-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HxcJp4IjCV//4le0TZlE+WT6ycL2Zn5VkavjrTE32OdE8oy9uGDCQ6Wlls/3M0aT moXI0qK8AMrLDFcNNbxM/g== 0001047469-03-029342.txt : 20030829 0001047469-03-029342.hdr.sgml : 20030829 20030829152213 ACCESSION NUMBER: 0001047469-03-029342 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030829 EFFECTIVENESS DATE: 20030829 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY DEAN WITTER HIGH YIELD FUND INC CENTRAL INDEX KEY: 0000912734 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-08044 FILM NUMBER: 03874112 BUSINESS ADDRESS: STREET 1: 1221 AVENUE OF THE AMERICAS STREET 2: 8TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 6175578742 MAIL ADDRESS: STREET 1: 1221 AVENUES OF THE AMERICAS STREET 2: 8TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY HIGH YIELD FUND INC DATE OF NAME CHANGE: 19930928 N-CSRS 1 a2117680zn-csrs.txt N-CSRS ----------------------------- OMB APPROVAL ----------------------------- OMB Number: 3235-0570 Expires: November 30, 2005 Estimated average burden hours per response....... 5.0 ----------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-08044 --------------------------------------------- Morgan Stanley High Yield Fund, Inc. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 1221 AVENUE OF THE AMERICAS 22ND FLOOR NEW YORK, NY 10020 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) RONALD E. ROBISON 1221 AVENUE OF THE AMERICAS 34TH FLOOR NEW YORK, NY 10020 - ------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 1-800-221-6726 ---------------------------- Date of fiscal year end: 12/31 -------------------------- Date of reporting period: 6/30/03 ------------------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. ITEM 1. REPORTS TO STOCKHOLDERS. The Fund's semi-annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: SEMI-ANNUAL REPORT MORGAN STANLEY HIGH YIELD FUND, INC. JUNE 30, 2003 DIRECTORS MICHAEL BOZIC RONALD E. ROBISON CHARLES A. FIUMEFREDDO EXECUTIVE VICE PRESIDENT EDWIN J. GARN AND PRINCIPAL EXECUTIVE WAYNE E. HEDIEN OFFICER JAMES F. HIGGINS DR. MANUEL H. JOHNSON JOSEPH McALINDEN JOSEPH J. KEARNS VICE PRESIDENT MICHAEL NUGENT PHILIP J. PURCELL BARRY FINK FERGUS REID VICE PRESIDENT OFFICERS STEFANIE V. CHANG CHARLES A. FIUMEFREDDO VICE PRESIDENT CHAIRMAN OF THE BOARD JAMES W. GARRETT [MORGAN STANLEY LOGO] MITCHELL M. MERIN TREASURER AND CHIEF PRESIDENT FINANCIAL OFFICER MICHAEL LEARY ASSISTANT TREASURER MORGAN STANLEY HIGH YIELD FUND, INC. MARY E. MULLIN SECRETARY INVESTMENT ADVISER MORGAN STANLEY INVESTMENT MANAGEMENT INC. 1221 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10020 ADMINISTRATOR JPMORGAN INVESTOR SERVICES 73 TREMONT STREET BOSTON, MASSACHUSETTS 02108 CUSTODIAN JPMORGAN CHASE BANK 270 PARK AVENUE NEW YORK, NEW YORK 10017 STOCKHOLDER SERVICING AGENT AMERICAN STOCK TRANSFER & TRUST COMPANY 59 MAIDEN LANE NEW YORK, NEW YORK 10030 (800) 278-4353 LEGAL COUNSEL CLIFFORD CHANCE US LLP 200 PARK AVENUE NEW YORK, NEW YORK 10166 INDEPENDENT AUDITORS ERNST & YOUNG LLP 200 CLARENDON STREET BOSTON, MASSACHUSETTS 02116 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.morganstanley.com/im. MORGAN STANLEY INVESTMENT MANAGEMENT INC. INVESTMENT ADVISER (C) 2003 MORGAN STANLEY MORGAN STANLEY HIGH YIELD FUND, INC. Overview LETTER TO STOCKHOLDERS PERFORMANCE For the six months ended June 30, 2003, the Morgan Stanley High Yield Fund, Inc. (the "Fund") had a total return of 24.28% compared to 17.32% for the CSFB High Yield Index (the "Index"). On June 30, 2003, the closing price of the Fund's shares on the New York Stock Exchange was $6.49, representing a 0.6% discount to the Fund's net asset value per share. FACTORS AFFECTING PERFORMANCE - The high yield market roared ahead during the first half of 2003 and posted its highest six month return since 1991. High yield mutual fund inflows, over $20 billion in 2003, were at their highest levels ever and this easily overcame a large new issue calendar later in the period. Other factors aiding the high yield market were an improved equity market, a declining default rate and better earning results by many companies. - Lower-rated bonds led this advance as CCC-rated securities returned over 30% for the period while bonds rated BB returned a solid, but less spectacular 12%. The spread of the Index tightened by 271 basis points to close at 676 over treasuries, the tightest spread since April of 2000. It also should be noted that the combination of recent spread tightening and historically low treasury yields have caused the yield of the high yield market to fall below 10% for the first time since the summer of 1998. In addition, slightly over 70% of the market is trading at or above par as compared to only 39% at the end of October of last year. - The sectors that performed poorly for much of 2002 led the market during the period with wireless communications (+35%, Index return), utilities (+35%), telecommunications (+33%), cable (+30%) and information technology (+24%) all posting spectacular returns. No industries showed negative returns over the six months, but the laggards were consumer products, metals and food & drug which all returned close to 7%. - Security selection in wireless communications, telecommunications and broadcasting benefited relative results during the quarter, as did an underweight to consumer products. On the negative side, our underweight to utilities and airlines along with our higher quality portfolio detracted from relative returns. MANAGEMENT STRATEGIES - The large new issue calendar provided us with a few opportunities to purchase new positions for the Fund during the period. - Our main overweighted sectors are in manufacturing, chemicals, housing and wireless communications, while our main sector underweights include utilities, consumer products, telecommunications, aerospace and services. Sincerely, /s/ Ronald E. Robison Ronald E. Robison Executive Vice President and Principal Executive Officer July 2003 2 MORGAN STANLEY HIGH YIELD FUND, INC. STATEMENT OF NET ASSETS June 30, 2003 (unaudited) STATEMENT OF NET ASSETS (SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
