<Page>
-----------------------------
OMB APPROVAL
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OMB Number: 3235-0570
Expires: November 30, 2005
Estimated average burden
hours per response....... 5.0
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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.
<Page>
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:
<Page>
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
<Page>
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
<Page>
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)
<Table>
<Caption>
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
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
<Page>
MORGAN STANLEY HIGH YIELD FUND, INC.
STATEMENT OF NET ASSETS
June 30, 2003 (unaudited)
STATEMENT OF NET ASSETS (CONT'D)
<Table>
<Caption>
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
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
<Page>
MORGAN STANLEY HIGH YIELD FUND, INC.
STATEMENT OF NET ASSETS
June 30, 2003 (unaudited)
STATEMENT OF NET ASSETS (CONT'D)
<Table>
<Caption>
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
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
<Page>
MORGAN STANLEY HIGH YIELD FUND, INC.
STATEMENT OF NET ASSETS
June 30, 2003 (unaudited)
STATEMENT OF NET ASSETS (CONT'D)
<Table>
<Caption>
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
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
<Page>
MORGAN STANLEY HIGH YIELD FUND, INC.
STATEMENT OF NET ASSETS
June 30, 2003 (unaudited)
STATEMENT OF NET ASSETS (CONT'D)
<Table>
<Caption>
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
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
<Page>
MORGAN STANLEY HIGH YIELD FUND, INC.
STATEMENT OF NET ASSETS
June 30, 2003 (unaudited)
STATEMENT OF NET ASSETS (CONT'D)
<Table>
<Caption>
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
=======================================================================================
<Caption>
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
=======================================================================================
<Caption>
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
=======================================================================================
<Caption>
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
=======================================================================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
<Page>
MORGAN STANLEY HIGH YIELD FUND, INC.
STATEMENT OF NET ASSETS
June 30, 2003 (unaudited)
STATEMENT OF NET ASSETS (CONT'D)
<Table>
<Caption>
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
=======================================================================================
<Caption>
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
=======================================================================================
<Caption>
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
=======================================================================================
</Table>
(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
<Page>
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:
<Table>
<Caption>
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
============================================================================
</Table>
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
The Fund had the following foreign currency exchange contract(s) open at
period end:
<Table>
<Caption>
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)
================================================================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
<Page>
MORGAN STANLEY HIGH YIELD FUND, INC.
Financial Statements
STATEMENT OF OPERATIONS
<Table>
<Caption>
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
====================================================================================================================
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
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
====================================================================================================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
<Page>
MORGAN STANLEY HIGH YIELD FUND, INC.
Financial Statements
STATEMENT OF CASH FLOWS
<Table>
<Caption>
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
================================================================================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
12
<Page>
MORGAN STANLEY HIGH YIELD FUND, INC.
Financial Highlights
SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
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%
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
(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
<Page>
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:
<Table>
<Caption>
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
</Table>
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
<Page>
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
<Page>
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:
<Table>
<Caption>
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 $ --
</Table>
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
<Page>
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:
<Table>
<Caption>
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
</Table>
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
<Page>
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
<Page>
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.
<Page>
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