(ICON)
Prudential
High Yield
Fund, Inc.
ANNUAL
REPORT
Dec. 31, 1996
(LOGO)
<PAGE>
Prudential High Yield Fund, Inc.
Performance At A Glance.
High yield corporate bonds were the securities of choice in the U.S. bond
market in 1996, leading all other types of bonds in total return. Although
interest rates rose in 1996, the high coupons and the strong profitability of
most high yield issuers powered these bonds ahead of all others. Your
Prudential High Yield Fund, Inc. generated double-digit returns in 1996, and
ended the year with a 30-day SEC yield which was significantly higher than the
average high yield fund tracked by Lipper Analytical Services. However, the
Fund's total return was lower than the Lipper average because holdings with
strong credit ratings generally did not perform as well as those with weaker
ratings, and because of losses in holdings in paging and wireless cable
companies.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 12/31/96
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 12.6% 76.8% N/A 115.7%
Class B 12.0 71.8 132.8% 468.7
Class C 12.0 N/A N/A 30.5
Class Z N/A N/A N/A 8.8
Lipper High Current Yield Avg3 13.7 77.4 147.0 **
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 12/31/96
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 8.1% 11.2% N/A 11.1%
Class B 7.0 11.3 8.8% 10.3
Class C 11.0 N/A N/A 11.6
</TABLE>
<TABLE>
<CAPTION>
Dividends
& Yields
As of Total Dividends 30-Day
12/31/9 Paid for 12 Mos. SEC Yield
<S> <C> <C>
Class A $0.77 9.03%
Class B $0.73 8.80
Class C $0.73 8.80
Class Z $0.65 9.57
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper Analytical Services. The
cumulative total returns do not take into account sales charges. The average
annual returns do take into account applicable sales charges. The Fund charges
a maximum front-end sales load of 4% for Class A shares and a declining
contingent deferred sales charge of 5%, 4%, 3%, 2%, 1% and 1% for six years,
for Class B shares. Class C shares have a 1% CDSC for one year. Class B shares
automatically convert to Class A shares on a quarterly basis, after
approximately seven years. Class Z shares are not subject to a sales charge or
a distribution fee. Since Class Z shares have been in existence less than one
year, no average annual total returns are shown.
2Inception dates: 1/22/90 Class A; 3/29/79 Class B; 8/1/94 Class C; 3/1/96
Class Z.
3These are the cumulative total returns of 148 funds in the Lipper High Current
Yield Fund category for one year, 63 funds for five years and 43 funds for 10
years.
** Lipper since inception returns were Class A:125.8% for 58 funds; Class B:
551.2% for 19 funds; Class C: 30.4% for 105 funds; and Class Z: 10.6% for 154
funds. Lipper provides data on a monthly basis, so for comparative purposes,
these returns reflect the Fund's first full calendar month of performance.
How Investments Compared.
(As of 12/31/96)
(CHART)
U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds
Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide 12-
month total returns for several Lipper mutual fund categories to show you that
reaching for higher yields means tolerating more risk. The greater the risk,
the larger the potential reward or loss. In addition, we've included historical
20-year average annual returns. These returns assume the reinvestment of
dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been generally
among the lowest of the major investment categories.
<PAGE>
Lars M. Berkman, Fund Manager
(PHOTO)
Portfolio
Manager's Report
The Fund invests primarily in corporate bonds rated BBB or lower by independent
rating agencies. These bonds are below investment grade and are commonly known
as junk bonds. As a result, these bonds are subject to greater risk of default
than investment grade bonds. The Fund is well diversified. Within the junk bond
market, our research staff looks for bonds with attractive yields and improving
credit quality. There can be no assurance that the Fund will achieve its
investment objective.
Better-Rated Junk Bonds?
We generally look for better-rated bonds, namely those in the B and BB
categories within the junk bond market. Why? Because we're cautious. If the
economy weakens, these bonds should hold their value better than weaker-rated
bonds with more credit risk.
Strategy Session.
A Very Good Year.
1996 was a good year for high yield bonds. The high yield market returned more
than twice as much as any other sector of the U.S. bond market in 1996. The
strength of the market was reflected not only in total return, but in the
volume of new bonds sold ($77 billion) and in the amount of new money invested
in high yield mutual funds ($16 billion).
The major factor driving high yield bonds higher in 1996 was a strong economy.
Although interest rates rose in 1996, inflation remained under control and
economic growth was solid. That powered good earnings growth for the average
high yield company. Also, the stock market was so strong that many of the
better quality high yield companies were able to sell common stock and use
those proceeds to reduce debt. As a result, the default rate of the high yield
market was cut in half, from about 3% in 1995 to 1.5% in 1996.
Would Growth Slow?
We had expected slower economic growth in 1996. Therefore, we focused on the
larger, stronger companies in the high yield market by buying bonds with weak
BB and single B credit ratings, which have less risk than the weaker single
B- or CCC-rated bonds. We held more assets than the general market in defensive
industries such as telecommunications, cable TV and health care.
During the year we also benefited when the credit ratings of a number of our
larger holdings were upgraded by rating agencies. These upgrades resulted
either from a merger with a stronger company or because either Moody's or
Standard & Poor's recognized that the strong profit growth and lower debt
ratios of the company merited a better rating.
Credit Quality.
Expressed as a percentage of
total investments as of 12/31/96.
(PIE CHART)
<PAGE>
What Went Well.
Urge To Merge.
1996 was a year of heavy merger activity in corporate America, and a number of
high yield companies merged into investment grade companies, generating strong
capital gains for high yield bondholders.
We owned a large position (2.1% of total net assets) in MFS Communications, an
expanding U.S. local telephone company, which was acquired by WorldCom, the
nation's fourth largest long distance telephone company.
In addition, Bell Cablemedia (0.6% of assets) combined with Videotron Holdings
(0.4% of assets). Both of these companies are leading cable/telephone companies
in the United Kingdom, and their merger created a much stronger credit so that
bonds of both companies rose strongly after their merger was announced.
And finally, we owned significant positions in Bally's Park Place and Bally's
Grand bonds (totalling 1.0% of assets), so that when Bally's was merged into
Hilton (an investment grade company) the Bally bonds rallied sharply.
And Not So Well.
Crossed Wires.
At the beginning of the year we were attracted to the great potential in the
paging sector of the telecommunications industry and the wireless sector of
the cable television industry. Paging offered strong growth, and wireless
cable seemed like a natural match for local telephone companies looking to
provide video to their customers. Unfortunately, both industries short-
circuited on us.
Paging encountered problems in the second half of the year when the second-
largest company, Mobilemedia, had difficulty integrating a major acquisition.
We sold our Mobilemedia position because of the company's operating problems,
but we held on to the better quality paging companies such as Pagenet and
Pagemart because we believe these companies will perform well in 1997.
We also experienced losses in wireless cable television. We thought that these
companies would be natural candidates for mergers or joint ventures with local
telephone companies. Unfortunately, these mergers did not occur on schedule.
We reduced our holdings in the riskier companies, while retaining those that
we feel have the highest chance of improving their credit quality.
Five Largest
Issuers.
3.0% Cablevision System Corp.
Cable
2.5% Tenet Healthcare Corp.
Drugs & Healthcare
2.4% Rogers Cablesystems, Inc.
Cable
2.2% HMH Properties, Inc.
Leisure & Tourism
2.1% MFS Communications, Inc.
Telecommunications
Expressed as a percentage of total net assets as of 12/31/96.
Looking Ahead.
We remain concerned that economic growth may slow later in 1997. We are also
concerned about the large amount of new bonds that have been sold over the
past several years. As a result, the default rate could increase. While we do
not expect defaults to rise dramatically, we do believe that the rate will
drift higher.
Therefore, we are continuing our focus on defensive industries such as
telecommunications and cable television, and we are holding less than a market
weighting of heavy industries that benefit from a strong economy, like steel,
forest products and retail. We continue to focus on the larger companies in the
high yield market, and on companies with credit ratings of single B and BB.
- -------------------------------------------------------------------------------
1
<PAGE>
President's Letter February 3, 1997
(PHOTO)
Dear Shareholder:
For many investors, 1996 was the second year of back-to-back, double-digit
stock market returns. In late November, the Dow Jones Industrial Average
passed 6500 -- only weeks after breaking the 6000 mark in mid-October -- and
another record high was reached in January 1997. America's economic expansion
is entering its sixth year and there seems little evidence of an end to the
continued modest growth and low inflation we've enjoyed for the last several
years.
This is good news. For most investors it's meant an increase in their share
values for college funds, retirement nest eggs or other long-term financial
goals. However, as you read your year-end account statements and make plans
for 1997, it's important to remember that there never is a "sure thing" when
it comes to investment returns. Stock and bond markets go down just as they go
up. (Did you notice the brief period of decline this past summer?) No one
likes to see the value of their investments fall but such periods remind us we
must keep our expectations realistic.
Regardless of the market's direction, a wise investor plans for tomorrow's
needs today. Your Financial Advisor or Registered Representative can help you:
- - Review your portfolio and suggest strategies for 1997, such as diversifying
across different types of investments. Financial markets seldom move in
lockstep. By investing in a mix of stock and bond funds (foreign & domestic)
and money market funds you may be in a better position to achieve your long-
term goals and to weather periods of uncertainty.