FACE AMOUNT VALUE (000) (000) - --------------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES(93.1%) ======================================================================================= AEROSPACE (0.4%) Air Canada 10.25%, 3/15/11 $ 890(d),(e) $ 401 ======================================================================================= BROADCASTING (2.9%) Interep National Radio Sales, Inc., 'B' 10.00%, 7/1/08 631 536 Nextmedia Operating, Inc. 10.75%, 7/1/11 757(a) 848 Salem Communications Holding Corp., 'B' 9.00%, 7/1/11 750(a) 807 TV Azteca SA de CV, 'B' 10.50%, 2/15/07 765(a) 757 - --------------------------------------------------------------------------------------- 2,948 ======================================================================================= BUSINESS SERVICES (0.9%) JSG Funding plc 10.125%, 10/1/12 EUR 746 928 ======================================================================================= CABLE (6.1%) Avalon Cable LLC 11.875%, 12/1/08 $ 160(c) 153 British Sky Broadcasting Group plc 8.20%, 7/15/09 850(a) 1,007 Charter Communications Holdings LLC 0.00%, 1/15/11 642(a),(c) 334 0.00%, 5/15/11 375(a),(c) 190 8.25%, 4/1/07 160 123 10.25%, 1/15/10 392 296 10.75%, 10/1/09 145 112 CSC Holdings, Inc. 7.25%, 7/15/08 110 110 8.125%, 7/15/09 555 573 9.875%, 2/15/13 150 157 10.50%, 5/15/16 145 158 DirecTV Holdings LLC 8.375%, 3/15/13 720(a),(b) 803 Echostar DBS Corp. 9.125%, 1/15/09 891(a) 996 Pegasus Communications Corp., 'B' 9.75%, 12/1/06 170 154 12.50%, 8/1/07 90 83 Pegasus Satellite Communications Corp. 13.50%, 3/1/07 120(c) 100 12.375%, 8/1/06 55 52 Renaissance Media Group 10.00%, 4/15/08 65(c) 64 Rogers Cable, Inc. 6.25%, 6/15/13 $ 270(b) $ 269 Satelites Mexicanos SA de CV, 'B' 10.125%, 11/1/04 1,105 508 - --------------------------------------------------------------------------------------- 6,242 ======================================================================================= CHEMICALS (6.5%) Acetex Corp. 10.875%, 8/1/09 456 507 Avecia Group plc 11.00%, 7/1/09 457 413 Equistar Chemicals LP 10.125%, 9/1/08 601(a) 619 10.625%, 5/1/11 145(b) 148 FMC Corp. 10.25%, 11/1/09 300 338 Huntsman Advanced Materials LLC 11.00%, 7/15/10 235(b) 244 Huntsman ICI Chemicals 10.125%, 7/1/09 298(a) 286 10.125%, 7/1/09 EUR 405 433 Huntsman International LLC 9.875%, 3/1/09 $ 75(b) 78 ISP Chemco, Inc. 10.25%, 7/1/11 375(a) 424 ISP Holdings, Inc., 'B' 10.625%, 12/15/09 330(a) 351 Lyondell Chemical Co. 9.50%, 12/15/08 347 330 9.625%, 5/1/07 413(a) 405 Messer Griesheim Holding AG 10.375%, 6/1/11 EUR 755 977 Millennium America, Inc. 9.25%, 6/15/08 $ 438 471 Rhodia SA 8.875%, 6/1/11 610(b) 631 - --------------------------------------------------------------------------------------- 6,655 ======================================================================================= CONSUMER PRODUCTS (0.6%) Oxford Industries, Inc. 8.875%, 6/1/11 255(b) 268 Safilo Capital International SA 9.625%, 5/15/13 EUR 245(b) 295 - --------------------------------------------------------------------------------------- 563 ======================================================================================= DIVERSIFIED MEDIA (4.8%) Alliance Atlantis Communications, Inc. 13.00%, 12/15/09 $ 735 837
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 3 MORGAN STANLEY HIGH YIELD FUND, INC. STATEMENT OF NET ASSETS June 30, 2003 (unaudited) STATEMENT OF NET ASSETS (CONT'D)
FACE AMOUNT VALUE (000) (000) - --------------------------------------------------------------------------------------- DIVERSIFIED MEDIA (CONT'D) Donnelley (R.H.) Finance Corp. 10.875%, 12/15/12 $ 353(b) $ 411 Hollinger Participation Trust 12.125%, 11/15/10 610(b) 684 Houghton Mifflin Co. 8.25%, 2/1/11 270(b) 285 9.875%, 2/1/13 230(b) 250 Muzak LLC/Muzak Finance Corp. 9.875%, 3/15/09 558 530 10.00%, 2/15/09 400(b) 419 PEI Holdings, Inc. 11.00%, 3/15/10 260(b) 287 Primedia, Inc. 8.875%, 5/15/11 600(a) 631 Vivendi Universal 9.25%, 4/15/10 510(b) 580 - --------------------------------------------------------------------------------------- 4,914 ======================================================================================= ENERGY (7.7%) BRL Universal Equipment, '01A' 8.875%, 2/15/08 702 761 Chesapeake Energy Corp. 8.125%, 4/1/11 800(a) 862 Citgo Petroleum Corp. 11.375%, 2/1/11 260(b) 290 El Paso Energy Partners LP 8.50%, 6/1/10 165(a),(b) 177 El Paso Production Holding Co. 7.75%, 6/1/13 530(b) 529 Frontier Escrow Corp. 8.00%, 4/15/13 175(b) 183 GulfTerra Energy Partners LP 10.625%, 12/1/12 693 801 Hanover Equipment Trust 8.50%, 9/1/08 '01A' 445 467 8.75%, 9/1/11 '01B' 320 336 Husky Oil Ltd. 8.90%, 8/15/28 856(a) 988 Magnum Hunter Resources, Inc. 9.60%, 3/15/12 355 390 MSW Energy Holdings LLC 8.50%, 9/1/10 105(b) 108 Pemex Project Funding Master Trust 9.125%, 10/13/10 345(a) 417 Tesoro Petroleum Corp. 9.00%, 7/1/08 $ 250 $ 226 9.625%, 4/1/12 366 335 Vintage Petroleum, Inc. 7.875%, 5/15/11 135 145 8.625%, 2/1/09 470 483 9.75%, 6/30/09 325 349 - --------------------------------------------------------------------------------------- 7,847 ======================================================================================= FINANCIAL (1.5%) Aetna, Inc. 7.875%, 3/1/11 615(a) 747 iStar Financial, Inc. 8.75%, 8/15/08 685 747 - --------------------------------------------------------------------------------------- 1,494 ======================================================================================= FOOD & DRUG (2.9%) Ahold Finance USA, Inc. 8.25%, 7/15/10 510 523 CA FM Lease Trust 8.50%, 7/15/17 831(b) 918 Delhaize America, Inc. 8.125%, 4/15/11 840(a) 920 Dominos, Inc. 8.25%, 7/1/11 325(b) 335 Merisant Co. 9.50%, 7/15/13 280(b) 289 - --------------------------------------------------------------------------------------- 2,985 ======================================================================================= FOOD & TOBACCO (2.0%) Michael Foods, Inc., 'B' 11.75%, 4/1/11 573 659 Pilgrim's Pride Corp. 9.625%, 9/15/11 365 390 Smithfield Foods, Inc. 7.625%, 2/15/08 945(a) 971 - --------------------------------------------------------------------------------------- 2,020 ======================================================================================= FOREST PRODUCTS (6.4%) Abitibi-Consolidated, Inc. 6.00%, 6/20/13 645 614 Georgia Pacific Corp. 8.875%, 2/1/10 960(a),(b) 1,042 Indah Kiat Finance (Mauritius) 10.00%, 7/1/07 470(d),(e) 180 Norampac, Inc. 6.75%, 6/1/13 295(b) 310
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 4 MORGAN STANLEY HIGH YIELD FUND, INC. STATEMENT OF NET ASSETS June 30, 2003 (unaudited) STATEMENT OF NET ASSETS (CONT'D)
