2.9%)
(b,d)Norcal Waste Systems, Inc.
13.50%, 11/15/05 1,655 1,721
Waste Management, Inc.
(e)6.875%, 5/15/09 180 159
7.00%, 10/15/06 2,225 2,053
7.125%, 10/1/07 960 876
7.125%, 12/15/17 350 290
7.65%, 3/15/11 375 343
------------
5,442
------------
--------------------------------------------------------------------------------
SUPERMARKET/DRUG (1.5%)
(e)CA FM Lease Trust
8.50%, 7/15/17 1,345 1,241
Stater Bros Hldgs
10.75%, 8/15/06 U.S.$ 1,885 U.S.$ 1,640
------------
2,881
------------
--------------------------------------------------------------------------------
TECHNOLOGY (0.6%)
(e)Hyundai Semiconductor
8.25%, 5/15/04 790 703
8.625%, 5/15/07 500 418
------------
1,121
------------
--------------------------------------------------------------------------------
TELEPHONES (3.7%)
(e)Globix Corp.
12.50%, 2/1/10 1,260 1,046
(b,e)Level 3 Communications, Inc.
0.00%, 3/15/10 1,510 823
(b)Telewest Communication plc
0.00%, 4/15/09 GBP 2,100 1,763
(b)Winstar Communications Inc.
0.00%, 4/15/10 U.S.$ 7,115 3,273
------------
6,905
------------
--------------------------------------------------------------------------------
TRANSPORTATION (2.3%)
(e)Aircraft Lease Portfolio Securitization Ltd.
1996-1 P1D
12.75%, 6/15/06 1,526 1,465
(e)Jet Equipment Trust 'C1'
11.79%, 6/15/13 1,500 1,684
(e)Jet Equipment Trust 'D-95'
11.44%, 11/1/14 1,100 1,213
------------
4,362
------------
--------------------------------------------------------------------------------
UTILITIES (2.7%)
(d) AES Corp.
8.50%, 11/1/07 1,800 1,651
(d)CMS Energy Corp.
7.50%, 1/15/09 1,510 1,355
(e)Paiton Energy Funding BV
9.34%, 2/15/14 1,260 252
(e)RAS Laffan Liquid Natural Gas
8.294%, 3/15/14 500 468
TNP Enterprises, Inc.
14.50%, 4/1/11 140 1,386
------------
5,112
------------
--------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost U.S.$186,334) 169,720
------------
--------------------------------------------------------------------------------
ASSET BACKED SECURITIES (0.7%)
(e)Long Beach Auto 1997-1, 'B'
14.22%, 10/26/03 402 401
--------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
ASSET BACKED SECURITIES (CONTINUED)
--------------------------------------------------------------------------------
(e)OHA Auto Grantor Trust 1997-1, 'B'
11.00%, 9/15/03 U.S.$ 1,015 U.S.$ 969
--------------------------------------------------------------------------------
TOTAL ASSET BACKED SECURITIES
(Cost U.S.$1,424) 1,370
------------
--------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.8%)
--------------------------------------------------------------------------------
(e)DLJ Mortgage Acceptance Corp. 1997-CF2 S IO
0.351%, 10/15/30 32,045 641
(e)Federal Home Mortgage Acceptance Corp.,
7.929%, 11/1/18 1,312 446
GMAC Commercial Mortgage Securities, Inc.