- - See why annuities have become popular retirement planning tools. The choices
are broader than ever. Our new Discovery SelectSM Variable Annuity offers you
many of the keys to successful retirement planning, including a personalized
asset allocation program and a choice of 21 variable- or fixed-rate investment
options offering a broad array of investment objectives and styles.
- - Explain new retirement savings developments. For example, Congress has
expanded the contribution limit on spousal IRAs. And don't forget, it's not
too late for you to make a contribution to your IRA or open one for 1996.
The IRS deadline is April 15, 1997, but it's best to act sooner.
Why not contact your Financial Advisor or Registered Representative today? If
you are interested in Discovery SelectSM call for a prospectus, which contains
more complete information. Read it carefully before you invest.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
P.S. Your 1997 Prudential IRA contribution may qualify you for a waiver of the
annual custodial fee. Ask your financial representative for details.
- -------------------------------------------------------------------------------
2
<PAGE>
Portfolio of Investments
as of December 31, 1996 PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--93.8%
BONDS--89.5%
- ------------------------------------------------------------------------------------------------------------------------------
Aerospace--0.7%
Sequa Corp., Sr. Sub. Notes B3 9.375% 12/15/03 $ 27,750 $ 28,305,000
- ------------------------------------------------------------------------------------------------------------------------------
Automotive Parts--2.5%
Exide Corp., Sr. Notes B1 10.00 4/15/05 25,050 25,989,375
Foamex JPS Automotive L.P.,
Sr. Disc. Notes, Zero Coupon (until 7/1/99) NR 14.00 7/01/04 20,250 16,807,500
Sr. Notes B2 11.125 6/15/01 21,700 23,273,250
Sr. Sub. Deb. B3 11.875 10/01/04 2,000 2,130,000
Foamex L.P., Sr. Sub. Deb., Ser. B B3 11.875 10/01/04 6,910 7,324,600
Hayes Wheels Int'l., Inc., Sr. Sub. Notes B3 11.00 7/15/06 26,500 28,918,125
--------------
104,442,850
- ------------------------------------------------------------------------------------------------------------------------------
Broadcasting & Other Media--5.9%
Allbritton Communications Co., Sr. Sub. Deb. B3 9.75 11/30/07 9,400 9,118,000
Benedek Broadcasting Corp., Sr. Notes Ba3 11.875 3/01/05 16,650 18,148,500
Benedek Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 5/15/01) B3 13.25 5/15/06 12,000 6,900,000
Globo Communications, Sr. Notes NR 10.50 12/20/06 25,900 26,126,625
Grupo Televisa S. A.,
Sr. Notes Ba3 11.375 5/15/03 25,500 27,157,500
Sr. Notes NR 11.875 5/15/06 9,000 9,945,000
Jacor Communications Co., Sr. Sub. Notes B2 9.75 12/15/06 17,500 17,850,000
Lamar Advertising Co., Sr. Sub. Notes B1 9.625 12/01/06 13,500 13,905,000
Outdoor Systems, Inc., Sr. Sub. Notes B1 9.375 10/15/06 28,000 28,840,000
Paxson Communications Corp., Sr. Sub. Notes B3 11.625 10/01/02 10,500 10,946,250
SFX Broadcasting, Inc., Sr. Sub. Notes B3 10.75 5/15/06 22,820 24,075,100
Telemundo Group, Inc., Sr. Disc. Notes B1 7.00 2/15/06 20,000 19,300,000
Universal Outdoor, Inc., Sr. Sub. Notes B1 9.75 10/15/06 14,900 15,384,250
Young Broadcasting, Inc.,
Sr. Sub. Notes B2 10.125 2/15/05 21,300 21,832,500
Sr. Sub. Notes B2 9.00 1/15/06 4,000 3,890,000
--------------
253,418,725
- ------------------------------------------------------------------------------------------------------------------------------
Building & Related Industries--3.2%
Building Material Corp. of America, Sr. Notes,
Zero Coupon (until 7/1/99) Ba3 11.75 7/01/04 28,750 24,868,750
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
<PAGE>
Portfolio of Investments
as of December 31, 1996 PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Building & Related Industries (cont'd.)
Greystone Homes Corp., Sr. Notes B2 10.75% 3/01/04 $ 14,900 $ 15,235,250
Kaufman & Broad Home Corp., Sr. Sub. Notes Ba3 9.625 11/15/06 25,000 25,062,500
Nortek, Inc., Sr. Sub. Notes B3 9.875 3/01/04 27,125 27,396,250
NVR, Inc., Sr. Notes B2 11.00 4/15/03 15,600 16,380,000
U.S. Home Corp., Sr. Notes Ba2 9.75 6/15/03 24,580 25,501,750
--------------
134,444,500
- ------------------------------------------------------------------------------------------------------------------------------
Cable--17.8%
Adelphia Communications Corp., Sr. Notes, PIK B3 9.50 2/15/04 39,043 33,771,998
American Telecasting, Inc.,
Sr. Disc. Notes, Zero Coupon (until 6/15/99) Caa 14.50 6/15/04 8,500 3,485,000
Sr. Disc. Notes, Zero Coupon (until 8/15/00) Caa 14.50 8/15/05 36,000 12,600,000
Bell Cablemedia Co.,
Sr. Disc. Notes, Zero Coupon (until 1/15/00) B2 11.95 7/15/04 26,975 23,535,687
Sr. Disc. Notes, Zero Coupon (until 9/15/00) B2 11.875 9/15/05 3,150 2,527,875
C S Wireless Systems, Inc., Sr. Disc. Notes,
Zero Coupon (until 3/1/01) Caa 11.375 3/01/06 16,000 5,840,000
Cablevision Systems Corp.,
Sr. Sub. Notes B2 9.25 11/01/05 48,060 47,579,400
Sr. Sub. Notes B2 9.875 2/15/13 25,950 25,560,750
CAI Wireless Systems, Inc., Sr. Notes Caa 12.25 9/15/02 25,950 11,937,000
Comcast Corp.,
Sr. Sub. Deb. B1 9.375 5/15/05 17,300 17,948,750
Sr. Sub. Notes B1 9.125 10/15/06 23,500 24,087,500
Comcast UK Cable Corp., Sr. Disc. Deb.,
Zero Coupon (until 11/15/00) B2 11.20 11/15/07 9,850 6,845,750
Diamond Cable Co., Sr. Disc. Notes, Zero Coupon
(until 3/31/04) B3 13.25 9/30/04 27,400 22,468,000
Echostar Satellite,
Sr. Disc. Notes, Zero Coupon (until 3/15/00) Caa 13.125 3/15/04 28,500 21,517,500
Echostar Communications Corp.,
Sr. Disc. Notes, Zero Coupon (until 6/1/99) B2 12.875 6/01/04 32,291 26,640,075
Falcon Holdings Corp. L.P., Sr. Sub. Notes, PIK NR 11.00 9/15/03 35,270 31,566,819
Heartland Wireless Communication, Inc., Sr. Notes NR 13.00 4/15/03 6,500 6,305,000
Intermedia Capital Partners, Sr. Notes B2 11.25 8/01/06 35,250 36,263,437
International Cabletel, Inc.,
Sr. Disc. Notes, Zero Coupon (until 4/15/00) B3 12.75 4/15/05 25,950 19,462,500
Sr. Disc. Notes, Zero Coupon (until 2/1/01) B3 11.50 2/01/06 25,500 17,340,000
Kablemedia Holdings, Sr. Disc. Notes, Zero Coupon
(until 8/1/01) B3 13.625 8/01/06 17,000 9,520,000
Lenfest Communications, Inc.,
Sr. Notes Ba3 8.375 11/01/05 64,650 62,468,063
Sr. Sub. Notes B2 10.50 6/15/06 10,000 10,500,000
</TABLE>
- --------------------------------------------------------------------------------
- -----4 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments
as of December 31, 1996 PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Cable (cont'd.)