FACE AMOUNT VALUE (000) (000) - --------------------------------------------------------------------------------------- FOREST PRODUCTS (CONT'D) Owens-Brockway 7.75%, 5/15/11 $ 50(b) $ 53 8.75%, 11/15/12 125 136 Owens-Illinois, Inc. 7.50%, 5/15/10 850(a) 833 Pacifica Papers, Inc. 10.00%, 3/15/09 707 753 Pindo Deli Finance (Mauritius) 10.75%, 10/1/07 905(d),(e) 233 Pliant Corp. 13.00%, 6/1/10 482 453 Riverwood International Corp. 10.875%, 4/1/08 601(a) 616 Tekni-Plex, Inc. 12.75%, 6/15/10 310 302 Tekni-Plex, Inc., 'B' 12.75%, 6/15/10 213 207 TEMBEC Industries, Inc. 8.50%, 2/1/11 745(a) 738 - --------------------------------------------------------------------------------------- 6,470 ======================================================================================= GAMING & LEISURE (6.9%) Harrah's Operating Co., Inc. 8.00%, 2/1/11 623(a) 751 Hilton Hotels Corp. 7.625%, 12/1/12 185 203 7.95%, 4/15/07 647(a) 696 Horseshoe Gaming Holdings Corp., 'B' 8.625%, 5/15/09 877(a) 930 Host Mariott Corp., 7.875%, 8/1/05 'A' 205 209 7.875%, 8/1/08 'B' 283 287 Lodgenet Entertaiment Corp. 9.50%, 6/15/13 295 302 Park Place Entertainment Corp. 7.875%, 12/15/05 355 378 8.50%, 11/15/06 250 276 8.875%, 9/15/08 250 276 Starwood Hotels & Resorts Worldwide, Inc. 7.375%, 5/1/07 170 179 7.875%, 5/1/12 690 755 Station Casinos, Inc. 8.375%, 2/15/08 1,150(a) 1,242 Venetian Casino Resort LLC 11.00%, 6/15/10 $ 490(a) $ 552 - --------------------------------------------------------------------------------------- 7,036 ======================================================================================= HEALTH CARE (5.9%) AmerisourceBergen Corp. 8.125%, 9/1/08 594(a) 653 Apogent Technologies, Inc. 6.50%, 5/15/13 215(b) 222 Anthem Insurance Cos., Inc. 9.125%, 4/1/10 396(b) 498 Fisher Scientific International, Inc. 7.125%, 12/15/05 310 324 8.125%, 5/1/12 405(b) 433 Fresenius Medical Care Capital Trust II 7.875%, 2/1/08 865 913 HCA, Inc. 6.91%, 6/15/05 905(a) 960 Health Net, Inc. 8.375%, 4/15/11 405(a) 492 Manor Care, Inc. 6.25%, 5/1/13 160(b) 166 7.50%, 6/15/06 55 60 8.00%, 3/1/08 189 213 Omnicare, Inc., 'B' 8.125%, 3/15/11 322 350 Tenet Healthcare Corp 6.50%, 6/1/12 467(a) 433 7.375%, 2/1/13 270 260 - --------------------------------------------------------------------------------------- 5,977 ======================================================================================= HOUSING (5.7%) C.B. Richard Ellis Services, Inc. 11.25%, 6/15/11 807 865 CBRE Escrow, Inc. 9.75%, 5/15/10 50(b) 53 Jacuzzi Brands, Inc. 9.625%, 7/1/10 230 230 KB Home 7.75%, 2/1/10 490(a) 530 LNR Property Corp. 7.625%, 7/15/13 745(b) 752 Louisiana-Pacific Corp. 8.875%, 8/15/10 145 166 10.875%, 11/15/08 278(a) 317
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 5 MORGAN STANLEY HIGH YIELD FUND, INC. STATEMENT OF NET ASSETS June 30, 2003 (unaudited) STATEMENT OF NET ASSETS (CONT'D)
FACE AMOUNT VALUE (000) (000) - --------------------------------------------------------------------------------------- HOUSING (CONT'D) Meritage Corp. 9.75%, 6/1/11 $ 240(b) $ 265 Nortek Holdings, Inc. 9.25%, 3/15/07 130 134 Schuler Homes, Inc. 9.375%, 7/15/09 660 746 Technical Olympic USA, Inc. 9.00%, 7/1/10 463 497 10.375%, 7/1/12 480 512 10.375%, 7/1/12 35(b) 37 Toll Corp. 8.25%, 2/1/11 585(a) 652 - --------------------------------------------------------------------------------------- 5,756 ======================================================================================= INFORMATION TECHNOLOGY (4.4%) Avaya, Inc. 11.125%, 4/1/09 690 755 Fairchild Semiconductor International, Inc. 10.375%, 10/1/07 169 177 10.50%, 2/1/09 425(a) 478 Flextronics International Ltd. 9.875%, 7/1/10 575 630 Iron Mountain, Inc. 7.75%, 1/15/15 375(a) 397 8.625%, 4/1/13 570(a) 610 Solectron Corp. (Convertible) Zero Coupon, 11/20/20 915 508 Xerox Capital Europe plc 5.875%, 5/15/04 350 352 Xerox Corp. 7.125%, 6/15/10 600 599 - --------------------------------------------------------------------------------------- 4,506 ======================================================================================= MANUFACTURING (5.5%) ABB Finance, Inc. 11.00%, 1/15/08 EUR 455 525 ABB International Finance Ltd. 6.75%, 6/3/04 $ 100 98 Brand Services, Inc. 12.00%, 10/15/12 285 324 Eagle-Picher Industries, Inc. 9.375%, 3/1/08 330 308 Flowserve Corp. 12.25%, 8/15/10 543(a) 633 Johnsondiversey Inc 9.625%, 5/15/12 $ 511 $ 571 9.625%, 5/15/12 EUR 235 290 Manitowoc Co., Inc. (The) 10.375%, 5/15/11 768 946 10.50%, 8/1/12 $ 55 61 NMHG Holding Co. 10.00%, 5/15/09 365 401 Trimas Corp. 9.875%, 6/15/12 622 638 9.875%, 6/15/12 225(b) 231 Tyco International Group SA 6.75%, 2/15/11 551(a) 584 - --------------------------------------------------------------------------------------- 5,610 ======================================================================================= METALS (2.6%) Glencore Nickel Property Ltd. 9.00%, 12/1/14 515(d),(e) --@ Murrin Murrin Holdings Property Ltd. 9.375%, 8/31/07 1,595(d),(e) --@ Oregon Steel Mills, Inc. 10.00%, 7/15/09 495(a) 446 Phelps Dodge Corp. 8.75%, 6/1/11 846(a) 995 Republic Engineered Products LLC 10.00%, 8/16/09 136 33 Republic Technologies International LLC 13.75%, 7/15/09 720(f) 7 UCAR Finance, Inc. 10.25%, 2/15/12 530 519 United States Steel Corp. 9.75%, 5/15/10 660 670 - --------------------------------------------------------------------------------------- 2,670 ======================================================================================= RETAIL (1.3%) Gap, Inc. 6.90%, 9/15/07 155 167 10.55%, 12/15/08 300(a) 365 Penney (JC) Co., Inc. 6.875%, 10/15/15 102(a) 95 7.60%, 4/1/07 90 94 7.95%, 4/1/17 190 188 8.00%, 3/1/10 95 100 9.00%, 8/1/12 273(a) 296 - --------------------------------------------------------------------------------------- 1,305 ======================================================================================= SERVICES (1.2%) Allied Waste North America 'B' 8.875%, 4/1/08 1,076(a) 1,167
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 6 MORGAN STANLEY HIGH YIELD FUND, INC. STATEMENT OF NET ASSETS June 30, 2003 (unaudited) STATEMENT OF NET ASSETS (CONT'D)
FACE AMOUNT VALUE (000) (000) - --------------------------------------------------------------------------------------- SERVICES (CONT'D) Encompass Services Corp. 10.50%, 5/1/09 $ 405(d),(e) $ --@ - --------------------------------------------------------------------------------------- 1,167 ======================================================================================= TELECOMMUNICATIONS (1.2%) Esprit Telecommunications Group plc 11.50%, 12/15/07 EUR 665(d),(e),(f) Exodus Communications, Inc. 11.625%, 7/15/10 $ 1,187(d),(e),(f) 71 Globix Corp. 12.50%, 2/1/10 1,865(d),(e) --@ Globix Corp. PIK 11.00%, 5/1/08 352(d),(e) 264 Primus Telecommunications Group, Inc. 11.25%, 1/15/09 290 268 Primus Telecommunications Group, Inc. 