1996-C1 X2 IO
1.81%, 3/15/21 5,823 339
--------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost U.S.$2,396) 1,426
------------
--------------------------------------------------------------------------------
SOVEREIGN & EMERGING MARKETS (1.6%)
--------------------------------------------------------------------------------
Federal Republic of Brazil
12.75%, 1/15/20 1,450 1,390
Republic of Philippines
10.625%, 3/16/25 1,000 868
(d)Republic of Columbia
9.75%, 4/23/09 930 732
--------------------------------------------------------------------------------
TOTAL SOVEREIGN & EMERGING MARKETS
(Cost U.S.$3,179) 2,990
------------
--------------------------------------------------------------------------------
<CAPTION>
SHARES
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (0.2%)
--------------------------------------------------------------------------------
COMMUNICATIONS: FIXED (0.2%)
(a)Tele1 Europe Holding AB ADR (Cost U.S.$54) 33,640 406
------------
--------------------------------------------------------------------------------
PREFERRED STOCKS (3.7%)
--------------------------------------------------------------------------------
COMMUNICATIONS: FIXED (1.4%)
(e)Concentric Network Corp. 'B', PIK 13.50% 10,022 992
IXC Communications, Inc. 'B', PIK 12.50% 1,659 1,659
------------
2,651
------------
--------------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
--------------------------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS: MOBILE (1.1%)
(a,e)Dobson Communications Corp. PIK 13.00% 12,100 U.S.$ 1,246
(a)Nextel Communications, Inc. 'D' PIK 13.00% 718 754
------------
2,000
------------
--------------------------------------------------------------------------------
MEDIA (0.8%)
(a)Paxson Communications Corp. 16,219 1,557
------------
--------------------------------------------------------------------------------
RETAIL (0.4%)
Kmart Financing Preferred, 7.75% 21,250 776
------------
--------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost U.S.$6,156) 6,984
------------
--------------------------------------------------------------------------------
<CAPTION>
NO. OF
WARRANTS
--------------------------------------------------------------------------------
<S> <C> <C>
WARRANTS (0.1%)
--------------------------------------------------------------------------------
COMMUNICATIONS: MOBILE (0.1%)
(a,e)Globalstar Telecom, expiring 2/15/04 1,850 19
(a,e)Motient Corp., expiring 4/1/08 17,250 60
(a,e)Occidente y Caribe, expiring 3/15/04 145,000 54
------------
133
------------
--------------------------------------------------------------------------------
METALS (0.0%)
(a,e,g)NSM Steel, Inc., expiring 2/1/08 5,223,013 5
(a)Republic Technologies
International, expiring
07/15/09 720 -- @
------------
5
------------
--------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost U.S.$115) 138
------------
--------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
--------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (2.1%)
--------------------------------------------------------------------------------
BILLS
U.S. Treasury Bill 07/27/00 U.S.$ 100 100
--------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT
Chase Securities Inc., 6.15%,
dated 6/31/00, due 7/03/00, to
be repurchased at U.S.$3,726,
collateralized by U.S.$3,790 U.S.
Treasury Note, 6.00%, due 2/15/26,
valued at U.S.$3,790 U.S.$ 3,724 U.S.$ 3,724
------------
--------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost U.S.$3,824) 3,824
------------
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost U.S.$203,482) 186,858
------------
--------------------------------------------------------------------------------
OTHER ASSETS
Interest Receivable 4,246
Receivable for Investments Sold 2,844
Net Unrealized Gain on Foreign
Currency Exchange Contracts 39
Due from Broker 25
Other 6 7,160
-------------- ------------
--------------------------------------------------------------------------------
LIABILITIES
Payable For:
Reverse Repurchase Agreements (52,948)
Investments Purchased (3,672)
Dividends Declared (1,215)
Bank Overdraft (904)
Investment Advisory Fees (78)
Directors' Fees and Expenses (71)
Professional Fees (57)
Shareholder Reporting Expenses (44)
Administrative Fees (31)
Custodian Fees (16)
Other Liabilities (30) (59,066)
-------------- ------------
--------------------------------------------------------------------------------
NET ASSETS
Applicable to 11,568,696, issued and
outstanding U.S.$ 0.01 par value shares
(100,000,000 shares authorized) U.S.$134,952
============
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 11.67
============
--------------------------------------------------------------------------------
AT JUNE 30, 2000, NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
Common Stock U.S.$ 116
Capital Surplus 155,100
Distributions in Excess of Net Investment
Income (269)
Accumulated Net Realized Loss (3,454)
Unrealized Depreciation on Investments,
Futures and Foreign Currency Translations (16,541)
--------------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$134,952
============
--------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing
(b) -- Step Bond -- coupon rate increases in increments to maturity. Rate
disclosed is as of June 30, 2000. Maturity date disclosed is the
ultimate maturity.