Lodgenet Entertainment Corp., Sr. Notes B1 10.25% 12/15/06 $ 3,000 $ 3,007,500
Marcus Cable Operating Co., Sr. Sub. Disc. Notes,
Zero Coupon (until 8/1/99) B3 13.50 8/01/04 54,000 44,280,000
Rifkin Acquisitions Partners L.P., Sr. Sub. Notes B3 11.125 1/15/06 17,750 18,504,375
Rogers Cablesystems, Inc.,
Sr. Sec'd Notes Ba3 10.00 3/15/05 66,075 70,369,875
Sr. Sec'd. Deb. Ba3 10.00 12/01/07 12,000 12,660,000
Sr. Sec'd. Deb. Ba3 10.125 9/01/12 19,575 20,309,062
Telewest Plc, Sr. Disc. Deb., Zero Coupon (until
10/1/00) B1 11.00 10/01/07 45,400 31,666,500
Tevecap S.A., Sr. Notes B2 12.625 11/26/04 15,000 15,337,500
United Int'l. Holdings, Inc., Sr. Disc. Notes B3 Zero 11/15/99 51,600 36,894,000
Videotron Holdings Plc,
Sr. Disc. Notes, Zero Coupon (until 1/1/00) B3 11.125 7/01/04 12,375 10,766,250
Sr. Disc. Notes, Zero Coupon (until 8/15/00) B3 11.00 8/15/05 10,300 8,291,500
--------------
751,857,666
- ------------------------------------------------------------------------------------------------------------------------------
Casinos--1.4%
Casino America Corp., Sr. Sec'd. Notes B1 12.50 8/01/03 10,000 9,475,000
Empress River Casino Finance Corp., Sr. Notes Ba3 10.75 4/01/02 16,000 17,360,000
Majestic Star Casino LLC., Sr. Notes NR 12.75 5/15/03 6,000 6,435,000
Trump Atlantic City Assocs., First Mtge. Notes B1 11.25 5/01/06 25,600 25,344,000
--------------
58,614,000
- ------------------------------------------------------------------------------------------------------------------------------
Chemicals--2.4%
ISP Holdings, Inc.,
Sr. Notes Ba3 9.75 2/15/02 29,081 29,808,025
Sr. Notes Ba3 9.00 10/15/03 26,250 26,643,750
Sterling Chemical Holdings, Inc.,
Sr. Disc. Notes, Zero Coupon (until 8/15/01) Caa 13.50 8/15/08 5,450 3,188,250
Sr. Sub. Notes B3 11.75 8/15/06 10,000 10,600,000
Terra Industries, Inc., Sr. Notes Ba3 10.50 6/15/05 24,100 26,148,500
Texas Petrochemical Corp., Sr. Sub. Notes NR 11.125 7/01/06 5,000 5,375,000
--------------
101,763,525
- ------------------------------------------------------------------------------------------------------------------------------
Computer Services--0.7%
Unisys Corp., Sr. Notes B1 11.75 10/15/04 30,000 32,025,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
Portfolio of Investments
as of December 31, 1996 PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Products--1.3%
Knoll Furniture, Inc., Sr. Sub. Notes B3 10.875% 3/15/06 $ 16,500 $ 18,232,500
Lifestyle Furnishings, Inc., Sr. Sub. Notes B1 10.875 8/01/06 27,500 29,493,750
Radnor Holdings Corp., Sr. Notes B2 10.00 12/01/03 8,400 8,568,000
--------------
56,294,250
- ------------------------------------------------------------------------------------------------------------------------------
Diversified Industries--0.3%
Newflo Corp., Sub. Notes B3 13.25 11/15/02 10,500 11,589,375
- ------------------------------------------------------------------------------------------------------------------------------
Drugs & Health Care--6.4%
Fresenius Med Care Capital Trust Ba3 9.00 12/01/06 40,500 41,208,750
Imed Corp., Sr. Sub. Notes B3 9.75 12/01/06 22,475 22,868,313
Integrated Health Services, Inc., Sr. Sub. Notes B1 10.25 4/30/06 37,500 39,375,000
Magellan Health Services, Inc., Sr. Sub. Notes B2 11.25 4/15/04 48,350 53,426,750
Owens & Minor, Inc., Sr. Sub. Notes B1 10.875 6/01/06 9,600 10,296,000
Tenet Healthcare Corp., Sr. Sub. Notes Ba3 10.125 3/01/05 94,000 104,105,000
--------------
271,279,813
- ------------------------------------------------------------------------------------------------------------------------------
Energy--8.2%
AES China Generating Co., Notes Ba3 10.125 12/15/06 6,750 6,952,500
AES Corp., Sr. Sub. Notes Ba1 10.25 7/15/06 27,000 29,092,500
Benton Oil & Gas Co., Sr. Notes NR 11.625 5/01/03 11,300 12,444,125
Cal Energy Co., Inc., Sr. Notes Ba2 9.50 9/15/06 13,000 13,520,000
California Energy Co., Inc.,
Disc. Notes, Zero Coupon (until 1/15/97) Ba2 10.25 1/15/04 56,500 59,536,875
Sr. Notes Ba2 9.875 6/30/03 7,100 7,455,000
Cliffs Drilling Co., Sr. Notes B1 10.25 5/15/03 8,800 9,361,000
Coda Energy, Inc., Notes B3 10.50 4/01/06 10,000 10,500,000
Forcenergy, Inc., Sr. Sub. Notes B2 9.50 11/01/06 10,000 10,400,000
Gulf Canada Resources, Ltd.,
Sr. Sub. Deb. Ba3 9.25 1/15/04 29,730 31,439,475
Sr. Sub. Notes Ba3 9.625 7/01/05 31,720 34,336,900
KCS Energy, Inc., Sr. Notes B1 11.00 1/15/03 14,250 15,390,000
McDermott J. Ray, Sr. Sub. Notes Ba3 9.375 7/15/06 24,000 25,200,000
Parker Drilling Corp., Sr. Notes B1 9.75 11/15/06 13,600 14,348,000
Petroleum Heat & Power, Inc., Sub. Notes B2 10.125 4/01/03 8,010 7,809,750
Plains Resources, Inc., Sr. Sub. Notes B2 10.25 3/15/06 11,000 11,770,000
Transtexas Gas Corp., Sr. Sec'd. Notes B2 11.50 6/15/02 27,250 29,430,000
Triton Energy Corp., Sr. Sub. Disc. Notes B1 9.75 12/15/00 16,314 17,027,737
--------------
346,013,862
</TABLE>
- --------------------------------------------------------------------------------
- -----6 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments
as of December 31, 1996 PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Financial Services--1.1%
First Nationwide Holdings, Inc.,
Sr. Notes B2 12.50% 4/15/03 $ 26,750 $ 29,960,000
Sr. Sub. Notes Ba3 10.625 10/01/03 16,000 17,280,000
--------------
47,240,000
- ------------------------------------------------------------------------------------------------------------------------------
Food & Beverage--3.2%
Canandaigua Wine, Inc., Sr. Sub. Notes B1 8.75 12/15/03 14,750 14,381,250
Curtice Burns Foods, Inc., Sr. Sub. Notes B3 12.25 2/01/05 21,080 21,975,900
Del Monte Corp., Sub. Notes, PIK,
(cost $14,871,749; purchased on various dates:
3/12/93 through 9/11/96) NR 12.25 9/01/02 14,713(b) 15,007,260
Fresh Del Monte Produce, N.V., Sr. Notes Caa 10.00 5/01/03 32,698 31,226,590
International Home Foods, Inc., Sr. Sub. Notes B2 10.375 11/01/06 9,600 9,912,000
PM Holdings Corp., Sr. Sub. Disc. Notes,
Zero Coupon (until 9/1/98) B3 11.50 9/01/05 13,237 8,537,865
PSF Holdings, LLC, Sr. Sec'd. Notes, PIK,
(cost $10,480,477; purchased 5/20/94) NR 11.00 9/17/03 10,480(b) 10,847,294
Specialty Foods Corp.,
Sr. Notes B3 11.125 10/01/02 9,490 9,015,500
Sr. Unsec'd. Notes B3 10.25 8/15/01 16,500 15,262,500
--------------
136,166,159
- ------------------------------------------------------------------------------------------------------------------------------
Industrials--0.4%
Clark Materials Handling Corp., Sr. Notes B1 10.75 11/15/06 8,000 8,320,000
IMO Industries, Inc., Sr. Sub. Notes Caa 11.75 5/01/06 10,000 9,300,000
--------------
17,620,000
- ------------------------------------------------------------------------------------------------------------------------------
Leisure & Tourism--4.5%
HMC Acquisition Properties, Inc., Sr. Notes Ba3 9.00 12/15/07 48,260 48,983,900
HMH Properties, Inc., Sr. Notes Ba3 9.50 5/15/05 90,500 94,120,000
John Q Hammons Hotels,
First Mtge. Notes B1 8.875 2/15/04 34,365 33,935,438
First Mtge. Notes B1 9.75 10/01/05 13,750 13,990,625
--------------
191,029,963
- ------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Services--0.6%
Coinstar, Inc., Sr. Sub. Notes, Zero Coupon (until
10/1/99),
(cost $6,550,652; purchased 10/17/96) NR 13.00 10/01/06 9,300(b)(d) 6,603,093
United Stationer Supply Co., Sr. Sub. Notes B3 12.75 5/01/05 18,000 19,890,000
--------------
26,493,093
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
Portfolio of Investments
as of December 31, 1996 PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Producrts--4.4%
Container Corp., Sr. Notes B1 11.25% 5/01/04 $ 28,500 $ 30,922,500
Gaylord Container Corp., Sr. Sub. Disc. Notes Caa 12.75 5/15/05 40,090 44,299,450
Ivex Packaging Corp., Sr. Sub. Notes B3 12.50 12/15/02 11,000 11,907,500
Pacific Lumber Co., Sr. Notes B3 10.50 3/01/03 27,653 28,067,795
Repap New Brunswick, Inc., Sr. Sec'd. Notes B3 10.625 4/15/05 24,350 25,324,000
Stone Consolidated, Inc., Sr. Sec'd. Notes Ba1 10.25 12/15/00 41,650 44,357,250
--------------
184,878,495
- ------------------------------------------------------------------------------------------------------------------------------
Plastic Products--0.5%
Applied Extrusion Technology, Inc., Sr. Notes B2 11.50 4/01/02 19,800 20,790,000
- ------------------------------------------------------------------------------------------------------------------------------
Publishing--0.3%
Affiliated Newspapers, Sr. Disc. Notes, Zero Coupon
(until 7/1/99) B3 13.25 7/01/06 10,250 8,456,250
Big Flower Press, Inc., Sr. Sub. Notes B2 10.75 8/01/03 4,334 4,615,710
--------------
13,071,960
- ------------------------------------------------------------------------------------------------------------------------------
Retail--1.0%
Brylane L.P., Sr. Sub. Notes B2 10.00 9/01/03 10,000 10,300,000
Cole National Group, Inc., Sr. Sub. Notes,
(cost $17,149,750; purchased 11/13/96 and
11/22/96) B2 9.875 12/31/06 17,200(b) 17,716,000
Specialty Retailers, Inc., Sr. Sub. Notes B3 11.00 8/15/03 14,290 14,718,700
--------------
42,734,700
- ------------------------------------------------------------------------------------------------------------------------------
Steel & Metals--1.2%
Maxxam Group Holdings, Inc., Sr. Notes B3 12.00 8/01/03 9,000 9,180,000
Silgan Corp., Sr. Sub. Notes B3 11.75 6/15/02 16,695 17,780,175
United States Can Corp., Sr. Sub. Notes B2 10.125 10/15/06 8,000 8,410,000
WCI Steel, Inc., Sr. Notes B2 10.00 12/01/04 15,000 15,300,000
--------------
50,670,175
- ------------------------------------------------------------------------------------------------------------------------------
Supermarkets--2.2%
Food 4 Less Holdings, Inc., Sr. Disc. Deb.,
Zero Coupon (until 6/15/00) Caa 13.625 7/15/05 15,200 9,576,000
Pathmark Stores, Inc.,
Sr. Sub. Notes B3 9.625 5/01/03 10,288 9,850,760
Sub. Notes Caa 11.625 6/15/02 10,000 10,150,000
Sub. Notes Caa 12.625 6/15/02 10,500 10,893,750
</TABLE>
- --------------------------------------------------------------------------------
- -----8 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments
as of December 31, 1996 PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Supermarkets (cont'd.)
