(ICON)
Prudential
High Yield
Fund, Inc.
ANNUAL
REPORT
Dec. 31, 1997
(LOGO)
<PAGE>
Prudential High Yield Fund, Inc.
Performance At A Glance.
High yield corporate bonds delivered strong
returns in 1997, despite initial
concern about rising U.S. interest rates and
an Asian economic crisis that
shook global financial markets in the autumn.
Your Prudential High Yield Fund
provided competitive, double-digit returns
because our considerable holdings
of media, cable television and
telecommunications bonds rallied.
Cumulative Total Returns1
As of 12/31/97
<TABLE>
<CAPTION>
One
Five Ten Since
Year
Years Years Inception2
<S> <C>
<C> <C> <C>
Class A 12.81%
71.96% N/A 143.28%
Class B 12.07
66.80 156.58% 537.37
Class C 12.07
N/A N/A 46.27
Class Z 12.96
N/A N/A 22.87
Lipper High Current Yield Avg3 12.98
71.51 177.36 ***
</TABLE>
Average Annual Total Returns1
As of 12/31/97
<TABLE>
<CAPTION>
One
Five Ten Since
Year
Years Years Inception2
<S> <C>
<C> <C> <C>
Class A 8.30%
10.55% N/A 11.27%
Class B 7.07
10.64 9.88% 10.38
Class C 11.07
N/A N/A 11.77
Class Z 12.96
N/A N/A 11.88
</TABLE>
Dividends
& Yields
As of 12/31/97
<TABLE>
<CAPTION>
Total
Distributions 30-Day
Paid for 12
Mos. SEC Yield
<S> <C>
<C>
Class A $0.77
8.42%
Class B $0.72
8.16
Class C $0.72
8.17
Class Z $0.78
8.93
</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.
1 Source: Prudential Investments 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. Class B
shares are subject to a declining contingent
deferred sales charge (CDSC) of
5%, 4%, 3%, 2%, 1% and 1% for six years. 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.
2 Inception dates: Class A, 1/22/90; Class B,
3/29/79; Class C, 8 /1/94; and
Class Z, 3/1/96. x#x3 These are the cumulative
returns for all funds in each
share class of the Lipper Current High Yield
Fund category.
*** Lipper Since Inception returns are: Class
A, 155.05%; Class B, 625.60%;
Class C, 47.40%; and Class Z, 24.36% for all
funds in each Lipper share class.
How Investments Compared.
(As of 12/31/97)
(GRAPH)
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.
U.S. Taxable Money 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.
A Very Good Year.
High yield corporate bonds posted double-digit
returns that outshone all other
sectors of the U.S. debt market for the second
consecutive year. Junk bonds
gained as a flood of cash chased their hefty
yields and surprisingly robust
economic growth helped bolster corporate
profits.
Strategy Session.
Economy On A Roll.
A robust U.S. economy expanded in 1997 at its
fastest pace in nine years,
powered by increased consumer spending,
falling interest rates, low inflation
and rising productivity. As a result, high
yield bonds thrived because many
companies that issued junk bonds enjoyed
higher earnings and cash flows.
Investors, however, worried that vigorous
economic growth would drive up
inflation so they expected the Federal Reserve
to increase the federal funds
rate (what banks charge each other for
overnight loans) to cool off the
economy and check any potential inflationary
pressures. In March, U.S. central
bankers voted to raise the key short-term rate
by a quarter percentage point
to 5.50%.
Despite this interest rate increase, the U.S.
economy remained strong and the
unemployment rate continued to fall, dropping
below 5% to its lowest level
since the 1970s. Inflation, however, was
unexpectedly subdued, allowing prices
for some finished goods to decline. The
Federal Reserve focused on the low
inflation rather than the brisk economic
growth, so it left monetary policy
unchanged for the rest of the year. An Asian
economic crisis that emerged last
fall also influenced U.S. central bankers who
feared another federal funds
rate increase would attract more cash to the
U.S. from Asia's embattled markets.
Asian economic problems had been brewing for
some time when the crisis erupted
in October, prompting a sell-off in global
stocks, emerging market bonds, and
to a lesser extent, U.S. corporate debt
securities. Our emphasis on high yield
bonds of better quality, larger companies
helped your Fund perform better than
the average comparable fund during this period
of heightened market
uncertainty, even though some of our Asian
corporate bonds declined in value.
Portfolio Composition.
Sectors expressed as a percentage of
total net assets as of 12/31/97.
(PIE CHART)
<PAGE>
What Went Well.
More Here, Less There.
Heavy investment in bonds of the media,
telecommunications, and cable
television industries as well as reduced
exposure to the supermarket sector
enhanced your Fund's performance.
Our media holdings, (7.8% of total investments
as of December 31, 1997),
benefited from a wave of consolidations
sparked by the federal
Telecommunications Act of 1996, which allowed
companies to own more than
one radio or TV station in a market. Cable and
telecommunications bonds
(as of December 31, 1997, 8.5% and 15.5% of
the Fund's total investments
respectively) appreciated as several
investment grade companies either made
acquisitions, equity investments or formed
joint ventures within the
industries. For example, software giant
Microsoft announced plans to invest
$1 billion in Comcast to hasten development of
a two-way, broadband fiber-optic
network, and Worldcom acquired Brooks Fiber.
Meanwhile, your Fund avoided bonds of
supermarket companies such as Brunos,
Grand Union, and Pathmark. These bonds
declined because of increased
competition and operating and financial
distress in the industry. We held
only 0.9% as of December 31, 1997 of total
investments in the industry.
And Not So Well.
Unpleasant Surprises.
We were surprised when highly regarded Asian
countries such as South Korea,
Indonesia, and Thailand experienced a dramatic
reversal of fortune and lost
their investment grade ratings. The ensuing
financial markets sell-off hurt
corporate bonds with direct or indirect
exposure to Asian economies. For
example, we owned bonds of Indah Kiat,
Indonesia's largest producer of pulp
that is used to make paper, which comprised
less than 1% of your Fund's total
investments as of December 31, 1997. The bonds
declined amid general concern
about Indonesia's financial crisis.
Separately, the Fund owned bonds of wireless
cable companies, which stood to
benefit from the technology's cheaper
transmission costs. But increasing
consumer demand for services such as pay-per-
view television and Internet
access raised doubts about the viability of
wireless cable. Furthermore,
wireless cable bond prices fell amid
disappointment that there was no series
of mergers between local telephone companies
and wireless cable firms.
Although the industry's future remains
uncertain, we sold our entire wireless
cable position early in the year.
Five Largest Issuers.
2.4% Rogers Cablesystems, Ltd.
2.0% AES Corp.
2.0% Rogers Cantel
1.9% Cablevision Systems
1.8% Outdoor Systems
Expressed as a percentage of total net assets
as of 12/31/97.
Looking Ahead.
We expect U.S. economic growth to slow
moderately this year as the nation's
exports to Asian countries decline and imports
from that region increase.
Indeed the Federal Reserve will likely leave
monetary policy unchanged until
the full impact of the Asian economic crisis
on the U.S. economy becomes
evident. At any rate, reduced consumer demand
around the world coupled with
lower commodity prices will likely quell U.S.
inflationary pressures. This
combination of slow positive growth and stable
short-term interest rates could
prove favorable for bonds. Still, more
attention will be paid to selection of
securities since downward revisions to
profit/growth forecasts will heighten
market volatility. While the U.S. economic
expansion rests on a solid
foundation, we will closely monitor
developments in 1998 and revise our
outlook if necessary.
- ----------------------------------------------
- ---------------------------------
1
<PAGE>
President's Letter
February 2, 1998
(PHOTO)
Investing Smart.
Dear Shareholder:
This is the season when many investors receive
income tax refunds or have a CD
or two maturing. What will you do with these
assets? Investing smart can be a
challenge especially given today's new
investment choices.
The Federal Taxpayer Relief Act of 1997 is
changing the way Americans invest
and accumulate wealth, save for college or
build a nest egg for retirement.
While the law offers opportunity, it is also
complex. You may need help to put
things in perspective.