'B' 9.875%, 5/15/08 190 169 Qwest Corporation 6.625%, 9/15/05 160 163 Rhythms NetConnections, Inc., 'B' 13.50%, 5/15/08 2,609(d),(e),(f) --@ 14.00%, 2/15/10 1,491(d),(e),(f) --@ Vatel, Inc. 12.50%, 4/15/08 2,400(d),(e),(f) --@ WorldCom, Inc. 6.95%, 8/15/28 8.25%, 5/15/31 885(d),(e) 261 XO Communications, Inc. 9.45%, 4/15/08 2,750(d),(e) --@ 10.75%, 11/15/08 550(d),(e) --@ - --------------------------------------------------------------------------------------- 1,196 ======================================================================================= TRANSPORTATION (4.5%) ArvinMeritor, Inc. 8.75%, 3/1/12 321 360 AutoNation, Inc. 9.00%, 8/1/08 552(a) 613 Collins & Aikman Products Corp. 10.75%, 12/31/11 387 340 Intermet Corp. 9.75%, 6/15/09 526 505 Laidlaw International, Inc. 10.75%, 6/15/11 590(b) 620 Lear Corp., 'B' 8.11%, 5/15/09 720 825 Metaldyne Corp. 11.00%, 6/15/12 422 350 Sonic Automotive, Inc. 11.00%, 8/1/08 $ 290 $ 307 TRW, Inc. 9.375%, 2/15/13 625(b) 678 - --------------------------------------------------------------------------------------- 4,598 ======================================================================================= UTILITIES (6.1%) AES Corp. 8.875%, 2/15/11 59 58 9.00%, 5/15/15 570(b) 596 9.375%, 9/15/10 88 88 Allegheny Energy, Inc. 7.75%, 8/1/05 215 215 Calpine Corp. 8.50%, 2/15/11 414(a) 311 CMS Energy Corp. 7.50%, 1/15/09 75 74 8.50%, 4/15/11 450 470 Dynegy Holdings, Inc. 6.875%, 4/1/11 708(a) 595 Ipalco Enterprises, Inc. 8.625%, 11/14/11 165 181 Monongahela Power Co. 5.00%, 10/1/06 570 566 Northwest Pipeline Corp. 8.125%, 3/1/10 115 124 PG & E Generating Co. 6.875%, 7/15/08 265(b) 275 PSEG Energy Holdings, Inc. 7.75%, 4/16/07 255(b) 270 8.625%, 2/15/08 601(a) 646 Southern California Edison Co. 8.00%, 2/15/07 270(b) 296 Southern Natural Gas Corp. 8.875%, 3/15/10 235(b) 256 Transcont Gas Pipelines Corp. 8.875%, 7/15/12 210 237 Williams Cos., Inc. 7.875%, 9/1/21 620 604 9.25%, 3/15/04 340 348 - --------------------------------------------------------------------------------------- 6,210 ======================================================================================= WIRELESS COMMUNICATIONS (5.1%) American Cellular Corp. 9.50%, 10/15/09 1,024 512 American Tower Corp. 6.25%, 10/15/09 1,030 953 9.375%, 2/1/09 70 70
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 7 MORGAN STANLEY HIGH YIELD FUND, INC. STATEMENT OF NET ASSETS June 30, 2003 (unaudited) STATEMENT OF NET ASSETS (CONT'D)
FACE AMOUNT VALUE (000) (000) - --------------------------------------------------------------------------------------- WIRELESS COMMUNICATIONS (CONT'D) Dobson/Sygnet Communications 10.875%, 7/1/10 $ 525 $ 567 Nextel Communications, Inc. 10.65%, 9/15/07 885(a),(c) 914 Nextel Partners, Inc. 8.125%, 7/1/11 145(b) 145 11.00%, 3/15/10 340 367 PTC International Finance II SA 11.25%, 12/1/09 EUR 460 591 SBA Communications Corp. 10.25%, 2/1/09 $ 308 283 12.00%, 3/1/08 739(c) 756 - --------------------------------------------------------------------------------------- 5,158 ======================================================================================= TOTAL CORPORATE BONDS AND NOTES (Cost $99,585) 94,656 ======================================================================================= SOVEREIGN & EMERGING MARKETS (1.0%) ======================================================================================= Federative Republic of Brazil Bond, 'C' PIK 8.00%, 4/15/14 739 652 Republic of Colombia 9.75%, 4/23/09 265(a) 306 - --------------------------------------------------------------------------------------- TOTAL SOVEREIGN & EMERGING MARKETS (Cost $810) 958 ======================================================================================= SHARES - --------------------------------------------------------------------------------------- COMMON STOCKS (1.1%) TELECOMMUNICATIONS (0.6%) Globix Corp. 42,776(e) 124 Song Networks Holding AB 98,751(e) 464 Song Networks Holding AB 10,692(f) 8 Song Networks Holding AB ADR 33,640(e),(f) --@ Viatel Holding (Bermuda) Ltd. 7,380 6 XO Communications, Inc. 2,858(e) 21 - --------------------------------------------------------------------------------------- 623 ======================================================================================= WIRELESS COMMUNICATIONS (0.5%) Motient Corp. 98,120(e) 544 ======================================================================================= TOTAL COMMON STOCKS (Cost $1,459) 1,167 ======================================================================================= VALUE SHARES (000) - --------------------------------------------------------------------------------------- PREFERRED STOCKS (2.5%) ======================================================================================= BROADCASTING (0.6%) Paxson Communications Corp., PIK, 13.25% 59 $ 585 ======================================================================================= TELECOMMUNICATIONS (0.0%) Intermedia Communications, Inc., 'B' PIK, 13.50% 325 10 McLeod USA, Inc., 2.50% 8,463 61 XO Communications, Inc. 14.00% 14,695 --@ XO Communications, Inc., 'E' PIK, 13.00% 1,221 --@ - --------------------------------------------------------------------------------------- 71 ======================================================================================= TELEPHONE (0.6%) Dobson Communications Corp., PIK, 13.00% 646 633 ======================================================================================= UTILITIES (0.8%) TNP Enterprises, Inc., 'D' PIK, 14.50% 1,060 795 ======================================================================================= WIRELESS COMMUNICATIONS (0.5%) Nextel Communications, Inc., 'D' PIK, 13.00% 470 500 ======================================================================================= TOTAL PREFERRED STOCKS (Cost $4,480) 2,584 ======================================================================================= NO. OF WARRANTS - --------------------------------------------------------------------------------------- WARRANTS (0.1%) BROADCASTING (0.1%) XM Satellite Radio Holdings, Inc., expiring 3/15/10 92,500(e) 51 ======================================================================================= METALS (0.0%) Republic Technologies International LLC, 'D', expiring 7/15/09 720(b),(e) --@ ======================================================================================= TELECOMMUNICATIONS (0.0%) McLeod USA, Inc., expiring 4/16/07 18,707(e) 8 XO Communications, Inc., expiring 1/16/10 14,296(e) 6 - --------------------------------------------------------------------------------------- 14 ======================================================================================= UTILITIES (0.0%) SW Acquisition LP, expiring 4/1/11 1,677(b),(e) 3 =======================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 8 MORGAN STANLEY HIGH YIELD FUND, INC. STATEMENT OF NET ASSETS June 30, 2003 (unaudited) STATEMENT OF NET ASSETS (CONT'D)