Pueblo Xtra Int'l., Inc., Sr. Notes B2 9.50% 8/01/03 $ 8,855 $ 8,190,875
Ralphs Grocey Co., Sr. Notes B1 10.45 6/15/04 3,500 3,723,125
Smiths Food & Drug, Sr. Sub. Notes B3 11.25 5/15/07 29,000 32,045,000
Southland Corp., Sr. Sub. Deb. B2 12.00 6/15/09 10,000 10,000,000
--------------
94,429,510
- ------------------------------------------------------------------------------------------------------------------------------
Telecommunications--17.7%
Arch Communications Group, Inc., Sr. Disc. Notes,
Zero Coupon (until 3/15/01) B3 10.875 3/15/08 15,170 8,646,900
Brooks Fiber Properties, Inc., Sr. Disc. Notes,
Zero Coupon (until 11/1/01) NR 11.875 11/01/06 19,400 12,998,000
Cellnet Data Systems, Inc., Sr. Disc. Notes, Zero
Coupon (until 6/15/99), (cost $17,182,743;
purchased 6/15/95 and 11/17/95) NR 13.00 6/15/05 27,000(b) 21,195,000
Cencall Communications Corp., Sr. Disc. Notes,
Zero Coupon (until 1/15/99) B3 10.125 1/15/04 61,330 41,934,387
Centennial Cellular Corp.,
Sr. Notes B1 8.875 11/01/01 36,575 35,294,875
Sr. Notes B1 10.125 5/15/05 11,945 12,034,588
Clearnet Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 12/15/00) B3 14.75 12/15/05 33,150 20,553,000
Communication Cellular, S.A., Sr. Def'd. Bonds,
Zero Coupon (until 11/15/00) B3 13.125 11/15/03 30,000 19,950,000
Dial Call Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 4/15/99) B3 12.25 4/15/04 13,000 9,360,000
Geotek Communications, Inc., Sr. Conv. Notes,
(cost $12,000,000; purchased 3/5/96) Caa 12.00 2/15/01 12,000(b) 12,180,000
GST Telecommunciations, Inc., Conv. Sr. Disc. Notes,
Zero Coupon (until 12/15/00) NR 13.875 12/15/05 2,262 1,786,980
GST USA, Inc., Sr. Disc. Notes, Zero Coupon (until
12/15/00) NR 13.875 12/15/05 18,096 11,083,800
Hyperion Telecommunications, Sr. Disc. Notes,
Zero Coupon (until 4/15/01) NR 13.00 4/15/03 22,000 12,485,000
ICG Holdings, Inc., Sr. Disc. Notes, Zero Coupon
(until 9/15/00) NR 13.50 9/15/05 48,730 34,720,125
Impsat Corp., Sr. Notes B2 12.125 7/15/03 16,000 16,960,000
Intercel, Inc., Sr. Disc. Notes, Zero Coupon (until
5/1/01) B2 12.00 5/01/06 10,500 6,510,000
Intermedia Communications of Florida,
Sr. Notes B3 13.50 6/01/05 11,250 12,881,250
Sr. Disc. Notes, Zero Coupon (until 5/15/01) B3 12.50 5/15/06 20,000 13,600,000
International Wireless Communications, Inc., Sr.
Disc. Notes NR Zero 8/15/01 23,000 12,420,000
Metrocall, Inc., Sr. Sub. Notes B3 10.375 10/01/07 17,500 15,050,000
MFS Communications, Inc.,
Sr. Disc. Notes, Zero Coupon (until 7/15/99) B1 9.375 1/15/04 54,950 47,669,125
Sr. Disc. Notes, Zero Coupon (until 1/15/01) B1 8.875 1/15/06 55,150 40,121,625
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9 -----
<PAGE>
Portfolio of Investments
as of December 31, 1996 PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Telecommunications (cont'd.)
Millicom Int'l. Cellular, Sr. Disc. Notes,
Zero Coupon (until 12/1/01) B3 13.50% 6/01/06 $ 14,500 $ 8,990,000
Nextel Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 8/15/99) B3 9.75 8/15/04 14,000 9,555,000
Omnipoint Corp., Sr. Notes B2 11.625 8/15/06 22,500 23,343,750
Pagemart Nationwide, Inc., Sr. Disc. Notes,
Zero Coupon (until 2/1/00) NR 15.00 2/01/05 23,000 15,812,500
Pagemart, Inc., Sr. Disc. Notes,
Zero Coupon (until 11/1/98) NR 12.25 11/01/03 16,525 13,220,000
Paging Network, Inc.,
Sr. Sub. Notes B2 8.875 2/01/06 21,300 20,288,250
Sr. Sub. Notes B2 10.125 8/01/07 26,500 27,030,000
Sr. Sub. Notes B2 10.00 10/15/08 11,000 11,178,750
PriCellular Wireless Corp.,
Sr. Disc. Notes, Zero Coupon (until 11/15/97) B3 14.00 11/15/01 14,770 14,474,600
Sr. Disc. Notes, Zero Coupon (until 10/1/98) B3 12.25 10/01/03 33,100 28,300,500
Rogers Cantel, Inc., Deb. Ba3 9.375 6/01/08 44,500 46,725,000
Teleport Communications,
Sr. Disc. Notes, Zero Coupon (until 7/1/01) B1 11.125 7/01/07 25,000 17,125,000
Sr. Notes B1 9.875 7/01/06 10,400 11,102,000
USA Mobil Communications, Inc.,
Sr. Notes B2 9.50 2/01/04 7,350 6,982,500
Sr. Notes B2 14.00 11/01/04 8,000 9,120,000
Western Wireless Corp.,
Sr. Sub. Notes B3 10.50 6/01/06 12,000 12,570,000
Sr. Sub. Notes B3 10.50 2/01/07 12,500 13,109,375
Winstar Communications, Inc.,
Sr. Disc. Notes, Zero Coupon (until 10/15/00) NR 14.00 10/15/05 48,100 29,461,250
Conv. Sr. Disc. Notes, Zero Coupon (until
10/15/00) NR 14.00 10/15/05 17,550 12,636,000
--------------
750,459,130
- ------------------------------------------------------------------------------------------------------------------------------
Textiles--0.5%
Polysindo Int'l. Finance Co., Notes Ba3 11.375 6/15/06 18,050 19,719,625
- ------------------------------------------------------------------------------------------------------------------------------
Transportation/Trucking/Shipping--0.2%
Ameritruck Distribution Corp., Sr. Sub. Notes B-(a) 12.25 11/15/05 9,900 9,924,750
- ------------------------------------------------------------------------------------------------------------------------------
Waste Management--0.9%
Allied Waste N.A., Inc., Sr. Sub. Notes B3 10.25 12/01/06 35,000 36,750,000
Total bonds (cost $3,647,996,919) 3,792,026,126
</TABLE>
- --------------------------------------------------------------------------------
- -----10 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments
as of December 31, 1996 PRUDENTIAL HIGH YIELD FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 1)
<S> <C> <C>
- ------------------------------------------------------------
PREFERRED STOCKS--3.1%
AmeriKing, Inc., $13.00 80,000(d) $ 2,200,000
Cablevision Systems Corp.,
$11.125, PIK 3,733 33,503,675
$11.125, PIK 61,773 5,544,087
$11.75, PIK 167,337 15,646,031
Time Warner Inc., $10.25, Ser. M, 69,896
PIK 75,837,160
--------------
Total preferred stocks
(cost $125,172,039) 132,730,953
--------------
- ------------------------------------------------------------
COMMON STOCKS(c)--0.3%
Affiliated Newspapers 12,250 612,500
C S Wireless Systems, Inc. 4,400 44
Dr Pepper Bottling Co., Cl. A 72,580 725,800
EnviroSource, Inc. 428,333 1,151,145
Gaylord Container Corp., Cl. A 324,735 1,989,002
Metromedia Corp. 69,374 685,068
Pagemart Nationwide, Inc. 71,750 502,250
Peachtree Cable Assn., Ltd. 31,559 307,700
PM Holdings Corp. 3,679 1,287,650
Rite Aid Corp. 62,985 2,503,654
Smith's Food & Drug Centers,
Inc.,
Cl. B, (cost $0; purchased
6/22/94) 13,553(b) 420,143
Triton Group Ltd. 1,051,135 919,743
U.S. West Communications Group 18,202 587,015
U.S. West Media Group 20,832 385,392
Walter Industries, Inc. 7,641 107,929
--------------
Total common stocks
(cost $11,523,421) 12,185,035
--------------
- ------------------------------------------------------------
COMMON TRUST UNITS(c)--0.6% Units
PSF Holdings, LLC,
(cost $32,569,430; purchased
5/20/94) 951,717 (b) 25,696,359
--------------
WARRANTS(c)--0.3%
American Telecasting, Inc.,
expiring 6/15/99 41,000 $ 246,000
Cellnet Data Systems, Inc.,
expiring 6/15/05, (cost $0;
purchased 6/6/95 and 11/17/95) 108,000(b) 1,080
Cellular Communications Int'l.,
Inc., expiring 8/15/03 22,250 445,000
Clearnet Communications, Inc.,
expiring 9/15/05 109,395 793,114
Comcel, expiring 11/15/03 30,000 2,250,000
Foamex JPS Automotive L.P.,
expiring 7/1/99 20,250 506,250
Gaylord Container Corp.,
expiring 11/1/02 417,518 2,583,393
Heartland Wireless Communication,
Inc., expiring 12/31/00 39,000 78,000
Hyperion Telecommunications,
expiring 4/15/01 22,000 440,000
Intelcom Group, Inc., expiring
9/15/05 127,809 1,661,517
Intermedia Communications of
Florida, expiring 6/1/00,
(cost $0; purchased 5/25/95) 11,250(b) 393,750
International Wireless
Communications Holdings, Inc.,
expiring 8/15/01 23,000 230
Nextel Communications, Inc.,
expiring 12/15/98 14,273 2,141
expiring 4/25/99 7,000 1,050
President Riverboat Casinos,
Inc., expiring 9/30/99 44,150 441
Sterling Chemical Holdings, Inc.,
expiring 8/15/08 5,450 190,750
United Int'l. Holdings, Inc.,
expiring 11/15/99 44,500 890,000
--------------
Total warrants (cost $220,009) 10,482,716
--------------
Total long-term investments
(cost $3,817,481,818) 3,973,121,189
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11 -----
<PAGE>
Portfolio of Investments
as of December 31, 1996 PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Interest Maturity Amount Value
Description Rate Date (000) (Note 1)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--4.8%
- ------------------------------------------------------------------------------------------------------------------------------
Commercial Paper--4.0%
Canadian Imperial Bank of Commerce 6.75% 1/2/97 $153,667 $ 153,667,000
First Data Corp. 7.00 1/2/97 15,000 14,997,083
GTE Corp. 5.50 1/2/97 1,000 996,945
--------------
Total commercial paper (cost $169,661,028) 169,661,028