Now may be an excellent time for you and your
Prudential Financial
Professional to update your investment
strategy and retirement plan. A
wise investor does so periodically. You could
find the tax law opening
doors that may benefit you now or over the
long term, such as --
- - Revised Capital Gains Tax Rates &
Exclusions. Long-term rates are down.
Is your portfolio positioned to benefit? Also,
new rules allow you to keep
more of the profit from the sale of your home
(perhaps up to $500,000 more).
- - New Roth IRAs. The Roth IRA features tax-
free distributions and does not
require mandatory withdrawals, which should be
of particular interest to
retirees seeking to shelter assets in a tax-
free account.
- - New Education IRAs. Similar to a
traditional IRA, but specifically designed
for higher education. The new law also creates
credits and deductions to help
defray college costs.
- - Expanded IRAs. Rules governing traditional
IRAs have been extensively
revised. Deductibility and contribution limits
have been broadened as has the
list for penalty-free early withdrawals,
including first-time home buyers.
As you can see, what you don't know may cost
you! That's why I recommend you
call your Prudential Financial Professional
and get a free investment plan
checkup. Let us give you the information and
tools to invest smart.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
- ----------------------------------------------
- ---------------------------------
2
<PAGE>
Portfolio of Investments as of
PRUDENTIAL HIGH YIELD FUND,
December 31, 1997 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--97.0%
BONDS--92.9%
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Aerospace--0.9%
K & F Industries, Inc.
B3 9.25% 10/15/07 $
6,300 $ 6,457,500
Sequa Corp., Sr. Sub. Notes
B3 9.375 12/15/03
34,450 35,828,000
- --------------
42,285,500
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Automotive Parts--3.1%
Foamex JPS Automotive LLC, Sr. Notes
B2 11.125 6/15/01
21,700 (d) 24,195,500
Hayes Wheels Int'l., Inc.,
Sr. Sub. Notes
B3 11.00 7/15/06
32,000 35,680,000
Sr. Sub. Notes
B3 9.125 7/15/07
17,500 18,090,625
Standyne Automotive Corp., Sr. Sub. Notes
Caa1 10.25 12/15/07
14,400 14,400,000
Trident Automotive Plc., Sr. Sub. Notes
B2 10.00 12/15/05
15,000 15,375,000
Venture Holdings, Sr. Notes
B2 9.50 7/01/05
21,500 21,822,500
Walbro Corp., Sr. Notes
B2 10.125 12/15/07
9,000 9,225,000
- --------------
138,788,625
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Broadcasting & Other Media--7.8%
American Lawyer Media, Inc.,
Sr. Disc. Notes, Zero Coupon (until
12/15/02) B3 12.25
12/15/08 7,850 4,435,250
Sr. Sub. Notes
B1 9.75 12/15/07
10,400 10,556,000
Capstar Radio Broadcasting,
Sr. Disc. Notes, Zero Coupon (until 2/1/02)
NR 12.75 2/01/09
15,200 10,792,000
Sr. Sub. Notes
NR 9.25 7/01/07
16,500 16,582,500
Fox/Liberty Networks LLC.,
Sr. Disc. Notes, Zero Coupon (until 8/1/02)
B1 9.75 8/15/07
24,250 15,520,000
Sr. Notes
B1 8.875 8/15/07
15,000 14,962,500
Globo Comunicacoes, Sr. Notes (Brazil)
B+(a) 10.50 12/20/06
23,900 23,003,750
Grupo Televisa S. A., Sr. Notes (Mexico)
Ba3 11.375 5/15/03
15,500 16,817,500
Hollinger Int'l. Publish., Inc., Sr. Notes
Ba3 8.625 3/15/05
10,000 10,350,000
Lamar Advertising Co.,
Sr. Sub. Notes
B1 9.625 12/01/06
13,500 14,512,500
Sr. Sub. Notes
B1 8.625 9/15/07
7,500 7,678,125
Outdoor Systems, Inc.,
Sr. Sub. Notes
B1 9.375 10/15/06
29,000 30,812,500
Sr. Sub. Notes
B1 8.875 6/15/07
49,000 51,205,000
Production Resource LLC., Sr. Sub. Notes
Caa2 11.50 1/15/08
15,000 15,037,500
SFX Broadcasting, Inc., Sr. Sub. Notes
B3 10.75 5/15/06
32,820 36,019,950
Sun Media Corp., Sr. Sub. Notes (Canada)
B3 9.50 5/15/07
14,650 15,748,750
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of
PRUDENTIAL HIGH YIELD FUND,
December 31, 1997 INC.
- ----------------------------------------------
- ---------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating Interest Maturity Amount
Value
Description
(Unaudited) Rate Date
(000) (Note 1)
<S>
<C> <C> <C> <C>
<C>
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Broadcasting & Other Media (cont'd.)
Telemundo Group, Inc., Sr. Disc. Notes
B1 7.00% 2/15/06 $
10,000 $ 10,500,000
TV Azteca S.A. De CV, Gtd. Sr. Notes (Mexico)
Ba3 10.50 2/15/07
22,000 22,660,000
Young Broadcasting, Inc.,
Sr. Sub. Notes
B2 10.125 2/15/05
13,300 13,965,000
Sr. Sub. Notes
B2 8.75 6/15/07
6,000 5,910,000
- --------------
347,068,825
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Building & Related Industries--5.8%
American Builders, Sr. Sub. Notes
B3 10.625 5/15/07
11,000 11,412,500
D.R. Horton, Inc., Sr. Notes
Ba2 8.375 6/15/04
14,000 14,140,000
Falcon Building Prod., Inc.,
Sr. Sub. Disc. Notes, Zero Coupon (until
6/15/02) B3 10.50
6/15/07 24,100 15,906,000
Sr. Sub. Notes
B3 9.50 6/15/07
20,150 20,603,375
Falcon Holdings Corp. L.P., Sr. Sub. Notes,
PIK NR 11.00
9/15/03 31,872 34,341,655
Greystone Homes Corp., Sr. Notes
Ba3 10.75 3/01/04
17,350 18,954,875
Kaufman & Broad Home Corp., Sr. Sub. Notes
Ba3 9.625 11/15/06
30,000 31,800,000
Kevco, Inc., Sr. Sub. Notes
B3 10.375 12/01/07
12,000 12,255,000
Koppers Industries, Inc., Sr. Sub. Notes
B2 9.875 12/01/07
8,550 8,806,500
Nortek, Inc.,
Sr. Notes
Ba3 9.25 3/15/07
26,000 26,520,000
Sr. Notes
B1 9.125 9/01/07
32,500 32,987,500
NVR, Inc., Sr. Notes
B2 11.00 4/15/03
15,600 16,926,000
U.S. Home Corp., Sr. Sub. Notes
B1 8.88 8/15/07
15,000 15,187,500
- --------------
259,840,905
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Cable--8.5%
Adelphia Communications Corp., Sr. Notes
B3 10.50 7/15/04
10,000 10,712,500
Cablevision Systems Corp., Sr. Sub. Notes
B2 9.25 11/01/05
19,835 21,025,100
Comcast UK Cable Corp., Sr. Disc. Deb.,
Zero Coupon (until 11/15/00)
B2 11.20 11/15/07
19,900 16,168,750
Diamond Cable Co., Sr. Disc. Notes, Zero
Coupon
(until 3/31/04) (United Kingdom)
B3 13.25 9/30/04
30,860 27,774,000
Echostar Communications Corp., Sr. Disc.
Notes,
Zero Coupon (until 6/1/99)
B2 12.875 6/01/04
32,210 29,472,150
Echostar Satellite, Sr. Disc. Notes, Zero
Coupon
(until 3/15/00)
B3 13.125 3/15/04
10,000 8,300,000
International Cabletel, Inc., Sr. Disc. Notes,
Zero Coupon (until 4/15/00)
B3 12.75 4/15/05
25,950 21,798,000
Kablemedia Holdings, Sr. Disc. Notes, Zero
Coupon
(until 8/1/01) (Germany)
B3 13.625 8/01/06
12,000 8,760,000
Lenfest Communications, Inc., Sr. Notes
Ba3 8.375 11/01/05
20,050 20,601,375
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of
PRUDENTIAL HIGH YIELD FUND,
December 31, 1997 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.)