(c) -- Issuer is in default.
(d) -- Denotes all or a portion of securities subject to repurchase under
Reverse Repurchase Agreements as of June 30, 2000-- see note A-4 to
financial statements.
(e) -- 144A Security -- certain conditions for public sale may exist.
@ -- Value is less than U.S. $500.
IO -- Interest Only.
PIK -- Payment-in-Kind. Income may be paid in additional securities or cash
at the discretion of the issuer.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
--------------------------------------------------------------------------------
FUTURES CONTRACTS:
At June 30, 2000, the following futures contracts were open:
<TABLE>
<CAPTION>
NET
NUMBER NOTIONAL UNREALIZED
OF VALUE EXPIRATION GAIN/LOSS
CONTRACTS (000) DATE (000)
----------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
LONG:
10 Year U.S
Treasury Note 47 U.S.$ 4,629 Sep-00 U.S.$142
===== ========
SHORT:
Long Gilt 18 U.S.$ 2,047 Sep-00 U.S.$ 14
===== ========
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
JUNE 30, 2000 EXCHANGE RATES:
--------------------------------------------------------------------------------
<S> <C>
EUR Euro 1.048 = U.S. $1.00
GBP British Pound 0.661 = U.S. $1.00
</TABLE>
--------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 2000,
the Fund is obligated to deliver or is to receive Foreign currency in
exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN UNREALIZED
TO EXCHANGE GAIN
DELIVER VALUE SETTLEMENT FOR VALUE (LOSS)
(000) (000) DATE (000) (000) (000)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
EUR 425 U.S.$ 406 07/26/00 U.S.$ 401 U.S.$ 401 U.S.$ (5)
EUR 780 745 07/28/00 U.S.$ 740 740 (5)
EUR 2,655 2,537 07/28/00 U.S.$2,512 2,512 (25)
U.S.$ 319 319 07/28/00 EUR 335 320 1
U.S.$ 509 509 08/03/00 GBP 335 507 (2)
EUR 380 363 08/10/00 U.S.$ 342 342 (21)
EUR 415 398 09/29/00 U.S.$ 393 393 (5)
GBP 2,260 3,421 08/03/00 U.S.$3,513 3,513 92
GBP 470 712 08/10/00 U.S.$ 721 721 9
---------- ---------- --------
U.S.$9,410 U.S.$9,449 U.S.$ 39
========== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Interest ............................................................................................. U.S.$ 9,688
Dividends ............................................................................................ 129
-----------------------------------------------------------------------------------------------------------------------------
Total Income ......................................................................................... 9,817
-----------------------------------------------------------------------------------------------------------------------------
EXPENSES
Interest Expense on Borrowings ....................................................................... 1,803
Investment Advisory Fees ............................................................................. 491
Administrative Fees .................................................................................. 96
Professional Fees .................................................................................... 70
Shareholder Reporting Expenses ....................................................................... 40
Transfer Agent Fees .................................................................................. 18
Directors' Fees and Expenses ......................................................................... 16
Custodian Fees ....................................................................................... 14
Other Expenses ....................................................................................... 22
-----------------------------------------------------------------------------------------------------------------------------
Total Expenses ....................................................................................... 2,570
-----------------------------------------------------------------------------------------------------------------------------
Net Investment Income ................................................................................ 7,247
-----------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold ........................................................................... (2,157)
Foreign Currency Transactions ........................................................................ 357
Futures Contracts .................................................................................... 54
-----------------------------------------------------------------------------------------------------------------------------
Net Realized Loss .................................................................................... (1,746)
-----------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Depreciation on Investments .......................................................................... (10,431)
Depreciation on Foreign Currency Translations ........................................................ (51)
Appreciation on Futures Contracts .................................................................... 48
-----------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation ....................................................... (10,434)
-----------------------------------------------------------------------------------------------------------------------------
Net Realized Loss and Change in Unrealized Appreciation/Depreciation ................................. (12,180)