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement--0.8%
Joint Repurchase Agreement Account (cost $34,336,000;
Note 5) 6.61 1/2/97 34,336 34,336,000
--------------
Total short-term investments (cost $203,997,028) 203,997,028
--------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investments--98.6 %
(cost $4,021,478,846; Note 4) 4,177,118,217
Other assets in excess of liabilities--1.4% 58,639,334
--------------
Net Assets--100% $4,235,757,551
--------------
--------------
</TABLE>
- ---------------
(a) Standard & Poor's Rating.
(b) Indicates a restricted security; the aggregate cost of such securities is
$110,804,801. The aggregate value ($110,059,979) is approximately 2.6% of
net assets.
(c) Non-income producing securities.
(d) Consists of more than one class of securities traded together as a unit;
generally bonds with attached stock or warrants.
NR--Not rated by Moody's or Standard & Poor's.
PIK--Payment in kind securities.
L.P.--Limited Partnership.
The Fund's current Prospectus contains a description of Moody's and Standard &
Poor's ratings.
- --------------------------------------------------------------------------------
- -----12 See Notes to Financial Statements.
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets December 31, 1996
Investments, at value (cost $4,021,478,846)............................................................. $ 4,177,118,217
Cash.................................................................................................... 2,129,505
Interest receivable..................................................................................... 59,803,491
Receivable for Fund shares sold......................................................................... 12,098,591
Receivable for investments sold......................................................................... 342,000
Deferred expenses and other assets...................................................................... 108,694
-----------------
Total assets......................................................................................... 4,251,600,498
-----------------
Liabilities
Payable for Fund shares reacquired...................................................................... 7,742,532
Payable for investments purchased....................................................................... 2,041,453
Distribution Fee Payable................................................................................ 1,880,617
Accrued expenses........................................................................................ 1,680,742
Management Fee Payable.................................................................................. 1,463,204
Dividends payable....................................................................................... 1,034,399
-----------------
Total liabilities.................................................................................... 15,842,947
-----------------
Net Assets.............................................................................................. $ 4,235,757,551
-----------------
-----------------
Net assets were comprised of:
Common stock, at par................................................................................. $ 5,053,672
Paid-in capital in excess of par..................................................................... 4,765,552,790
-----------------
4,770,606,462
Distributions in excess of net investment income..................................................... (1,034,399 )
Accumulated net realized loss on investments......................................................... (689,453,883 )
Net unrealized appreciation on investments........................................................... 155,639,371
-----------------
Net assets, December 31, 1996........................................................................... $ 4,235,757,551
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($1,564,428,642 / 186,478,079 shares of common stock issued and outstanding)...................... $8.39
Maximum sales charge (4.00% of offering price)....................................................... .35
Maximum offering price to public..................................................................... $8.74
Class B:
Net asset value, offering price and redemption price per share
($2,596,207,015 / 309,928,968 shares of common stock issued and outstanding)...................... $8.38
Class C:
Net asset value, offering price and redemption price per share
($43,373,860 / 5,177,510 shares of common stock issued and outstanding)........................... $8.38
Class Z:
Net asset value, offering price and redemption price per share
($31,748,034 / 3,782,645 shares of common stock issued and outstanding)........................... $8.39
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13 -----
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
HIGH YIELD FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31, 1996
<S> <C>
Income
Interest.............................. $ 401,639,265
Dividends............................. 4,681,278
-----------------
Total Income....................... 406,320,543
-----------------
Expenses
Distribution fee--Class A............. 2,077,714
Distribution fee--Class B............. 19,896,618
Distribution fee--Class C............. 214,854
Management Fee........................ 16,817,042
Transfer agent's fees and expenses.... 4,175,000
Reports to shareholders............... 1,503,000
Custodian's fees and expenses......... 308,000
Registration fees..................... 150,000
Insurance expense..................... 74,000
Audit fee and expenses................ 71,000
Directors' fees and expenses.......... 37,000
Legal fees and expenses............... 35,000
Miscellaneous......................... 32,750
-----------------
Total operating expenses........... 45,391,978
Loan commitment fees (Note 2)......... 75,000
-----------------
Total expenses..................... 45,466,978
-----------------
Net investment income.................... 360,853,565
-----------------
Realized and Unrealized
Gain on Investments
Net realized gain on investment
transactions.......................... 33,923,042
Net change in unrealized appreciation of
investments........................... 75,350,872
-----------------
Net gain on investments.................. 109,273,914
-----------------
Net Increase in Net Assets
Resulting from Operations................ $ 470,127,479
-----------------
-----------------
</TABLE>
PRUDENTIAL HIGH YIELD FUND, INC.
HIGH YIELD FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December 31,
in Net Assets 1996 1995
<S> <C> <C>
Operations
Net investment income....... $ 360,853,565 $ 368,711,713
Net realized gain (loss) on
investment
transactions............. 33,923,042 (129,423,086)
Net change in unrealized
appreciation of
investments.............. 75,350,872 373,919,552
---------------- ----------------
Net increase in net assets
resulting from
operations............... 470,127,479 613,208,179
---------------- ----------------
Net equalization credits....... -- 155,052
---------------- ----------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A.................. (127,419,210) (107,009,035)
Class B.................. (228,744,279) (260,558,397)
Class C.................. (2,463,825) (1,144,281)
Class Z.................. (2,226,251) --
---------------- ----------------
(360,853,565) (368,711,713)
---------------- ----------------
Dividends in excess of net
investment income
Class A.................. (3,542,829) (2,494,359)
Class B.................. (6,360,123) (5,281,164)
Class C.................. (68,506) (32,071)
Class Z.................. (61,900) --
---------------- ----------------
(10,033,358) (7,807,594)
---------------- ----------------
Fund share transactions (Net of
share conversions) (Note 6)
Net proceeds from shares
sold..................... 2,157,396,910 1,732,422,699
Net asset value of shares
issued in reinvestment of
dividends and
distributions............ 181,172,994 180,623,667
Cost of shares reacquired... (2,293,331,143) (1,536,230,023)
---------------- ----------------
Net increase in net assets
from Fund share
transactions............. 45,238,761 376,816,343
---------------- ----------------
Total increase................. 144,479,317 613,660,267
Net Assets
Beginning of year.............. 4,091,278,234 3,477,617,967
---------------- ----------------
End of year.................... $ 4,235,757,551 $ 4,091,278,234
---------------- ----------------
---------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
- -----14 See Notes to Financial Statements.