Rogers Cablesystems, Inc., (Canada)
Sr. Sec'd. Notes
Ba3 10.00% 3/15/05 $
61,075 $ 67,182,500
Sr. Sec'd. Deb.
Ba3 10.00 12/01/07
12,000 13,140,000
Sr. Sec'd. Deb.
Ba3 10.125 9/01/12
24,575 26,786,750
Rogers Cantel, Inc., (Canada)
Deb.
Ba3 9.375 6/01/08
44,500 46,947,500
Sr. Sub. Notes
NR 8.80 10/01/07
42,350 42,138,250
Star Choice Communications, Inc. (Canada)
NR 13.00 12/15/05
5,250 (d) 5,407,500
Telewest Plc., Sr. Disc. Deb., Zero Coupon
(until
10/1/00)
(United Kingdom)
B1 11.00 10/01/07
20,500 15,938,750
- --------------
382,153,125
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Casinos--6.2%
Boyd Gaming Corp., Sr. Sub. Notes
B1 9.50 7/15/07
32,375 33,993,750
Empress River Casino Finance Corp., Sr. Notes
Ba3 10.75 4/01/02
16,000 17,280,000
Fitzgeralds Gaming Corp., Sr. Sec. Notes,
B3 12.25 12/15/04
14,000 14,105,000
Grand Casino, Inc.,
First Mtge. Notes
Ba3 10.125 12/01/03
41,100 44,388,000
Sr. Notes
B2 9.00 10/15/04
16,250 16,331,250
Horseshoe Gaming LLC.,
Sr. Notes
NR 12.75 9/30/00
17,270 19,169,700
Sr. Sub. Notes
B3 9.375 6/15/07
27,100 28,522,750
Majestic Star Casino LLC., Sr. Notes
B2 12.75 5/15/03
6,000 6,442,500
Trump Atlantic City Assocs., First Mtge. Notes
B1 11.25 5/01/06
65,250 64,371,875
Venetian Casino Resort LLC., First Mtge. Notes
B3 12.25 11/15/04
34,000 34,085,000
- --------------
278,689,825
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Chemicals--2.7%
Huntsman Corp., Sr. Sub. Notes
B2 9.50 7/01/07
30,000 31,500,000
ISP Holdings, Inc., Sr. Notes
Ba3 9.75 2/15/02
29,081 30,680,455
Pharmaceutical Fine Chemicals, Sr. Sub. Notes
(Luxembourg)
B3 9.75 11/15/07
10,000 10,150,000
Sterling Chemical Holdings, Inc.,
Sr. Disc. Notes, Zero Coupon (until
8/15/01) Caa 13.50
8/15/08 21,000 12,600,000
Sr. Sub. Notes
B3 11.75 8/15/06
10,000 10,200,000
Terra Industries, Inc., Sr. Notes
Ba3 10.50 6/15/05
24,100 25,847,250
- --------------
120,977,705
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Computer Services--0.5%
Viasystems, Inc., Sr. Sub. Notes
B3 9.75 6/01/07
20,000 20,650,000
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of
PRUDENTIAL HIGH YIELD FUND,
December 31, 1997 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--2.4%
Consumers Int'l., Inc., Sr. Sec'd. Notes
Ba3 10.25% 4/01/05 $
16,600 $ 18,094,000
Desa Int'l., Inc., Sr. Sub. Notes
B3 9.875 12/15/07
11,500 11,816,250
Doskocil, Sr. Sub. Notes
B3 10.125 9/15/07
8,000 8,280,000
Holmes Products Corp., Gtd Notes
B3 9.875 11/15/07
9,825 9,984,656
Imperial Holly Corp., Sr. Sub. Notes
B2 9.75 12/15/07
18,500 18,615,625
Lifestyle Furnishings, Inc., Sr. Sub. Notes
B1 10.875 8/01/06
27,500 30,525,000
Sealy Mattress Co.,
Sr. Sub. Disc. Notes, Zero Coupon (until
12/1/02) B3 10.875
12/15/07 10,000 6,050,000
Sr. Sub. Notes
B3 9.875 12/15/07
4,750 4,862,813
- --------------
108,228,344
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Drugs & Health Care--7.5%
Alaris Med. Systems, Inc., Sr. Sub. Notes
NR 9.75 12/01/06
24,475 25,759,937
Alliance Imaging, Inc., Sr. Sub. Notes
B3 9.625 12/15/05
12,000 12,135,000
Dade International, Inc., Sr. Sub. Notes
B3 11.125 5/01/06
26,850 29,870,625
Fresenius Med Care Capital Trust, Gtd. Notes
NR 9.00 12/01/06
55,290 57,778,050
Integrated Health Services, Inc.,
Sr. Sub. Notes
NR 10.25 4/30/06
37,500 39,375,000
Sr. Sub. Notes
B2 9.50 9/15/07
19,000 19,570,000
Sr. Sub. Notes
B2 9.25 1/15/08
10,000 10,200,000
Paragon Health Network, Inc.,
Sr. Sub. Disc. Notes, Zero Coupon (until
11/1/02) B3 10.50
11/01/07 25,900 16,058,000
Sr. Sub. Notes
B3 9.50 11/01/07
10,000 10,025,000
Tenet Healthcare Corp.,
Sr. Sub. Notes
Ba3 10.125 3/01/05
46,600 50,910,500
Sr. Sub. Notes
Ba3 8.625 1/15/07
23,500 24,263,750
Vencor, Inc., Sr. Sub. Notes
B1 8.625 7/15/07
40,700 40,598,250
- --------------
336,544,112
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Energy--6.4%
AES Corp.,
Sr. Sub. Exch.
Ba1 8.375 8/15/07
28,675 28,603,312
Sr. Sub. Notes
Ba1 10.25 7/15/06
35,000 37,800,000
Sr. Sub. Notes
Ba1 8.50 11/01/07
25,000 25,031,250
Anker Coal Group, Inc., Sr. Notes
B3 9.75 10/01/07
13,600 13,532,000
Benton Oil & Gas Co., Sr. Notes
B2 11.625 5/01/03
11,300 12,458,250
Cliffs Drilling Co., Sr. Notes
B1 10.25 5/15/03
12,800 13,824,000
DI Industies, Inc., Sr. Notes
B1 8.875 7/01/07
9,750 10,091,250
Forcenergy, Inc., Sr. Sub. Notes
B2 9.50 11/01/06
10,000 10,500,000
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of
PRUDENTIAL HIGH YIELD FUND,
December 31, 1997 INC.
- ----------------------------------------------
- ---------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating Interest Maturity Amount
Value
Description
(Unaudited) Rate Date
(000) (Note 1)
<S>
<C> <C> <C> <C>
<C>
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Energy (cont'd.)
McDermott J. Ray, Sr. Sub. Notes
B1 9.375% 7/15/06 $
22,100 $ 23,757,500
Parker Drilling Co., Sr. Notes (cost
$13,493,240;
purchased 11/5/96)
B1 9.75 11/15/06
13,600 (b) 14,620,000
Plains Resources, Inc., Sr. Sub. Notes
B2 10.25 3/15/06
11,000 11,852,500
Pogo Producing Co., Sr. Sub. Notes
B1 8.75 5/15/07
15,600 15,990,000
Snyder Oil Corp., Sr. Sub. Notes
B2 8.75 6/15/07
16,300 16,401,875
Transamerican Energy Corp., Sr. Sec'd. Disc.