NO. OF VALUE WARRANTS (000) - --------------------------------------------------------------------------------------- WIRELESS COMMUNICATIONS (0.0%) Occidente y Caribe Celular, expiring 3/15/04 102,000(e) $ 1 ======================================================================================= TOTAL WARRANTS (Cost $75) 69 ======================================================================================= FACE AMOUNT (000) - --------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (2.2%) ======================================================================================= REPURCHASE AGREEMENT (2.0%) J.P. Morgan Securities, Inc., 1.05%, dated 6/30/03, due 7/1/03 $ 2,031(g) 2,031 ======================================================================================= U.S. TREASURY BILLS (0.2%) United States Treasury Bill, 0.85%, 7/17/03 100 100 0.98%, 9/25/03 100 100 - --------------------------------------------------------------------------------------- 200 ======================================================================================= TOTAL SHORT-TERM INVESTMENTS (Cost $2,231) 2,231 ======================================================================================= AMOUNT VALUE (000) (000) - --------------------------------------------------------------------------------------- TOTAL INVESTMENTS (100.0%) (Cost $108,640) $ 101,665 ======================================================================================= OTHER ASSETS Cash $ 733 Receivable for Investments Sold 2,133 Interest Receivable 2,123 Other 16 5,005 ======================================================================================= LIABILITIES Payable For: Reverse Repurchase Agreements (27,693) Payable for Investments Purchased (1,693) Dividends Declared (468) Net Unrealized Loss on Foreign Currency Contracts (221) Investment Advisory Fees (44) Directors' Fees and Expenses (29) Professional Fees (27) Stockholders Reporting Expenses (23) Due to Broker (12) Custodian Fees (10) Administrative Fees (5) Other Liabilities (9) (30,234) ======================================================================================= NET ASSETS Applicable to 11,700,448, issued and outstanding $ 0.01 par value shares (100,000,000 shares authorized) $ 76,436 ======================================================================================= NET ASSET VALUE PER SHARE $ 6.53 ======================================================================================= AT JUNE 30, 2003, NET ASSETS CONSISTED OF: Common Stock $ 117 Paid-in Capital 156,145 Undistributed (Distributions in Excess of) Net Investment Income (329) Accumulated Net Realized Gain (Loss) (72,199) Unrealized Appreciation (Depreciation) on Investments, Futures and Foreign Currency Translations (7,298) ======================================================================================= TOTAL NET ASSETS $ 76,436 =======================================================================================
(a) -- Denotes all or portion of securities subject to repurchase under Reverse Repurchase Agreements as of June 30, 2003 see Note A-4 to financial statements. (b) -- 144A Security - Certain conditions for public sale may exist. (c) -- Step Bond - coupon rate increases in increments to maturity. Rate disclosed is as of June 30, 2003. Maturity date disclosed is ultimate maturity. (d) -- Security is in default. (e) -- Non-income producing. (f) -- Securities valued at fair value - see note A-1 to financial statements. At June 30, 2003, the Fund held $86,000 of fair-valued securities representing 0.1% of net assets. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 9 MORGAN STANLEY HIGH YIELD FUND, INC. STATEMENT OF NET ASSETS June 30, 2003 (unaudited) STATEMENT OF NET ASSETS (CONT'D) (g) -- The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statemnent of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated funds. @ -- Value is less than $500. ADR -- American Depositary Receipt PIK -- Payment-in-Kind. Income may be paid in additional securities or cash at the discretion of the issuer. EUR -- Euro GBP -- British Pound SEK -- Swedish Krone FUTURES CONTRACTS: The Fund had the following futures contracts open at period end:
NET UNREALIZED NUMBER GAIN OF VALUE EXPIRATION (LOSS) CONTRACTS (000) DATE (000) - ---------------------------------------------------------------------------- SHORT: 5 Year U.S. Treasury Note 47 $ 5,411 Sept-03 $ 32 10 Year U.S. Treasury Note 60 7,046 Sept-03 (31) - ---------------------------------------------------------------------------- $ 1 ============================================================================
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: The Fund had the following foreign currency exchange contract(s) open at period end:
CURRENCY IN NET TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS) (000) (000) DATE (000) (000) (000) - -------------------------------------------------------------------------------- EUR 3,830 $ 4,408 7/24/03 US$ 4,189 $ 4,189 $ (219) EUR 305 351 7/27/03 US$ 356 356 5 GBP 190 314 7/22/03 US$ 298 298 (16) SEK 2,000 249 9/19/03 US$ 259 259 10 US$ 315 315 7/22/03 GBP 314 314 (1) - -------------------------------------------------------------------------------- $ 5,637 $ 5,416 $ (221) ================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 10 MORGAN STANLEY HIGH YIELD FUND, INC. Financial Statements STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED) (000) - -------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Interest $ 4,628 Dividends 48 ==================================================================================================================== TOTAL INCOME 4,676 ==================================================================================================================== EXPENSES Investment Advisory Fees 245 Interest Expense on Reverse Repos 196 Professional Fees 43 Administrative Fees 24 Custodian Fees 17 Directors' Fees and Expenses 4 Stockholder Reporting Expenses 2 Other Expenses 73 ==================================================================================================================== TOTAL EXPENSES 604 ==================================================================================================================== NET INVESTMENT INCOME 4,072 ==================================================================================================================== NET REALIZED GAIN (LOSS) ON: Investments (15,436) Foreign Currency Transactions (404) Futures Contracts (732) ==================================================================================================================== NET REALIZED GAIN (LOSS) (16,572) ==================================================================================================================== CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments 27,339 Foreign Currency Translations 64 Futures Contracts 404 ==================================================================================================================== CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 27,807 ==================================================================================================================== NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 11,235 ==================================================================================================================== NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 15,307 ====================================================================================================================