<PAGE>
Notes to Financial Statements PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
Prudential High Yield Fund, Inc. (the ``Fund'') is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The primary investment objective of the Fund is to maximize current
income through investment in a diversified portfolio of high yield fixed-income
securities which, in the opinion of the Fund's investment adviser, do not
subject the Fund to unreasonable risks. As a secondary investment objective, the
Fund will seek capital appreciation but only when consistent with its primary
objective. Lower rated or unrated (i.e. high yield) securities are more likely
to react to developments affecting market risk (general market liquidity) and
credit risk (an issuer's inability to meet principal and interest payments on
its obligations) than are more highly rated securities, which react primarily to
movements in the general level of interest rates. The ability of issuers of debt
securities held by the Fund to meet their obligations may be affected by
economic developments in a specific industry or region.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Security Valuation: Portfolio securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued at prices provided by
principal market makers and pricing agents. Any security for which the primary
market is on an exchange is valued at the last sales price on such exchange on
the day of valuation or, if there was no sale on such day, the last bid price
quoted on such day. Securities issued in private placements are valued at the
bid price or the mean between the bid and asked prices, if available, provided
by principal market makers. Any security for which a reliable market quotation
is unavailable is valued at fair value as determined in good faith by or under
the direction of the Fund's Board of Directors.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost, which approximates market value.
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian or designated subcustodians, under triparty repurchase
agreements as the case may be, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest and, 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 ensure the adequacy of the collateral. If
the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
The Fund may hold up to 15% of its net assets in illiquid securities, including
those which are restricted as to disposition under securities law (``restricted
securities''). Certain issues of restricted securities held by the Fund at
December 31, 1996 include registration rights under which the Fund may demand
registration by the issuer, some of which are currently under contract to be
registered. Restricted securities, sometimes referred to as private placements,
are valued pursuant to the valuation procedures noted above.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of portfolio
securities are calculated on an identified cost basis. Interest income is
recorded on an accrual basis and dividend income is recorded on the ex-dividend
date. The Fund accretes original issue discounts as adjustments to interest
income. Income from payment-in-kind bonds is recorded daily based on an
effective interest method. Expenses are recorded on the accrual basis which may
require the use of certain estimates by management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares of the Fund based
upon the relative proportion of net assets of each class at the beginning of the
day.
Federal Income Taxes: It is the intent of the Fund to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
Dividends and Distributions: The Fund declares daily and pays dividends of net
investment income monthly and makes distributions at least annually of any net
capital gains. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
market discount and wash sales.
Equalization: Effective January 1, 1996, the Fund discontinued the accounting
practice of equalization. Equalization is a practice whereby a portion of the
proceeds from sales and costs of repurchases of capital shares, equivalent on a
per share basis to the amount of distributable net
- --------------------------------------------------------------------------------
15 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. A portion ($6,076,709) of undistributed net
investment income at December 31, 1995, resulting from equalization, was
transferred to paid-in capital in excess of par. Such reclassification has no
effect on net assets, results of operations, or net asset value per share.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with AICPA Statement of Position
93-2: Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. The
effect of applying this statement was to decrease distributions in excess of net
investment income by $11,104,473, increase accumulated net realized loss on
investments by $5,406,601 and decrease paid-in capital in excess of par by
$5,697,782. This was primarily resulting from: (i) sales of securities purchased
with market discounts and, (ii) an overdistribution of taxable income for the
year ended December 31, 1996. Net investment income, net realized gains and net
assets were not affected by this change.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual Fund Management LLC
(``PMF''). Pursuant to this agreement PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
PMF has entered into a subadvisory agreement with The Prudential Investment
Corporation (``PIC''); PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the cost of the subadviser's
services, the compensation of officers of the Fund, occupancy and certain
clerical and bookkeeping costs of the Fund. The Fund bears all other costs and
expenses.
The management fee paid PMF is computed daily and payable monthly, at an annual
rate of .50% of the Fund's average daily net assets up to $250 million, .475% of
the next $500 million, .45% of the next $750 million, .425% of the next $500
million, .40% of the next $500 million, .375% of the next $500 million and .35%
of the Fund's average daily net assets in excess of $3 billion.
The Fund has a distribution agreement with Prudential Securities Incorporated
(``PSI''), which acts as the distributor of the Class A, B, C and Z shares of
the Fund. The Fund compensates PSI for distributing and servicing the Fund's
Class A, Class B and Class C shares, pursuant to plans of distribution (the
``Class A, B and C Plans''), regardless of expenses actually incurred by them.
The distribution fees for Class A, B and C shares are accrued daily and payable
monthly. No distribution or service fees are paid to PSI as distributor of the
Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI with respect to
Class A, B and C shares, for distribution-related activities at an annual rate
of up to .30 of 1%, .75 of 1% and 1%, of the average daily net assets of the
Class A, B and C shares, respectively. Such expenses under the Plans were .15 of
1%, .75 of 1% and .75 of 1% of the average daily net assets of the Class A, B
and C shares, respectively, for the year ended December 31, 1996
PSI has advised the Fund that it has received approximately $1,021,400 in
front-end sales charges resulting from sales of Class A shares during the year
ended December 31, 1996. From these fees, PSI paid such sales charges to Pruco
Securities Corporation, an affiliated broker-dealer, which in turn paid
commissions to salespersons and incurred other distribution costs.
PSI has advised the Fund that for the year ended December 31, 1996, it received
approximately $4,841,400 and $33,600 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PSI, PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America.
The Fund entered into a credit agreement with State Street Bank and Trust Co.
with a maximum commitment of $75,000,000 which was due to expire on December 2,
1997. Such agreement was terminated on January 2, 1997. The Fund has not
borrowed any monies pursuant to such credit agreement. The Fund accrued and paid
quarterly commitment fees at an annual rate of .10 of 1% on the $75,000,000, the
unused portion of the credit facility.
The Fund, along with other affiliated registered investment companies (the
``Funds''), entered into a credit agreement (the ``Agreement'') on December 31,
1996 with Deutsche Bank. The maximum commitment under the Agreement is
$200,000,000. The Agreement expires on December 30, 1997. Interest on any such
borrowings outstanding will be at market rates. The purposes of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement as of December 31,
1996. The Funds pay a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro-rata basis by the Funds.
- --------------------------------------------------------------------------------
- -----16
<PAGE>
Notes to Financial Statements PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC, a wholly-owned subsidiary of PMF, serves as
the Fund's transfer agent and during the year ended December 31, 1996, the Fund
incurred fees of approximately $3,578,500 for the services of PMFS. As of
December 31, 1996, $295,900 of such fees were due to PMFS. Transfer agent fees
and expenses in the Statement of Operations include certain out-of-pocket
expenses paid to non-affiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended December 31, 1996 were $3,489,974,465 and $3,701,287,552,
respectively.
The federal income tax basis of the Fund's investments, including short-term
investments, as of December 31, 1996 was $4,022,871,730; accordingly, net
unrealized appreciation for federal income tax purposes was $154,246,487 (gross
unrealized appreciation--$217,880,106; gross unrealized
depreciation--$63,633,619).
For federal income tax purposes, the Fund has a capital loss carryforward as of
December 31, 1996 of approximately $673,926,900 of which $323,340,600 expires in
1998, $77,895,200 expires in 1999, $110,441,500 expires in 2000, $162,249,600
expires in 2003. Such carryforward is after utilization of approximately
$36,819,400 of net taxable gains realized and recognized during the year ended
December 31, 1996. Accordingly, no capital gains distribution is expected to be
paid to shareholders until net gains have been realized in excess of the
aggregate of such amounts.
For federal income tax purposes, the Fund will elect to treat net capital losses
of approximately $14,134,100 incurred in the two month period ended December 31,
1996 as having been incurred in the following fiscal year.
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of December 31, 1996, the
Fund has a 3.1% undivided interest in the joint account. The undivided interest
for the Fund represents $34,336,000 in the principal amount. As of such date,
each repurchase agreement in the joint account and the collateral therefor were
as follows:
Bear, Stearns & Co., 6.75%, in the principal amount of $341,000,000, repurchase
price $341,127,875, due 1/2/97. The value of the collateral including accrued
interest was $349,151,276.
Goldman, Sachs & Co. Inc., 6.60%, in the principal amount of $341,000,000,
repurchase price $341,125,033, due 1/2/97. The value of the collateral including
accrued interest was $347,820,889.
J.P. Morgan Securities, 6.60%, in the principal amount of $341,000,000,
repurchase price $341,125,033, due 1/2/97. The value of the collateral including
accrued interest was $347,822,540.