Notes,
Zero Coupon (until 6/1/99)
B3 13.00 6/15/02
30,000 24,225,000
Vintage Petroleum, Inc.,
Sr. Sub. Notes
B1 9.00 12/15/05
13,750 14,437,500
Sr. Sub. Notes
B1 8.625 2/01/09
12,435 12,932,400
- --------------
286,056,837
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Financial Services--1.8%
Americredit Corp., Sr. Notes
Ba2 9.25 2/01/04
19,100 19,100,000
Delta Financial Corp., Sr. Notes
B1 9.50 8/01/04
11,150 11,066,375
First Nationwide Holdings, Inc.,
Sr. Notes
B3 12.50 4/15/03
26,750 30,361,250
Sr. Sub. Notes
Ba3 10.625 10/01/03
16,000 17,880,000
- --------------
78,407,625
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Food & Beverage--2.2%
Ameriserve Food Dist., Inc., Sr. Sub. Notes
NR 10.125 7/15/07
37,945 39,462,800
Curtice Burns Foods, Inc., Sr. Sub. Notes
B3 12.25 2/01/05
21,080 23,082,600
Fresh Del Monte Produce, N.V., Sr. Notes
Ba3 10.00 5/01/03
17,450 18,148,000
PSF Holdings, LLC., Sr. Sec'd. Notes (cost
$11,408,403;
purchased 5/20/94 and 5/8/97)
NR 11.00 9/17/03
11,050 (b) 11,879,277
Southern Foods Group L.P., Sr. Sub. Notes
B2 9.875 9/01/07
6,850 7,158,250
- --------------
99,730,927
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Industrials--0.8%
Insilco Corp., Sr. Sub. Notes
B3 10.25 8/15/07
12,800 13,440,000
Trench Electric S.A., Gtd. Sr. Sub. Notes
(Netherlands)
B3 10.25 12/15/07
20,000 20,350,000
- --------------
33,790,000
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Leisure & Tourism--3.5%
Ballys Health & Tennis Corp., Sr. Sub. Notes
B3 9.875 10/15/07
11,500 11,672,500
Hedstrom Corp., Sr. Sub. Notes
B3 10.00 6/01/07
9,400 9,470,500
Hedstrom Holdings, Inc., Sr. Disc. Notes
Zero Coupon (until 6/1/02)
Caa 12.00 6/01/09
3,400 2,040,000
HMC Acquisition Properties, Inc., Sr. Notes
Ba3 9.00 12/15/07
61,760 64,539,200
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as of
PRUDENTIAL HIGH YIELD FUND,
December 31, 1997 INC.
- ----------------------------------------------
- ---------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating Interest Maturity Amount
Value
Description
(Unaudited) Rate Date
(000) (Note 1)
<S>
<C> <C> <C> <C>
<C>
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Leisure & Tourism (cont'd.)
HMH Properties, Inc., Sr. Notes
Ba3 8.875% 7/15/07 $
34,750 $ 36,574,375
Hollywood Theaters, Inc., Sr. Sub. Notes
B3 10.625 8/01/07
8,000 8,520,000
Regal Cinemas, Inc., Sr. Sub. Notes
B1 8.50 10/01/07
10,500 10,605,000
Town Sports Int'l., Inc., Sr. Notes
B2 9.75 10/15/04
13,450 13,315,500
- --------------
156,737,075
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Miscellaneous Services--1.5%
Coinstar, Inc., Sr. Sub. Disc. Notes, Zero
Coupon
(until 10/1/99)
NR 13.00 10/01/06
9,300 7,347,000
Color Spot Nurseries, Sr. Sub. Notes
NR 10.50 12/15/07
12,000 12,120,000
Continental Global Group, Inc., Sr. Notes
B2 11.00 4/01/07
10,000 10,650,000
Kindercare Learning Center, Inc., Sr. Sub.
Notes B3 9.50
2/15/09 22,375 22,263,125
United Stationer Supply Co., Sr. Sub. Notes
B3 12.75 5/01/05
12,000 13,650,000
- --------------
66,030,125
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Paper & Forest Products--2.5%
AEP Industry, Inc., Sr. Sub. Notes
B2 9.875 11/15/07
8,300 8,528,250
Doman Inds., Ltd., Sr. Notes
B1 9.25 11/15/07
5,450 5,286,500
Gaylord Container Corp.,
Sr. Notes
B3 9.75 6/15/07
7,000 6,755,000
Sr. Sub. Disc. Notes
Caa 12.75 5/15/05
18,988 20,317,160
Indah Kiat Fin. Mauritius, Ltd., Gtd. Sr.
Notes
(Indonesia)
Ba3 10.00 7/01/07
35,500 29,465,000
Pacific Lumber Co., Sr. Notes
B3 10.50 3/01/03
29,153 30,173,355
Pindo Deli Fin. Mauritius, Ltd., Gtd. Sr.
Notes
(India)
Ba3 10.75 10/01/07
11,000 9,405,000
- --------------
109,930,265
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Plastic Products--0.4%
Applied Extrusion Technology, Inc., Sr. Notes
B2 11.50 4/01/02
18,300 19,489,500
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Retail--2.9%
Big 5 Corp., Sr. Notes
B2 10.875 11/15/07
20,900 20,638,750
Brylane L.P., Sr. Sub. Notes
B1 10.00 9/01/03
5,000 5,306,250
Cole National Group, Inc.,
Sr. Sub. Notes
B2 9.875 12/31/06
16,200 17,253,000
Sr. Sub. Notes
B1 8.625 8/15/07
15,650 15,552,188
Duane Reade Holding Corp., Sr. Sub. Notes
Caa 15.00 9/15/04
5,000 4,175,000
French Fragrances, Inc., Sr. Notes
B2 10.375 5/15/07
15,030 15,781,500
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as of
PRUDENTIAL HIGH YIELD FUND,
December 31, 1997 INC.
- ----------------------------------------------
- ---------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating Interest Maturity Amount
Value
Description
(Unaudited) Rate Date
(000) (Note 1)
<S>
<C> <C> <C> <C>
<C>
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Retail (cont'd.)
Leslies Poolmart, Inc., Sr. Notes
B2 10.375% 7/15/04 $
6,400 $ 6,656,000
Specialty Retailers, Inc., Sr. Notes
Ba3 8.50 7/15/05
25,250 25,755,000
Syratech Corp., Sr. Notes
B1 11.00 4/15/07
18,065 16,800,450
- --------------
127,918,138
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Steel & Metals--4.1%
AK Steel Corp., Sr. Notes
Ba2 9.125 12/15/06
21,200 21,677,000
Armco, Inc., Sr. Notes
B2 9.00 9/15/07
11,600 11,368,000
International Wire Group, Inc., Sr. Sub. Notes
B3 11.75 6/01/05
18,500 20,303,750
Kaiser Aluminum & Chemical Corp., Sr. Sub.
Notes B2 12.75
2/01/03 32,180 34,231,475
Metallurg, Inc., Sr. Notes
B3 11.00 12/01/07
6,550 6,713,750
Sheffield Steel Corp., First Mtge.
Caa2 11.50 12/01/05
11,000 11,440,000
Silgan Holdings, Inc., Sr. Sub. Deb.
B1 9.00 6/01/09
13,000 13,292,500
WCI Steel, Inc., Sr. Sec'd. Notes
B2 10.00 12/01/04
34,000 34,765,000
Wheeling Pittsburgh Corp., Sr. Notes
B2 9.25 11/15/07
28,150 27,305,500
- --------------
181,096,975
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Supermarkets--0.9%
Pantry, Inc., Sr. Sub. Notes
B3 10.25 10/15/07
22,250 22,806,250
Pueblo Xtra Int'l., Inc., Sr. Notes
B3 9.50 8/01/03
8,250 7,816,875
Southland Corp., Sr. Sub. Deb.
B1 12.00 6/15/09
10,000 10,000,000
- --------------
40,623,125
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Technology--0.7%
Details Holdings Corp., Sr. Disc. Notes,
Zero Coupon (until 11/15/02)
Caa1 12.50 11/15/07
11,200 6,552,000
Details, Inc., Sr. Sub. Notes
B3 10.00 11/15/05
11,375 11,687,813
DII Group, Inc., Sr. Sub. Notes
B1 8.50 9/15/07
11,500 11,298,750
- --------------
29,538,563
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Telecommunications--15.5%
Barak ITC Int'l., Sr. Sub. Disc. Notes,
Zero Coupon (until 11/1/02) (Israel)
B3 12.50 11/15/07
36,500 20,622,500
CCPR Services, Inc., Sr. Sub. Notes
B2 10.00 2/01/07
10,000 9,500,000
Cellnet Data Systems, Inc., Sr. Disc. Notes,
Zero Coupon (until 10/1/02)
NR 14.00 10/01/07
44,455 (d) 19,782,475
Centennial Cellular Corp., Sr. Notes
B1 10.125 5/15/05
11,945 12,960,325
Communication Cellular, S.A., Sr. Def'd.