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2003 YEAR ENDED (UNAUDITED) DECEMBER 31, 2002 (000) (000) - -------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations: Net Investment Income $ 4,072 $ 9,027 Net Realized Gain (Loss) (16,572) (45,871) Change in Unrealized Appreciation (Depreciation) 27,807 24,964 ==================================================================================================================== NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 15,307 (11,880) ==================================================================================================================== Distributions from and/or in excess of: Net Investment Income (2,807) (9,048) ==================================================================================================================== Capital Share Transactions: Reinvestment of Distributions (9,704 and 34,465 shares, respectively) 58 229 ==================================================================================================================== TOTAL INCREASE (DECREASE) 12,558 (20,699) ==================================================================================================================== Net Assets: Beginning of Period 63,878 84,577 ==================================================================================================================== END OF PERIOD (INCLUDING UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT INCOME OF $(329) AND $(1,594), RESPECTIVELY) $ 76,436 $ 63,878 ====================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 11 MORGAN STANLEY HIGH YIELD FUND, INC. Financial Statements STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED) (000) - ------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Proceeds from Sales and Maturities of Long-Term Investments $ 35,289 Purchases of Long-Term Investments (31,972) Net (Increase) Decrease in Short-Term Investments (489) Net Realized Gain (Loss) on Foreign Currency Transactions (404) Net Realized Gain (Loss) on Futures Contracts (732) Net Investment Income 4,072 ADJUSTMENTS TO RECONCILE NET INVESTMENT INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net (Increase) Decrease in Receivables Related to Operations 112 Net Increase (Decrease) in Payables Related to Operations 163 Accretion/Amortization of Discounts and Premiums (401) - ------------------------------------------------------------------------------------------------ Net Cash Provided by Operating Activities 5,638 - ------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Cash Received (Paid) for Reverse Repurchase Agreements (2,019) Cash Distributions Paid (2,749) - ------------------------------------------------------------------------------------------------ Net Cash Used for Financing Activities (4,768) - ------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Cash 870 CASH AT BEGINNING OF PERIOD (137) - ------------------------------------------------------------------------------------------------ CASH AT END OF PERIOD $ 733 ================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 12 MORGAN STANLEY HIGH YIELD FUND, INC. Financial Highlights SELECTED PER SHARE DATA AND RATIOS
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ----------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 5.46 $ 7.26 $ 9.31 $ 12.73 $ 13.62 $ 15.19 - -------------------------------------------------------------------------------------------------------------------------------- Net Investment Income 0.35+ 0.78+ 1.15 1.26 1.28 1.34 Net Realized and Unrealized Gain (Loss) on Investments 0.96 (1.80) (2.01) (3.38) (0.44) (0.66) - -------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 1.31 (1.02) (0.86) (2.12) 0.84 0.68 - -------------------------------------------------------------------------------------------------------------------------------- Distributions from and/or in excess of: Net Investment Income (0.24) (0.78) (1.19) (1.30) (1.38) (1.42) Net Realized Gain -- -- -- -- -- (0.83) - -------------------------------------------------------------------------------------------------------------------------------- Total Distributions (0.24) (0.78) (1.19) (1.30) (1.38) (2.25) - -------------------------------------------------------------------------------------------------------------------------------- Decrease in Net Asset Value due to Shares issued through Rights Offering -- -- -- -- (0.32) -- - -------------------------------------------------------------------------------------------------------------------------------- Offering Costs -- -- -- -- (0.03) -- - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 6.53 $ 5.46 $ 7.26 $ 9.31 $ 12.73 $ 13.62 ================================================================================================================================ PER SHARE MARKET VALUE, END OF PERIOD $ 6.49 $ 5.38 $ 8.04 $ 9.44 $ 11.06 $ 15.38 ================================================================================================================================ TOTAL INVESTMENT RETURN: Market Value 25.42%** (24.16)% (2.82)% (4.02)% (18.14)% 11.15% Net Asset Value (1) 24.28%** (14.69)% (11.05)% (17.72)% 6.34% 4.12% ================================================================================================================================ RATIOS, SUPPLEMENTAL DATA: - -------------------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (THOUSANDS) $ 76,436 $ 63,878 $ 84,577 $ 107,840 $ 147,289 $ 119,940 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.73%* 2.92% 4.02% 3.84% 2.99% 2.23% Ratio of Expenses Excluding Interest Expense to Average Net Assets 1.06%* 1.25% 1.17% 1.05% 1.09% 1.10% Ratio of Net Investment Income to Average Net Assets 11.64%* 12.69% 13.37% 11.02% 9.43% 9.00% Portfolio Turnover Rate 36%** 56% 51% 35% 40% 78% - --------------------------------------------------------------------------------------------------------------------------------