-----------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................................. U.S.$ (4,933)
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
-----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C>
Operations:
Net Investment Income .............................................. U.S.$ 7,247 U.S.$ 11,932
Net Realized Gain (Loss) ........................................... (1,746) 182
Change in Unrealized Appreciation/Depreciation ..................... (10,434) (3,224)
-----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations .... (4,933) 8,890
-----------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income .............................................. (7,404) (13,027)
In Excess of Net Investment Income ................................. -- (112)
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions ................................................ (7,404) (13,139)
-----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Reinvestment of Distributions (0 and 48,132 shares, respectively) -- 658
Common Stock Issued Through Rights Offering (0 and 18,000,000
shares, respectively) .............................................. -- 31,304
Offering Costs ..................................................... -- (364)
-----------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Capital Share
Transactions ....................................................... -- 31,598
-----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) .......................................... (12,337) 27,349
Net Assets:
Beginning of Period ................................................ 147,289 119,940
-----------------------------------------------------------------------------------------------------------------------------
End of Period (including distributions in excess of net
investment income of U.S.$(269) and U.S.$(112),
respectively) ...................................................... U.S.$ 134,952 U.S.$ 147,289
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
STATEMENT OF CASH FLOWS (000)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM INVESTING AND OPERATING ACTIVITIES:
Proceeds from Sales of Investments ................................................................... U.S.$31,026
Purchases of Investments ............................................................................. (28,828)
Net Increase in Short-Term Investments ............................................................... (3,570)
Net Realized Gain for Foreign Currency Transactions .................................................. 357
Investment Income .................................................................................... 8,673
Interest Expense Paid ................................................................................ (1,580)
Operating Expenses Paid .............................................................................. (713)
-----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Investing and Operating Activities .............................................. 5,365
-----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Cash Received for Reverse Repurchase Agreements .................................................. 1,304
Cash Dividends and Distributions Paid ................................................................ (7,519)
Net Cash Received from Bank .......................................................................... 850
-----------------------------------------------------------------------------------------------------------------------------
Net Cash Used for Financing Activities ............................................................... (5,365)
-----------------------------------------------------------------------------------------------------------------------------
Net Decrease in Cash ................................................................................. --
CASH AT BEGINNING OF PERIOD .......................................................................... --
-----------------------------------------------------------------------------------------------------------------------------
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.$ 7,247
Proceeds from Sales of Investments ................................................................... 31,026
Purchases of Investments ............................................................................. (28,828)
Net Increase in Short-Term Investments ............................................................... (3,570)
Net Realized Gain for Foreign Currency Transactions .................................................. 357
Net Decrease in Receivables Related to Operations .................................................... 555
Net Increase in Payables Related to Operations ....................................................... 277
Accretion/Amortization of Discounts and Premiums ..................................................... (1,699)
-----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Investing and Operating Activities .............................................. U.S.$ 5,365
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SELECTED PER SHARE DATA SIX MONTHS
AND RATIOS: ENDED YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
JUNE 30, 2000 ------------------------------- ----------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD ......................... U.S.$ 12.73 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 ............ 0.63 1.28 1.34 1.37 1.35 1.34