Bonds,
Zero Coupon (until 11/15/00) (Columbia)
B3 13.125 11/15/03
34,750 26,323,125
Concentric Network Corp., Sr. Notes
NR 12.75 12/15/07
7,500 (d) 7,687,500
Crown Castle Int'l. Corp., Sr. Disc. Notes,
Zero Coupon (until 11/1/02)
B3 10.625 11/15/07
11,450 7,156,250
Dialog Corp., Sr. Sub. Notes (United Kingdom)
B3 11.00 11/15/07
18,000 18,765,000
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as of
PRUDENTIAL HIGH YIELD FUND,
December 31, 1997 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.)
Geotek Communications, Inc., Sr. Conv. Notes
NR 12.00% 2/15/01 $
12,000 $ 9,000,000
Grupo Iusacell S.A. de CV, Sr. Notes (Mexico)
B2 10.00 7/15/04
15,650 15,728,250
GST Equipment, Inc., Sr. Sec'd. Notes
NR 13.25 5/01/07
10,000 11,400,000
GST Telecommunications, Inc.,
Conv. Sr. Disc. Notes, Zero Coupon (until
12/15/00)
NR 13.875 12/15/05
2,262 2,171,520
Sr. Sub. Notes
NR 12.75 11/15/07
13,875 14,499,375
GST USA, Inc., Sr. Disc. Notes, Zero Coupon
(until
12/15/00)
NR 13.875 12/15/05
16,096 12,313,440
Highwaymaster Communications, Inc., Sr. Notes
Caa1 13.75 9/15/05
8,300 8,424,500
ICG Holdings, Inc., Sr. Disc. Notes, Zero
Coupon
(until 9/15/00)
NR 13.50 9/15/05
15,000 12,187,500
Impsat Corp., Sr. Notes
B2 12.125 7/15/03
16,600 16,849,000
Intermedia Cap. Partners L.P., Sr. Notes
B2 11.25 8/01/06
30,250 33,426,250
Intermedia Communications of Florida,
Sr. Disc. Notes, Zero Coupon (until 7/1/02)
B2 11.25 7/15/07
27,500 20,006,250
Sr. Disc. Notes, Zero Coupon (until
5/15/01) B2 12.50
5/15/06 22,500 17,887,500
Sr. Notes
B2 8.50 1/15/08
12,500 12,500,000
International Wireless Communications, Inc.,
Sr.
Disc. Notes
NR Zero 8/15/01
12,000 (d) 6,000,000
Jacor Communications, Inc., Sr. Sub. Notes
B2 9.75 12/15/06
37,050 39,828,750
Jordan Telecommunication Products, Sr. Sub.
Notes NR 9.875
8/01/07 10,000 10,225,000
McLeod, Inc.,
Sr. Disc. Notes, Zero Coupon (until 3/1/02)
B3 10.50 3/01/07
20,000 14,550,000
Sr. Notes
B3 9.25 7/15/07
15,000 15,750,000
MGC Communications, Inc., Sr. Sec'd. Notes
NR 13.00 10/01/04
8,200 (d) 8,405,000
Millicom Int'l. Cellular, Sr. Disc. Notes,
Zero Coupon (until 12/1/01) (Luxembourg)
B3 13.50 6/01/06
10,000 7,350,000
Netia Holdings B.V., (Poland)
Gtd. Sr. Disc. Notes, Zero Coupon (until
11/1/01) B3 11.25
11/01/07 15,250 8,692,500
Gtd. Sr. Notes
B3 10.25 11/01/07
14,000 13,440,000
Nextel Communications, Inc.,
Sr. Disc. Notes, Zero Coupon (until 9/1/02)
B3 10.65 9/15/07
25,500 16,128,750
Sr. Disc. Notes, Zero Coupon (until
10/31/02) B3 9.75
10/31/07 75,000 46,031,250
Nextlink Communications, Inc., Sr. Notes
B3 9.625 10/01/07
11,600 11,977,000
Pagemart Nationwide, Inc., Sr. Disc. Notes,
Zero Coupon (until 2/1/00)
NR 15.00 2/01/05
23,000 19,665,000
Price Communications Cellular Corp., Sr. Disc.
Notes NR 13.50
8/01/07 8,000 (d) 5,120,000
Price Communications Wireless, Sr. Sub. Notes
Zero Coupon (until 8/1/02)
NR 11.75 7/15/07
10,000 10,850,000
PriCellular Wireless Corp.,
Sr. Disc. Notes,
B3 14.00 11/15/01
13,270 14,762,875
Sr. Disc. Notes, Zero Coupon (until
10/1/98) B3 12.25
10/01/03 15,850 16,048,125
Primus Telecommunications Group, Sr. Notes
B3 11.75 8/01/04
12,250 13,107,500
PTC Int'l. Fin. B.V., Sr. Sub. Disc. Notes,
Zero Coupon (until 7/1/02)
B+(a) 10.75 7/01/07
23,900 15,296,000
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 10
<PAGE>
Portfolio of Investments as of
PRUDENTIAL HIGH YIELD FUND,
December 31, 1997 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.)
Qwest Communications Int'l., Inc., Sr. Disc.
Notes,
Zero Coupon (until 10/15/02)
B2 9.47% 10/15/07 $
26,400 $ 18,018,000
RCN Corp., Sr. Disc. Notes, Zero Coupon (until
10/15/02)
B3 11.125 10/15/07
35,350 22,182,125
Telesystem Int'l. Wireless, Inc., (Canada)
Sr. Disc. Notes, Zero Coupon (until
11/1/02) Caa1 10.50
11/01/07 7,920 4,395,600
Sr. Disc. Notes, Zero Coupon (until
6/30/02) Caa1 13.25
6/30/07 23,530 14,882,725
UNIFI Communications, Inc., Sr. Notes
NR 14.00 3/01/04
20,200 (d) 18,180,000
USN Communications, Inc., Sr. Notes
Caa1 14.825 8/15/04
9,250 (d) 7,030,000
Winstar Communications, Inc., Conv. Sr. Disc.
Notes,
Zero Coupon (until 10/15/00)
NR 14.00 10/15/05
5,000 5,150,000
- --------------
692,256,960
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Textiles--1.0%
Foamex L.P. Cap. Corp., Sr. Sub. Notes
B3 9.875 6/15/07
16,300 16,707,500
Polysindo Int'l. Finance Co., (Indonesia)
Gtd. Sec'd. Notes
Ba3 9.375 7/30/07
11,800 8,496,000
Notes
Ba3 11.375 6/15/06
10,000 8,100,000
Worldtex, Inc., Sr. Notes
B1 9.625 12/15/07
12,300 12,607,500
- --------------
45,911,000
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Transportation/Trucking/Shipping--1.9%
Autopistas Del Sol S.A., Sr. Notes (Argentina)
NR 10.25 8/01/09
10,000 9,200,000
Espirito Santo Centrais Electric, Sr. Notes
(Luxembourg)
B1 10.00 7/15/07
20,500 18,245,000
Kitty Hawk, Inc., Sr. Sec'd. Notes
B1 9.95 11/15/04
20,275 20,781,875
MRS Logistica S.A., Sr. Notes (Brazil)
B(a) 10.625 8/15/05
12,500 11,250,000
Stena AB, Sr. Notes (Sweden)
Ba2 8.75 6/15/07
10,000 10,100,000
TFM S.A. De CV, Sr. Disc. Deb.,
Zero Coupon (until 6/1/02) (Mexico)
B2 11.75 6/15/09
18,000 11,340,000
Western Star Trucks Holdings, Ltd., Sr. Notes
(Canada)
Ba2 8.75 5/01/07
5,000 5,150,000
- --------------
86,066,875
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Waste Management--1.4%
Allied Waste Industries, Inc.,
Sr. Disc. Notes, Zero Coupon (until 6/1/02)
Caa 11.30 6/01/07
34,750 24,411,875
Sr. Sub. Notes
B3 10.25 12/01/06
28,000 30,730,000
Companhia De Saneamento Basico, Notes (Mexico)
NR 10.00 7/28/05
10,000 8,900,000
- --------------
64,041,875
- --------------
Total corporate bonds (cost $4,022,598,831)
4,152,852,831
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 11
<PAGE>
Portfolio of Investments as of
PRUDENTIAL HIGH YIELD FUND,
December 31, 1997
INC.