Sanwa Securities USA, 6.00%, in the principal amount of $68,014,000, repurchase
price $68,036,671, due 1/2/97. The value of the collateral including accrued
interest was $69,375,117.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 4.00%. Class B shares are sold with
a contingent deferred sales charge which declines from 5% to zero depending on
the period of time the shares are held. Class C shares are sold with a
contingent deferred sales charge of 1% during the first year. Class B shares
will automatically convert to Class A shares on a quarterly basis approximately
seven years after purchase. A special exchange privilege is also available for
shareholders who qualify to purchase Class A shares at net asset value.
Effective March 1, 1996, the Fund commenced offering Class Z shares. Class Z
shares are not subject to any sales or redemption charge and are offered
exclusively for sale to a limited group of investors.
The Fund has 3 billion shares of $.01 par value common stock authorized; equally
divided into four classes, designated Class A, Class B, Class C and Class Z
shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------ ------------ ---------------
<S> <C> <C>
Year ended December 31, 1996:
Shares sold................... 131,810,870 $ 1,086,630,794
Shares issued in reinvestment
of dividends and
distributions............... 8,520,554 69,971,317
Shares reacquired............. (156,945,056) (1,293,344,935)
------------ ---------------
Net decrease in shares
outstanding before
conversions................. (16,613,632) (136,742,824)
Shares issued upon conversion
from Class B................ 39,887,682 327,279,932
------------ ---------------
Net increase in shares
outstanding................. 23,274,050 $ 190,537,108
------------ ---------------
------------ ---------------
</TABLE>
- --------------------------------------------------------------------------------
17 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------ ------------ ---------------
<S> <C> <C>
Year ended December 31, 1995:
Shares sold................... 85,065,787 $ 680,939,054
Shares issued in reinvestment
of dividends and
distributions............... 7,260,503 58,391,158
Shares reacquired............. (86,586,970) (693,700,291)
------------ ---------------
Net increase in shares
outstanding before
conversion.................. 5,739,320 45,629,921
Shares issued upon conversion
from Class B................ 136,453,614 1,063,977,235
------------ ---------------
Net increase in shares
outstanding................. 142,192,934 $ 1,109,607,156
------------ ---------------
------------ ---------------
<CAPTION>
Class B
- ------------------------------
Year ended December 31, 1996:
Shares sold................... 115,557,562 $ 947,645,600
Shares issued in reinvestment
of dividends and
distributions............... 13,114,875 107,516,476
Shares reacquired............. (112,666,220) (923,331,159)
------------ ---------------
Net increase in shares
outstanding before
conversion.................. 16,006,217 131,830,917
Shares reacquired upon
conversion into Class A..... (39,936,363) (327,279,932)
------------ ---------------
Net decrease in shares
outstanding................. (23,930,146) $ (195,449,015)
------------ ---------------
------------ ---------------
Year ended December 31, 1995:
Shares sold................... 127,682,310 $ 1,017,983,490
Shares issued in reinvestment
of dividends and
distributions............... 15,200,641 121,565,304
Shares reacquired............. (104,007,242) (826,907,079)
------------ ---------------
Net increase in shares
outstanding before
conversion.................. 38,875,709 312,641,715
Shares reacquired upon
conversion into Class A..... (136,628,901) (1,063,977,235)
------------ ---------------
Net decrease in shares
outstanding................. (97,753,192) $ (751,335,520)
------------ ---------------
------------ ---------------
<CAPTION>
Class C Shares Amount
- ------------------------------ ------------ ---------------
<S> <C> <C>
Year ended December 31, 1996:
Shares sold................... 8,109,246 $ 66,598,614
Shares issued in reinvestment
of dividends and
distributions............... 178,716 1,465,941
Shares reacquired............. (6,047,207) (49,472,410)
------------ ---------------
Net increase in shares
outstanding................. 2,240,755 $ 18,592,145
------------ ---------------
------------ ---------------
Year ended December 31, 1995:
Shares sold................... 4,161,922 $ 33,500,155
Shares issued in reinvestment
of dividends and
distributions............... 82,802 667,205
Shares reacquired............. (1,941,398) (15,622,653)
------------ ---------------
Net increase in shares
outstanding................. 2,303,326 $ 18,544,707
------------ ---------------
------------ ---------------
<CAPTION>
Class Z
- ------------------------------
March 1, 1996(a) through
December 31, 1996:
Shares sold................... 6,826,290 $ 56,521,902
Shares issued in reinvestment
of dividends and
distributions............... 270,685 2,219,260
Shares reacquired............. (3,314,330) (27,182,639)
------------ ---------------
Net increase in shares
outstanding................. 3,782,645 $ 31,558,523
------------ ---------------
------------ ---------------
</TABLE>
- ---------------
(a) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
- -----18
<PAGE>
Financial Highlights PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................... $ 8.19 $ 7.68 $ 8.70 $ 8.19 $ 7.88
---------- ---------- -------- -------- --------
Income from investment operations
Net investment income........................................ .75 .81 .80 .84 .90
Net realized and unrealized gain (loss) on investments....... .22 .53 (1.00) .52 .32
---------- ---------- -------- -------- --------
Total from investment operations.......................... .97 1.34 (.20) 1.36 1.22
---------- ---------- -------- -------- --------
Less distributions
Dividends from net investment income......................... (.75) (.81) (.80) (.84) (.90)
Distributions in excess of net investment income............. (.02) (.02) (.02) (.01) --
Distributions from paid-in capital in excess of par.......... -- -- -- -- (.01)
---------- ---------- -------- -------- --------
Total distributions....................................... (.77) (.83) (.82) (.85) (.91)
---------- ---------- -------- -------- --------
Net asset value, end of year................................. $ 8.39 $ 8.19 $ 7.68 $ 8.70 $ 8.19
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
TOTAL RETURN(a).............................................. 12.60% 18.17% (2.35)% 17.32% 15.97%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................................ $1,564,429 $1,336,354 $161,435 $171,364 $106,188
Average net assets (000)..................................... $1,385,143 $1,056,555 $165,517 $149,190 $ 81,129
Ratios to average net assets:
Expenses, including distribution fees..................... .72% .75% .78% .76% .85%
Expenses, excluding distributions fees.................... .57% .60% .63% .61% .70%
Net investment income..................................... 9.20% 10.13% 9.86% 9.93% 10.96%
For Classes A, B, C and Z shares:
Portfolio turnover rate...................................... 89% 78% 74% 85% 68%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 19 -----
<PAGE>
Financial Highlights PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------
1996 1995 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................... $ 8.18 $ 7.67 $ 8.69 $ 8.19
---------- ---------- ---------- ----------
Income from investment operations
Net investment income........................................ .71 .76 .76 .79
Net realized and unrealized gain (loss) on investments....... .22 .53 (1.00) .51
---------- ---------- ---------- ----------
Total from investment operations.......................... .93 1.29 (.24) 1.30
---------- ---------- ---------- ----------
Less distributions
Dividends from net investment income......................... (.71) (.76) (.76) (.79)
Distributions in excess of net investment income............. (.02) (.02) (.02) (.01)
Distributions from paid-in capital in excess of par.......... -- -- -- --
---------- ---------- ---------- ----------
Total distributions....................................... (.73) (.78) (.78) (.80)
---------- ---------- ---------- ----------
Net asset value, end of year................................. $ 8.38 $ 8.18 $ 7.67 $ 8.69
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
TOTAL RETURN(a).............................................. 11.97% 17.49% (2.92)% 16.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................................ $2,596,207 $2,730,903 $3,311,323 $3,745,985
Average net assets (000)..................................... $2,652,883 $2,725,385 $3,566,709 $3,389,439
Ratios to average net assets:
Expenses, including distribution fees..................... 1.32% 1.35% 1.38% 1.36%
Expenses, excluding distributions fees.................... .57% .60% .63% .61%
Net investment income..................................... 8.62% 9.56% 9.28% 9.35%
<CAPTION>
<S> <C>
1992
----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................... $ 7.88
----------
Income from investment operations
Net investment income........................................ .85
Net realized and unrealized gain (loss) on investments....... .32
----------
Total from investment operations.......................... 1.17
----------
Less distributions
Dividends from net investment income......................... (.85)
Distributions in excess of net investment income............. --
Distributions from paid-in capital in excess of par.......... (.01)
----------
Total distributions....................................... (.86)
----------
Net asset value, end of year................................. $ 8.19
----------
----------
TOTAL RETURN(a).............................................. 15.30%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................................ $2,887,698
Average net assets (000)..................................... $2,582,922
Ratios to average net assets:
Expenses, including distribution fees..................... 1.45%
Expenses, excluding distributions fees.................... .70%
Net investment income..................................... 10.29%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
- --------------------------------------------------------------------------------
- -----20 See Notes to Financial Statements.