Net Realized and Unrealized Gain
(Loss) on Investments .......... (1.05) (0.44) (0.66) 1.21 0.89 1.60
-----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations . (0.42) 0.84 0.68 2.58 2.24 2.94
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income ............ (0.64) (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 .............. (0.64) (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.$ 11.67 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.$ 11.63 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 ..................... 11.10% (18.14)%+ 11.15% 23.79% 25.92% 25.21%
Net Asset Value (1) .............. (3.09)% 6.34%+ 4.12% 18.48% 17.52% 26.07%
===================================================================================================================================
RATIOS, SUPPLEMENTAL DATA:
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(THOUSANDS) .................... U.S.$134,952 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 ......................... 3.67%* 2.99% 2.23% 2.76% 2.46% 2.79%
Ratio of Expenses Excluding
Interest Expense to Average Net
Assets ......................... 1.09%* 1.09% 1.10% 1.06% 1.12% 1.11%
Ratio of Net Investment Income
to Average Net Assets .......... 10.33%* 9.43% 9.00% 8.98% 9.82% 10.29%
Portfolio Turnover Rate .......... 17% 40% 78% 94% 136% 84%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ 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.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED)
---------
Morgan Stanley Dean Witter 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 June 30, 2000 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 ................................................... $ 54,109,000
Liability Under Reverse
Repurchase Agreement.......................................... $ 52,948,000
Interest Rate ................................................ 7.08%
</TABLE>
The average weekly balance of reverse repurchase agreements outstanding
during the six month period ended June 30, 2000 was approximately
$51,249,000 at a weighted average interest rate of 6.98%.
14
<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
segregated 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.
15
<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 contracts 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 may 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
pro-
16
<PAGE>
tections afforded to participants in a regulated environment may not be
available in connection with such transactions.
During the six month period ended June 30, 2000, the Fund's investments in the
derivative instruments described above only included foreign currency exchange
contracts and futures.
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 six month period ended June 30, 2000, the Fund made purchases and
sales totaling, approximately $32,500,000 and $32,600,000, 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 June 30, 2000, the Federal income tax cost basis of
securities was $203,482,000 and, accordingly, net unrealized depreciation for
Federal income tax purposes was $16,624,000 of which $2,522,000 related to
appreciated securities and $19,146,000 related to depreciated securities.
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.
17
<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 June 30, 2000, the deferred fees
payable, under the Plan, totaled approximately $71,000 and are included in
Payable for Directors' Fees and Expenses on the Statement of Net Assets.
I. During June, 2000, the Board of Directors declared a distribution of
$0.105 per share, derived from net investment income, payable on July 14,
2000, to shareholders of record on June 30, 2000.
J. Supplemental Proxy Information
The Annual Meeting of the Stockholders of the Fund was held on June 15, 2000.
The following is a summary of the proposal presented and the total number of
shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES
PROPOSAL: FAVOR OF AGAINST ABSTAINED
--------- -------- ------- ---------
<S> <C> <C> <C>
1. To elect the following Directors: Graham E. Jones .............. 10,757,693 123,985 --
John D. Barrett II ........... 10,757,693 123,985 --
Samuel T. Reeves ............. 10,757,693 123,985 --
Andrew McNally IV ............ 10,757,693 123,985 --
Frederick O. Robertshaw ...... 10,758,493 123,185 --
Fergus Reid .................. 10,757,693 123,985 --
Harold J. Schaaff, Jr. ....... 10,757,693 123,985 --
Gerard E. Jones .............. 10,758,493 123,185 --
</TABLE>
The Annual Meeting of the Stockholders of the Fund was reconvened on August 1,
2000. The following is a summary of the proposal presented and the total number
of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES
PROPOSAL: FAVOR OF AGAINST ABSTAINED
--------- -------- ------- ---------
<S> <C> <C> <C>
2. To ratify the selection of Ernst & Young LLP as independent
accountants of the Fund ........................................ 10,625,761 30,404 130,717
</TABLE>
--------------------------------------------------------------------------------
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000, PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS, IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP, WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS, AUDIT COMMITTEE AND SHAREHOLDERS, ENGAGED
ERNST & YOUNG LLP AS INDEPENDENT ACCOUNTANTS AS OF AUGUST 1, 2000.
18
<PAGE>
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
19