- ----------------------------------------------
- --------------
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Value
Description Shares
(Note 1)
<S> <C>
<C>
- ----------------------------------------------
- --------------
PREFERRED STOCKS--2.8%
Cablevision Systems Corp.,
$11.125, PIK 3,632
$ 41,949,600
$11.125, PIK 54,527
6,297,813
$11.75, PIK 121,128
14,353,648
California Fed. Corp., $9.125 1,822,245
47,833,931
Hyperion Telecommunications,
$12.875 51,449
5,199,645
Viasystems, Inc., $8.00 153,000
3,131,260
Von Hoffman Corp., $13.50 160,000
5,000,000
- --------------
Total preferred stocks
(cost $106,334,984)
123,765,897
- --------------
- ----------------------------------------------
- --------------
COMMON STOCKS(c)--0.3%
Cellnet Data Systems, Inc.
(cost $1,080; purchased
6/25/97) 216,000 (b)
1,674,000
Coinstar, Inc. 65,100
618,450
Dr Pepper Bottling Co., Cl. A 72,580
1,487,890
EnviroSource, Inc. 428,333
1,284,999
Gaylord Container Corp., Cl. A 324,735
1,867,226
Hedstrom Holdings, Inc. 206,223
257,779
Nextel Communications, Inc. 135,299
3,517,774
Pagemart Nationwide, Inc. 71,750
645,750
Peachtree Cable Assn., Ltd. 31,559
299,810
PM Holdings Corp. 3,679
1,931,475
- --------------
Total common stocks
(cost $8,243,009)
13,585,153
- --------------
- ----------------------------------------------
- --------------
COMMON TRUST UNITS(c)--0.7% Units
PSF Holdings, LLC.,
(cost $32,569,430;
purchased 3/8/94) 951,717
(b)(e) 31,406,661
- --------------
- ----------------------------------------------
- --------------
WARRANTS(c)--0.3% Warrants
American Telecasting, Inc.,
expiring 8/10/00 41,000
410
Cellnet Data Systems, Inc.,
expiring 9/15/07 44,455 (d)
889,100
Cellular Communications Int'l.,
Inc., expiring 8/15/03 22,250
445,000
Clearnet Communications, Inc.,
expiring 9/15/05 (Canada) 66,495
598,455
Comcel, expiring 11/15/03
(Columbia) 29,000
2,030,000
Concentric Network Corp.,
expiring 1/1/49 7,500 (d)
$ 0
Foamex JPS Automotive L.P.,
expiring 7/1/99 20,250 (d)
405,000
Gaylord Container Corp.,
expiring 11/1/02 417,518
2,400,728
Heartland Wireless
Communications, Inc., expiring
12/31/00 39,000
390
Highwaymaster Communications,
expiring 1/1/49 8,300
99,600
Intelcom Group, Inc., expiring
9/15/05 127,809
1,853,231
Intermedia Communications of
Florida, expiring 6/1/00 11,250
1,237,500
International Wireless
Communications, Inc.,
expiring 8/15/01 12,000 (d)
600,000
MGC Communications, Inc.,
expiring 10/1/04 8,200 (d)
0
Nextel Communications, Inc.,
expiring 12/15/98 14,273
3,854
expiring 4/25/99
(cost $0; acquired 4/13/95) 7,000 (b)
21,000
President Riverboat Casinos,
Inc., expiring 9/30/99 44,150
1,766
Price Communications Cellular
Corp., expiring 8/1/07 27,520
275
Primus Telecommunications Group,
expiring 8/1/04 12,250 (d)
122,500
Star Choice Communications, Inc.,
expiring 1/1/49 (Canada) 121,590 (d)
1,216
Sterling Chemical Holdings, Inc.,
expiring 8/15/08 5,450
163,500
UNIFI Communications, Inc.,
expiring 3/1/03 20,200 (d)
404,000
United Int'l. Holdings, Inc.,
expiring 11/15/99 44,500
534,000
USN Communications, Inc.,
expiring 1/1/49 92,500 (d)
0
- --------------
Total warrants (cost $715,009)
11,811,525
- --------------
Total long-term investments
(cost $4,170,461,263)
4,333,422,067
- --------------
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 12
<PAGE>
Portfolio of Investments as of
PRUDENTIAL HIGH YIELD FUND,
December 31, 1997 INC.
- ----------------------------------------------
- ---------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating Interest Maturity Amount
Value
Description
(Unaudited) Rate Date
(000) (Note 1)
<S>
<C> <C> <C> <C>
<C>
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
SHORT-TERM INVESTMENTS--1.2%
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Commercial Paper
Tyson Foods
6.95% 1/02/98 $ 46,163 $
46,154,088
Whirlpool Financial Corp.
7.25 1/02/98 7,647
7,645,460
- --------------
Total short-term investments (cost
$53,799,548)
53,799,548
- --------------
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------
Total Investments--98.2%
(cost $4,224,260,811; Note 4)
4,387,221,615
Other assets in excess of liabilities--1.8%
81,247,181
- --------------
Net Assets--100%
$4,468,468,796
- --------------
- --------------
</TABLE>
- ---------------
(a) Standard & Poor's Rating.
(b) Indicates a restricted security; the
aggregate cost of such securities is
$57,472,153. The aggregate value
$59,600,938 is approximately 1.3% 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.
(e) Fair Valued Security.
NR--Not rated by Moody's or Standard & Poor's.
PIK--Payment in kind securities.
LLC--Limited Liability Company.
L.P.--Limited Partnership.
The Fund's current Prospectus contains a
description of Moody's and Standard &
Poor's ratings.
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 13
<PAGE>
Statement of Assets and Liabilities
PRUDENTIAL HIGH YIELD FUND, INC.
- ----------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Assets
December 31, 1997
<S>
<C>
Investments, at value (cost
$4,224,260,811)...............................
.............................. $
4,387,221,615
Cash..........................................
..............................................
............ 442,109
Interest
receivable....................................
..............................................
... 77,259,492
Receivable for Fund shares
sold..........................................
...............................
13,037,128
Deferred expenses and other
assets........................................
..............................
98,744
- -----------------
Total
assets........................................
..............................................
... 4,478,059,088
- -----------------
Liabilities
Payable for Fund shares
reacquired....................................
..................................
3,749,494
Due to
Distributor...................................
..............................................
..... 1,928,612
Due to
Manager.......................................
..............................................
..... 1,534,503
Accrued
expenses......................................
..............................................
.... 1,335,940
Dividends
payable.......................................
..............................................
.. 1,041,743
- -----------------
Total
liabilities...................................
..............................................
... 9,590,292
- -----------------
Net
Assets........................................
..............................................
........ $ 4,468,468,796
- -----------------
- -----------------
Net assets were comprised of:
Common stock, at
par...........................................
...................................... $
5,172,932
Paid-in capital in excess of
par...........................................
..........................
4,854,975,571
- -----------------
4,860,148,503
Distribution in excess of net investment
income........................................
.............. (1,041,743)
Accumulated net realized loss on
investments...................................
...................... (553,598,768)
Net unrealized appreciation on
investments...................................
........................ 162,960,804
- -----------------
Net assets, December 31,
1997..........................................
................................. $
4,468,468,796
- -----------------
- -----------------
Class A:
Net asset value and redemption price per
share
($1,730,473,248 / 200,080,467 shares of
common stock issued and
outstanding)......................
$8.65
Maximum sales charge (4.00% of offering
price)........................................
............... .36
- -----
Maximum offering price to
public........................................
.............................
$9.01
- -----
- -----
Class B:
Net asset value, offering price and
redemption price per share
($2,640,490,863 / 305,928,089 shares of
common stock issued and
outstanding)......................
$8.63
- -----
- -----
Class C:
Net asset value, offering price and
redemption price per share
($55,879,347 / 6,473,965 shares of
common stock issued and
outstanding)...........................
$8.63
- -----
- -----
Class Z:
Net asset value, offering price and
redemption price per share
($41,625,338 / 4,810,657 shares of
common stock issued and
outstanding)...........................