<PAGE>
<PAGE>
Financial Highlights PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
----------------------------------------------
August 1,
1994(c)
Year Ended December 31, Through
----------------------------- December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 8.18 $ 7.67 $ 8.05
------ ------ -----
Income from investment operations
Net investment income........................................ .71 .76 .32
Net realized and unrealized gain (loss) on investments....... .22 .53 (.37)
------ ------ -----
Total from investment operations.......................... .93 1.29 (.05)
------ ------ -----
Less distributions
Dividends from net investment income......................... (.71) (.76) (.32)
Distributions in excess of net investment income............. (.02) (.02) (.01)
------ ------ -----
Total distributions....................................... (.73) (.78) (.33)
------ ------ -----
Net asset value, end of period............................... $ 8.38 $ 8.18 $ 7.67
------ ------ -----
------ ------ -----
TOTAL RETURN(a).............................................. 11.97% 17.49% (0.79)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $ 43,374 $ 24,021 $4,860
Average net assets (000)..................................... $ 28,647 $ 12,063 $2,840
Ratios to average net assets:
Expenses, including distribution fees..................... 1.32% 1.35% 1.48%(b)
Expenses, excluding distributions fees.................... .57% .60% .73%(b)
Net investment income..................................... 8.60% 9.49% 9.80%(b)
<CAPTION>
Class Z
--------------------
March 1, 1996(d)
Through
December 31,
1996
--------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 8.34
------
Income from investment operations
Net investment income........................................ .63
Net realized and unrealized gain (loss) on investments....... .07
------
Total from investment operations.......................... .70
------
Less distributions
Dividends from net investment income......................... (.63)
Distributions in excess of net investment income............. (.02)
------
Total distributions....................................... (.65)
------
Net asset value, end of period............................... $ 8.39
------
------
TOTAL RETURN(a).............................................. 8.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $ 31,748
Average net assets (000)..................................... $ 28,978
Ratios to average net assets:
Expenses, including distribution fees..................... .57%(b)
Expenses, excluding distributions fees.................... .57%(b)
Net investment income..................................... 9.31%(b)
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(b) Annualized.
(c) Commencement of offering of Class C shares.
(d) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 21 -----
<PAGE>
Report of Independent Accountants PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
Prudential High Yield Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential High Yield Fund, Inc.
(the ``Fund'') at December 31, 1996, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
``financial statements'') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 25, 1997
- --------------------------------------------------------------------------------
- -----22
<PAGE>
Report of Independent Accountants PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
Prudential High Yield Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential High Yield Fund, Inc.
(the ``Fund'') at December 31, 1996, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
``financial statements'') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian and brokers provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 25, 1997
- --------------------------------------------------------------------------------
- -----22
<PAGE>
Supplemental Proxy Information PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the Prudential High Yield Fund, Inc.
was held on Wednesday, October 30, 1996 at the offices of Prudential Securities
Incorporated, One Seaport Plaza, New York, New York. The meeting was held for
the following purposes:
(1) To elect Directors as follows: Edward D. Beach, Eugene C. Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr., Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien, Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2a) To approve the proposed elimination of the Fund's fundamental investment
restriction relating to investment in shares of other investment companies.
(2b) To approve the proposed elimination of the Fund's fundamental investment
restriction relating to investment in securities of unseasoned issuers.
(2c) To approve the proposed elimination of the Fund's investment restriction
relating to the Fund's use of futures contracts and options.
(2d) To approve the proposed elimination of the Fund's investment restriction
relating to investing in non-fixed income equity securities.
(2e) To approve the proposed elimination of the Fund's investment restriction
regarding the making of loans.
(3) To ratify the selection of Price Waterhouse LLP as independent public
accountants for the fiscal year ending December 31, 1996.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Director/Matter Votes for Votes against Abstentions
---------------- ------------- -----------
<S> <C> <C> <C>
(1) Edward D. Beach 243,093,164 -- 7,553,330
Eugene C. Dorsey 243,481,913 -- 7,164,581
Delayne Dedrick Gold 243,345,911 -- 7,300,583
Robert F. Gunia 243,542,766 -- 7,103,729
Harry A. Jacobs, Jr. 242,945,526 -- 7,700,968
Donald D. Lennox 243,199,909 -- 7,446,585
Mendel A. Melzer 243,433,078 -- 7,213,416
Thomas T. Mooney 243,533,054 -- 7,113,440
Thomas H. O'Brien 243,487,143 -- 7,159,351
Richard A. Redeker 243,547,223 -- 7,099,271
Nancy H. Teeters 243,450,912 -- 7,195,582
Louis A. Weil, III 243,436,711 -- 7,209,783
(2) Amending of Investment Restrictions:
(a) Relating to investment in shares of other investment
companies 189,468,143 9,984,009 11,839,467
(b) Relating to investment in securities of unseasoned
issuers 184,480,788 14,137,805 12,673,026
(c) Relating to the Fund's use of futures contracts and
options 183,176,258 15,169,860 12,945,501
(d) Relating to investing in non-fixed income equity
securities 186,476,592 12,189,641 12,625,386
(e) Regarding the making of loans 184,265,196 14,334,424 12,691,999
(3) Price Waterhouse LLP 238,506,869 2,323,623 9,816,003
</TABLE>
Tax Information PRUDENTIAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
During the fiscal year ended December 31, 1996, the Fund paid ordinary income
dividends per share totalling $0.77, $0.73, $0.73 and $0.65 for Class A, B, C
and Z shares, respectively. Accordingly, we wish to advise you that 1.28% of the
dividends paid qualified for the corporate dividend received deduction available
to corporate taxpayers.
- --------------------------------------------------------------------------------
23 -----
<PAGE>
Getting The Most
From Your Prudential
Mutual Fund.
When you invest through Prudential Mutual Funds, you receive financial advice
through a Prudential Securities financial advisor or Prudential/Pruco
Securities registered representative. Your advisor or representative can
provide you with the following services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help you match the
reward you seek with the risk you can tolerate. And risk can be difficult to
gauge -- sometimes even the simplest investments bear surprising risks. The
educated investor knows that markets seldom move in just one direction -- there
are times when a market sector or asset class will lose value or provide little
in the way of total return. Managing your own expectations is easier with help
from someone who understands the markets and who knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help you wade through the
numerous mutual funds available to find the ones that fit your own individual
investment profile and risk tolerance. While the newspapers and popular
magazines are full of advice about investing, they are aimed at generic groups
of people or representative individuals, not at you personally. Your financial
advisor or registered representative will review your investment objectives
with you. This means you can make financial decisions based on the assets and
liabilities in your current portfolio and your risk tolerance -- not just based
on the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the bottom are among the
most common investor mistakes. But sometimes it's difficult to hold on to an
investment when it's losing value every month. Your financial advisor or
registered representative can answer questions when you're confused or worried
about your investment, and remind you that you're investing for the long haul.
<PAGE>
Comparing A $10,000 Investment.
Prudential High Yield Fund, Inc. vs. the
Lehman High Yield Bond Index.
// // // // Prudential High Yield Fund, Inc.
-- Lehman High Yield Bond Index
Class A Average Annual Total
(CHART) Returns - Class A
With Sales Load
11.1% Since Inception
11.2% for 5 Years
8.1% for 1 Year
Without Sales Load
11.7% Since Inception
12.1% for 5 Years
12.6% for 1 Year
Class B Average Annual Total
(CHART) Returns - Class B
With Sales Load
10.3% Since Inception
8.8% for 10 Years
11.3% for 5 Years
7.0% for 1 Year
Without Sales Load
10.3% Since Inception
8.8% for 10 Years
11.4% for 5 Years
12.0% for 1 Year
Class C Average Annual Total
(CHART) Returns - Class C
With Sales Load
11.6% Since Inception
11.0% for 1 Year
Without Sales Load
11.6% Since Inception
12.0% for 1 Year
Class Z
(CHART)
Past performance is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than their original cost. The boxes on top of the graphs are
designed to give you an idea how much the Fund's returns can fluctuate from
year to year by measuring the best and worst calendar years in terms of total
annual return since inception of each share class.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Prudential High Yield Fund, Inc. (Class A,
Class B, Class C and Class Z) with a similar investment in the Lehman High
Yield Bond Index by portraying the initial account values at the commencement
of operations of Class A, Class C and Class Z shares and for 10 years for the
Class B shares, and subsequent account values at the end of this reporting
period (December 31, 1996), as measured on a quarterly basis, beginning in
1990 for Class A shares, in 1986 for Class B shares, in 1994 for Class C shares
and in 1996 for Class Z shares. For purposes of the graphs, and unless
otherwise indicated, in the accompanying tables it has been assumed (a) that
the maximum applicable front-end sales charge was deducted from the initial
$10,000 investment in Class A shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C shares, assuming full redemption on December 31, 1996; (c) all
recurring fees (including management fees) were deducted; and (d) all dividends
and distributions were reinvested. Class B shares will automatically convert to
Class A shares, on a quarterly basis, beginning approximately seven years after
purchase. This conversion feature is not reflected in the graph. Class Z shares
do not have a sales charge or a distribution fee. Since Class Z shares have
been in existence less than one year, no average annual total returns are shown.
The graphs and accompanying tables reflect the past subsidy and/or waiver of
expenses and/or management fees.
The Lehman High Yield Bond Index is a weighted index comprised of corporate
securities with one or more years remaining to maturity that are publicly
issued, rated below investment grade and have $50 million or more outstanding.
The High Yield Bond Index is an unmanaged index and includes the reinvestment
of all dividends, but does not reflect the payment of transaction costs and
advisory fees associated with an investment in the Fund. The securities in the
High Yield Bond Index may differ substantially from the securities in the Fund.
The High Yield Bond Index is not the only index that may be used to
characterize performance of bond funds and other indexes may portray different
comparative performance.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Directors
Edward D. Beach
Eugene C. Dorsey
Delayne D. Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
David W. Drasnin, Vice President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenues of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
The views expressed in this report and information about the Fund's portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
74435F106 MF110E
74435F205 Cat. #440262A
74435F304
74435F403
<PAGE>