(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 stockholder'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. + Per share amount is based on average shares outstanding. * Annualized ** Not Annualized THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 13 MORGAN STANLEY HIGH YIELD FUND, INC. June 30, 2003 (unaudited) NOTES TO FINANCIAL STATEMENTS 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. ACCOUNTING POLICIES: The following significant accounting policies are in conformity with accounting principles generally accepted in the United States of America. Such policies are consistently followed by the Fund in the preparation of its financial statements. Accounting principles generally accepted in the United States of America 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 sale price on the valuation date, or if there was no sale on such date, at the mean between the current bid and asked prices or the bid price if only bid quotations are available. Securities which are traded over-the-counter are valued at the mean of the current bid and asked prices obtained from reputable brokers. Securities may be valued by independent pricing services. 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. For all other securities and investments for which market values are not readily available, including restricted securities, and where prices determined in accordance with the aforementioned procedures are not reflective of fair market value, values are determined in good faith, under fair valuation procedures adopted by the Board of Directors, although actual calculations may be done by others. 2. 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. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements. 3. 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, if any, are designated as such in the Statement of Net Assets. At June 30, 2003 the Fund had a reverse repurchase agreement outstanding with Salomon Smith Barney as follows:
MATURITY IN LESS THAN 365 DAYS --------------------------------------------------------------------------- Value of Securities Subject to Repurchase $ 27,498,000 Liability Under Reverse Repurchase Agreement $ 27,693,000 Weighted Average Days to Maturity 30
The weighted average daily balance of reverse repurchase agreements outstanding during the six months ended June 30, 2003, was approximately $28,571,000 at a weighted average interest rate of 1.66%. 4. 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: 14 MORGAN STANLEY HIGH YIELD FUND, INC. June 30, 2003 (unaudited) NOTES TO FINANCIAL STATEMENTS (CONT'D) - 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 have utilized and their associated risks: 5. 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. 6. 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. 7. 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 15 MORGAN STANLEY HIGH YIELD FUND, INC. June 30, 2003 (unaudited) NOTES TO FINANCIAL STATEMENTS (CONT'D) 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. 8. 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 protections afforded to participants in a regulated environment may not be available in connection with such transactions. 9. 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 and discounts and premiums on investments purchased are accreted or amortized in accordance with the effective yield method over their respective lives, except where collection is in doubt. Distributions to stockholders are recorded on the ex-dividend date. B. ADVISER: Morgan Stanley Investment Management Inc. (the "Adviser") provides investment advisory services to the Fund under the terms of an Investment Advisory and Management 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. ADMINISTRATOR: JPMorgan Chase Bank, through its corporate affiliate J.P. Morgan Investor Services Co. (the "Administrator"), provides administrative services to the Fund under an Administration Agreement. The Administrator is paid a fee computed weekly and payable monthly at an annual rate of 0.02435% of the Fund's average weekly net assets, plus $24,000 per annum. In addition, the Fund is charged for certain out-of-pocket expenses incurred by the Administrator on its behalf. D. CUSTODIAN: JPMorgan Chase Bank and its affiliates serve as custodian for the Fund. Custody fees are payable monthly based on assets held in custody, investment purchase and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses. E. FEDERAL INCOME TAXES: It is the Fund's intention to continue to qualify as a regulated investment company and distribute all of its taxable income. Accordingly, no provision for Federal income taxes is required in the financial statements. Dividend income and distributions to stockholders are recorded on the ex-dividend date. The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. The tax character of distributions paid may differ from the character of distributions shown on the Statements of Changes in Net Assets due to short-term capital gains being treated as ordinary income for tax purposes. The tax character of distributions paid during 2002 and 2001 were as follows:
2002 DISTRIBUTIONS 2001 DISTRIBUTIONS PAID FROM: PAID FROM: (000) (000) - ------------------------- --------------------- LONG-TERM LONG-TERM ORDINARY CAPITAL ORDINARY CAPITAL INCOME GAIN INCOME GAIN - -------------------------------------------------- $ 9,048 $ -- $ 13,777 $ --
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 16 MORGAN STANLEY HIGH YIELD FUND, INC. June 30, 2003 (unaudited) NOTES TO FINANCIAL STATEMENTS (CONT'D) differ from accounting principles generally accepted in the United States of America. The book/tax differences are considered either 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 differences may result in reclassifications among undistributed (distributions in excess of) net investment income, accumulated net realized gain (loss) and paid-in capital. Adjustments for permanent book-tax differences, if any, are not reflected in ending undistributed (distributions in excess of) net investment income for the purpose of calculating net investment income (loss) per share in the financial highlights. At December 31, 2002, the Fund had no distributable earnings on a tax basis. At June 30, 2003, the Federal income tax cost basis of securities was $108,640,000 and, accordingly, net unrealized depreciation for Federal income tax purposes was $6,975,000 of which $9,848,000 related to appreciated securities and $16,823,000 related to depreciated securities. At December 31, 2002, the Fund had a capital loss carryforward for U.S. Federal income tax purposes of approximately $34,123,000 available to offset future capital gains of which $1,337,000 will expire on December 31, 2007, $4,197,000 will expire on December 31, 2008, $4,214,000 to expire on December 31, 2009 and $24,375,000 will expire on December 31, 2010. To the extent that capital gains are offset, such gains will not be distributed to the stockholders. Net capital and currency losses incurred after October 31, and within the taxable year are deemed to arise on the first business day of the Fund's next taxable year. For the year ended December 31, 2001, the Fund deferred to January 1, 2002, for U.S. Federal income tax purposes, post-October capital losses of $21,035,000 and post-October currency losses of $230,000. F. OTHER: During the six months ended June 30, 2003, the Fund made purchases and sales totaling approximately $33,665,000 and $37,087,000, 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. 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. 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, 2003, the deferred fees payable under the Plan totaled $29,000 and are included in Payable for Directors' Fees and Expenses on the Statement of Net Assets. The deferred portion of Directors' Fees and Expenses shown on the Statement of Operations is impacted by fluctuations in the market value of the investments selected by each Director. For the six months ended June 30, 2003, Directors' Fees and Expenses were increased by $2,700 due to these fluctuations. On June 17, 2003, the Board of Directors declared a distribution of $0.04 per share, derived from net investment income, payable on July 15, 2003, to stockholders of record on June 30, 2003. PROPOSAL: 1. To elect the following Directors, effective July 31, 2003:
VOTES IN VOTES FAVOR OF AGAINST ------------------------------ 1) Michael Bozic 10,331,119 192,315 2) Charles A. Fiumefreddo 10,331,969 192,465 3) Edwin J. Garn 10,331,969 192,465 4) Wayne E. Hedien 10,331,969 192,465 5) James F. Higgins 10,331,969 192,465 6) Dr. Manuel H. Johnson 10,331,969 192,465 7) Philip J. Purcell 10,331,969 192,465
Also effective July 31, 2003, John D. Barrett II, Thomas P. Gerrity, Gerard E. Jones, Vincent R. McLean, C. Oscar Morong, Jr. and William G. Morton, Jr. have resigned from the Board of Directors. 17 MORGAN STANLEY HIGH YIELD FUND, INC. DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"), each stockholder will be deemed to have elected, unless American Stock Transfer & Trust Company (the "Plan Agent") is otherwise instructed by the stockholder in writing, to have all distributions automatically reinvested in Fund shares. Participants in the Plan have the option of making additional voluntary cash payments to the Plan Agent, annually, in any amount from $100 to $3,000, for investment in Fund shares. Dividend and capital gain distributions will be reinvested on the reinvestment date in full and fractional shares. If the market price per share equals or exceeds net asset value per share on the reinvestment date, the Fund will issue shares to participants at net asset value. If net asset value is less than 95% of the market price on the reinvestment date, shares will be issued at 95% of the market price. If net asset value exceeds the market price on the reinvestment date, participants will receive shares valued at market price. The Fund may purchase shares of its Common Stock in the open market in connection with dividend reinvestment requirements at the discretion of the Board of Directors. Should the Fund declare a dividend or capital gain distribution payable only in cash, the Plan Agent will purchase Fund shares for participants in the open market as agent for the participants. The Plan Agent's fees for the reinvestment of dividends and distributions will be paid by the Fund. However, each participant's account will be charged a pro rata share of brokerage commissions incurred on any open market purchases effected on such participant's behalf. A participant will also pay brokerage commissions incurred on purchases made by voluntary cash payments. Although stockholders 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 stockholders, 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 stockholder as representing the total amount registered in the stockholder's name and held for the account of beneficial owners who are participating in the Plan. Stockholders who do not wish to have distributions automatically reinvested should notify the Plan Agent in writing. There is no penalty for non-participation or withdrawal from the Plan, and stockholders 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 High Yield Fund, Inc. American Stock Transfer & Trust Company Dividend Reinvestment and Cash Purchase Plan 59 Maiden Lane New York, New York 10030 1-800-278-4353 18 ITEM 2. CODE OF ETHICS. Not applicable for semi-annual reports. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable for semi-annual reports. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable for semi-annual reports. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable for semi-annual reports. ITEM 6. [RESERVED.] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable for semi-annual reports. ITEM 8. [RESERVED.] ITEM 9. CONTROLS AND PROCEDURES. The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Fund's internal controls or in other factors that could significantly affect the Fund's internal controls subsequent to the date of their evaluation. ITEM 10. EXHIBITS. (a) Code of Ethics - Not applicable for semi-annual reports. (b) Certifications of Principal Executive Officer and Principal Financial Officer attached hereto as part of EX-99.CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Morgan Stanley High Yield Fund, Inc. By: Ronald E. Robison Name: Ronald E. Robison Title: Principal Executive Officer Date: August 19, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: Ronald E. Robison Name: Ronald E. Robison Title: Principal Executive Officer Date: August 19, 2003 By: James W. Garrett Name: James W. Garrett Title: Principal Financial Officer Date: August 19, 2003 EX-99.302 3 a2117680zex-99_302.txt EXHIBIT 99.302 Section 302 I, James Garrett, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley High Yield Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 19, 2003 /s/James Garrett ------------------------------ Principal Financial Officer Section 302 I, Ronald E. Robison, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley High Yield Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 19, 2003 /s/Ronald E. Robison ------------------------------ Principal Executive Officer EX-99.906 4 a2117680zex-99_906.txt EXHIBIT 99.906 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Name of Issuer: Morgan Stanley High Yield Fund, Inc. In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended June 30, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: August 19, 2003 /s/James Garrett ------------------------------ James Garrett Principal Financial Officer A signed original of this written statement requires by Section 906 has been provided to Morgan Stanley High Yield Fund, Inc. and will be retained by Morgan Stanley High Yield Fund, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Name of Issuer: Morgan Stanley High Yield Fund, Inc. In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended June 30, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: August 19, 2003 /s/Ronald E. Robison ------------------------------ Ronald E. Robison Principal Executive Officer A signed original of this written statement requires by Section 906 has been provided to Morgan Stanley High Yield Fund, Inc. and will be retained by Morgan Stanley High Yield Fund, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----