$8.65
- -----
- -----
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 14
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
Statement of Operations
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income
December 31, 1997
<S>
<C>
Income
Interest..............................
$ 393,792,092
Dividends.............................
5,652,438
--
- ---------------
Total Income.......................
399,444,530
--
- ---------------
Expenses
Distribution fee--Class A.............
2,453,219
Distribution fee--Class B.............
19,418,413
Distribution fee--Class C.............
337,741
Management Fee........................
17,569,047
Transfer agent's fees and expenses....
4,538,000
Custodian's fees and expenses.........
354,000
Reports to shareholders...............
248,000
Registration fees.....................
167,000
Insurance expense.....................
72,000
Audit fee.............................
48,000
Legal fees and expenses...............
42,000
Directors' fees and expenses..........
37,000
Miscellaneous.........................
54,257
--
- ---------------
Total expenses.....................
45,338,677
--
- ---------------
Net investment income....................
354,105,853
--
- ---------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain on investment
transactions..........................
146,274,171
Net change in unrealized appreciation of
investments...........................
7,321,433
--
- ---------------
Net gain on investments..................
153,595,604
--
- ---------------
Net Increase in Net Assets
Resulting from Operations................
$ 507,701,457
--
- ---------------
--
- ---------------
</TABLE>
PRUDENTIAL HIGH YIELD FUND, INC.
Statement of Changes in Net Assets
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Increase (Decrease) Year
Ended December 31,
in Net Assets 1997
1996
<S> <C>
<C>
Operations
Net investment income....... $
354,105,853 $ 360,853,565
Net realized gain on
investment
transactions.............
146,274,171 33,923,042
Net change in unrealized
appreciation of
investments..............
7,321,433 75,350,872
-------------
- --- ----------------
Net increase in net assets
resulting from
operations...............
507,701,457 470,127,479
-------------
- --- ----------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A..................
(139,641,643) (127,419,210)
Class B..................
(207,750,363) (228,744,279)
Class C..................
(3,608,339) (2,463,825)
Class Z..................
(3,105,508) (2,226,251)
-------------
- --- ----------------
(354,105,853) (360,853,565)
-------------
- --- ----------------
Dividends in excess of net
investment income
Class A..................
(8,405,450) (3,542,829)
Class B..................
(12,505,119) (6,360,123)
Class C..................
(217,197) (68,506)
Class Z..................
(186,930) (61,900)
-------------
- --- ----------------
(21,314,696) (10,033,358)
-------------
- --- ----------------
Fund share transactions (Net of
share conversions) (Note 5)
Net proceeds from shares
sold.....................
2,751,808,904 2,157,396,910
Net asset value of shares
issued in reinvestment of
dividends and
distributions............
185,528,878 181,172,994
Cost of shares reacquired...
(2,836,907,445) (2,293,331,143)
-------------
- --- ----------------
Net increase in net assets
from Fund share
transactions.............
100,430,337 45,238,761
-------------
- --- ----------------
Total increase.................
232,711,245 144,479,317
Net Assets
Beginning of year..............
4,235,757,551 4,091,278,234
-------------
- --- ----------------
End of year.................... $
4,468,468,796 $ 4,235,757,551
-------------
- --- ----------------
-------------
- --- ----------------
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 15
<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, 1997 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.
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 $21,307,352, increase
accumulated net realized loss on
investments by $10,419,056 and
- ----------------------------------------------
- ----------------------------------
16
<PAGE>
Notes to Financial Statements
PRUDENTIAL HIGH YIELD FUND, INC.
- ----------------------------------------------
- ----------------------------------
decrease paid in capital in excess of par by
$10,888,296. 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, 1997.
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 Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement PIMF
has responsibility for all
investment advisory services and supervises
the subadviser's performance of such
services. PIFM 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.
PIFM 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 PIFM is computed daily
and payable monthly, at an annual
rate of .50 of 1% of the Fund's average daily
net assets up to $250 million,
.475 of 1% of the next $500 million, .45 of 1%
of the next $750 million, .425 of
1% of the next $500 million, .40 of 1% of the
next $500 million, .375 of 1% of
the next $500 million and .35 of 1% 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, 1997.
PSI has advised the Fund that it has received
approximately $1,239,500 in
front-end sales charges resulting from sales
of Class A shares during the year
ended December 31, 1997. 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, 1997, it received
approximately $4,064,800 and $32,300 in
contingent deferred sales charges
imposed upon certain redemptions by Class B
and Class C shareholders,
respectively.
PSI, PIFM and PIC are indirect, wholly owned
subsidiaries of The Prudential
Insurance Company of America.
The Fund, along with other affiliated
registered investment companies (the
'Funds'), has a credit agreement (the
'Agreement') with an unaffiliated lender.
The maximum commitment under the Agreement is
$200,000,000. Interest on any such
borrowings outstanding will be at market
rates. The purpose of the Agreement is
to serve an alternative source of funding for
capital share redemptions. The
Fund has not borrowed any amounts pursuant to
the Agreement during the year
ended December 31, 1997. The Funds pay a
commitment fee at an annual rate of
.0555 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. The Agreement
expired on December 30, 1997 and has been
extended through December 29, 1998
under the same terms.
- ----------------------------------------------
- --------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC, ('PMFS'),
a wholly owned subsidiary of
PIFM, serves as the Fund's transfer agent and
during the year ended December 31,
1997, the Fund incurred fees of approximately
$3,538,000 for the services of
PMFS. As of December 31, 1997, $294,500 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, 1997 were
$4,675,272,951 and $4,532,020,344,
respectively.
The federal income tax basis of the Fund's
investments, including short-term
investments, as of December 31, 1997 was
$4,224,833,888; accordingly, net
unrealized appreciation for federal income tax
purposes was $162,387,727 (gross
unrealized appreciation--$205,405,586; gross
unrealized
depreciation--$43,017,859).
For federal income tax purposes, the Fund has
a capital loss carryforward as of
December 31, 1997 of approximately
$553,025,700 of which $202,439,400 expires in
1998, $77,895,200 expires in 1999,
$110,441,500 expires in 2000
- ----------------------------------------------
- ----------------------------------
17
<PAGE>
Notes to Financial Statements
PRUDENTIAL HIGH YIELD FUND, INC.
- ----------------------------------------------
- ----------------------------------
and $162,249,600 expires in 2003. Such
carryforward is after utilization of
approximately $120,901,200 of net taxable
gains realized and recognized during
the year ended December 31, 1997. 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.
- ----------------------------------------------
- --------------
Note 5. 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. 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, 1997:
Shares sold................... 193,384,884
$ 1,647,640,589
Shares issued in reinvestment
of dividends and
distributions............... 9,414,309
80,204,534
Shares reacquired............. (210,193,785)
(1,791,846,142)
------------
- ---------------
Net decrease in shares
outstanding before
conversions................. (7,394,592)
(64,001,019)
Shares issued upon conversion
from Class B................ 20,996,980
178,917,604
------------
- ---------------
Net increase in shares
outstanding................. 13,602,388
$ 114,916,585
------------
- ---------------
------------
- ---------------
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
------------
- ---------------
------------
- ---------------
<CAPTION>
Class B Shares
Amount
- ------------------------------ ------------
- ---------------
<S> <C>
<C>
Year ended December 31, 1997:
Shares sold................... 118,393,095
$ 1,004,044,328
Shares issued in reinvestment
of dividends and
distributions............... 11,760,615
99,976,935
Shares reacquired............. (113,114,191)
(959,505,335)
------------
- ---------------
Net increase in shares
outstanding before
conversion.................. 17,039,519
144,515,928
Shares reacquired upon
conversion into Class A..... (21,040,398)
(178,917,604)
------------
- ---------------
Net decrease in shares
outstanding................. (4,000,879)
$ (34,401,676)
------------
- ---------------
------------
- ---------------
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)
------------
- ---------------
------------
- ---------------
<CAPTION>
Class C
- ------------------------------
<S> <C>
<C>
Year ended December 31, 1997:
Shares sold................... 5,931,868
$ 50,289,762
Shares issued in reinvestment
of dividends and
distributions............... 257,238
2,191,113
Shares reacquired............. (4,892,651)
(41,327,251)
------------
- ---------------
Net increase in shares
outstanding................. 1,296,455
$ 11,153,624
------------
- ---------------
------------
- ---------------
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
------------
- ---------------
------------
- ---------------
<CAPTION>
Class Z
- ------------------------------
<S> <C>
<C>
Year ended December 31, 1997:
Shares sold................... 5,863,890
$ 49,834,225
Shares issued in reinvestment
of dividends and
distributions............... 370,225
3,156,296
Shares reacquired............. (5,206,103)
(44,228,717)
------------
- ---------------
Net increase in shares
outstanding................. 1,028,012
$ 8,761,804
------------
- ---------------
------------
- ---------------
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,
- ----------------------------------------------
- --------------------
1997 1996 1995
1994 1993
- ---------- ---------- ---------- -
- ------- --------
<S>
<C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year............... $ 8.39 $
8.19 $ 7.68 $ 8.70 $ 8.19
- ---------- ---------- ---------- -
- ------- --------
Income from investment operations
Net investment
income............................
.73 .75 .81 .80
.84
Net realized and unrealized gain (loss) on
investments...................................
.30 .22 .53
(1.00) .52
- ---------- ---------- ---------- -
- ------- --------
Total from investment
operations.............. 1.03
.97 1.34 (.20) 1.36
- ---------- ---------- ---------- -
- ------- --------
Less distributions
Dividends from net investment
income............. (.73)
(.75) (.81) (.80) (.84)
Distributions in excess of net investment
income........................................
(.04) (.02) (.02)
(.02) (.01)
- ---------- ---------- ---------- -
- ------- --------
Total
distributions...........................
(.77) (.77) (.83)
(.82) (.85)
- ---------- ---------- ---------- -
- ------- --------
Net asset value, end of
year..................... $ 8.65 $
8.39 $ 8.19 $ 7.68 $ 8.70
- ---------- ---------- ---------- -
- ------- --------
- ---------- ---------- ---------- -
- ------- --------
TOTAL
RETURN(a)..................................
12.81% 12.60% 18.17%
(2.35)% 17.32%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000).................... $1,730,473
$1,564,429 $1,336,354 $161,435
$171,364
Average net assets
(000)......................... $1,635,480
$1,385,143 $1,056,555 $165,517
$149,190
Ratios to average net assets:
Expenses, including distribution
fees......... .69% .72%
.75% .78% .76%
Expenses, excluding distribution
fees......... .54% .57%
.60% .63% .61%
Net investment
income......................... 8.59%
9.20% 10.13% 9.86% 9.93%
For Classes A, B, C and Z shares:
Portfolio turnover
rate.......................... 113%
89% 78% 74% 85%
</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,
- ----------------------------------------------
- ------------------------
1997 1996 1995
1994 1993
- ---------- ---------- ---------- -
- --------- ----------
<S>
<C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year............... $ 8.38 $
8.18 $ 7.67 $ 8.69 $
8.19
- ---------- ---------- ---------- -
- --------- ----------
Income from investment operations
Net investment
income............................
.68 .71 .76
.76 .79
Net realized and unrealized gain (loss) on
investments...................................
.29 .22 .53
(1.00) .51
- ---------- ---------- ---------- -
- --------- ----------
Total from investment
operations.............. .97
.93 1.29 (.24)
1.30
- ---------- ---------- ---------- -
- --------- ----------
Less distributions
Dividends from net investment
income............. (.68)
(.71) (.76) (.76)
(.79)
Distributions in excess of net investment
income........................................
(.04) (.02) (.02)
(.02) (.01)
- ---------- ---------- ---------- -
- --------- ----------
Total
distributions...........................
(.72) (.73) (.78)
(.78) (.80)
- ---------- ---------- ---------- -
- --------- ----------
Net asset value, end of
year..................... $ 8.63 $
8.38 $ 8.18 $ 7.67 $
8.69
- ---------- ---------- ---------- -
- --------- ----------
- ---------- ---------- ---------- -
- --------- ----------
TOTAL
RETURN(a)..................................
12.07% 11.97% 17.49%
(2.92)% 16.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000).................... $2,640,491
$2,596,207 $2,730,903 $3,311,323
$3,745,985
Average net assets
(000)......................... $2,589,122
$2,652,883 $2,725,385 $3,566,709
$3,389,439
Ratios to average net assets:
Expenses, including distribution
fees......... 1.29% 1.32%
1.35% 1.38% 1.36%
Expenses, excluding distribution
fees......... .54% .57%
.60% .63% .61%
Net investment
income......................... 7.99%
8.62% 9.56% 9.28%
9.35%
</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. 20
<PAGE>
Financial Highlights
PRUDENTIAL HIGH YIELD FUND, INC.
- ----------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Class C Class Z
- ----------------------------------------------
- -- ------------
August 1,
1994(c)
Year Ended December 31, Through
Year Ended
- ------------------------------- December
31, December 31,
1997 1996 1995 1994
1997
- ------- ------- ------- ----------
- -- ------------
<S>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............. $ 8.38 $ 8.18
$ 7.67 $ 8.05 $ 8.39
- ------- ------- ------- -----
- ------
Income from investment operations
Net investment
income............................ .68
.71 .76 .32
.74
Net realized and unrealized gain (loss) on
investments...................................
.29 .22 .53 (.37)
.30
- ------- ------- ------- -----
- ------
Total from investment
operations.............. .97
.93 1.29 (.05)
1.04
- ------- ------- ------- -----
- ------
Less distributions
Dividends from net investment
income............. (.68) (.71)
(.76) (.32) (.74)
Distributions in excess of net investment
income........................................
(.04) (.02) (.02) (.01)
(.04)
- ------- ------- ------- -----
- ------
Total
distributions...........................
(.72) (.73) (.78) (.33)
(.78)
- ------- ------- ------- -----
- ------
Net asset value, end of
period................... $ 8.63 $
8.38 $ 8.18 $ 7.67 $
8.65
- ------- ------- ------- -----
- ------
- ------- ------- ------- -----
- ------
TOTAL
RETURN(a)..................................
12.07% 11.97% 17.49% (0.79)%
12.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................. $55,879 $43,374
$24,021 $4,860 $ 41,625
Average net assets
(000)......................... $45,032
$28,647 $12,063 $2,840 $
35,808
Ratios to average net assets:
Expenses, including distribution
fees......... 1.29% 1.32%
1.35% 1.48%(b) .54%
Expenses, excluding distribution
fees......... .54% .57%
.60% .73%(b) .54%
Net investment
income......................... 7.99%
8.60% 9.49% 9.80%(b)
8.74%
<CAPTION>
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 distribution
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, 1997, 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, 1997 by correspondence with the
custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 13, 1998
Federal Tax Information
PRUDENTIAL HIGH YIELD FUND, INC.
- ----------------------------------------------
- ----------------------------------
During the fiscal year ended December 31,
1997, the Fund paid ordinary income
dividends per share totalling $0.77, $0.72,
$0.72 and $0.78 for Class A, B, C
and Z shares, respectively. Accordingly, we
wish to advise you that 1.55% of the
dividends paid qualified for the corporate
dividend received deduction available
to corporate taxpayers.
- ----------------------------------------------
- ----------------------------------
22
<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
11.27% Since Inception
10.55% for 5 Years
8.30% for 1 Year
Without Sales Load
11.85% Since Inception
11.45% for 5 Years
12.81% for 1 Year
Class B
Average Annual Total
(CHART)
Returns - Class B
With Sales Load
10.38% Since Inception
9.88% for 10 Years
10.64% for 5 Years
7.07% for 1 Year
Without Sales Load
10.38% Since Inception
9.88% for 10 Years
10.78% for 5 Years
12.07% for 1 Year
Class C
Average Annual Total
(CHART)
Returns - Class C
With Sales Load
11.77% Since Inception
11.07% for 1 Year
Without Sales Load
11.77% Since Inception
12.07% for 1 Year
Class Z
Average Annual Total
(CHART)
Returns - Class Z
With Sales Load
11.88% Since Inception
12.96% for 1 Year
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 Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Mendel A. Melzer, CFA
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
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 Accountants
Price Waterhouse LLP
1177 Avenues of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
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
