(ICON)
Prudential
High Yield
Fund, Inc.
SEMI
ANNUAL
REPORT
June 30, 1998
(LOGO)
<PAGE>
Prudential High Yield Fund, Inc.
Performance At A Glance.
Long-term U.S. interest rates lingered near rock-bottom
levels over the past
six months, prompting corporations to issue a flood of new
high yield bonds
(commonly called junk bonds) to take advantage of low
borrowing costs. This
heavy supply and renewed concern that Asian financial
problems could hurt
U.S. economic growth pressured high yield bond prices in the
spring. Your
Prudential High Yield Fund had an above-average exposure to
telecommunications
bonds whose price appreciation was hampered by a heavy
supply of newly issued
debt securities. As a result, your Fund's Class A shares
returned 3.89%,
compared to the 4.42% for the average high yield mutual
fund, as measured by
Lipper Analytical Services.
<TABLE>
Cumulative Total Returns1
As of 6/30/98
<CAPTION>
Six One Five
Ten Since
Months Year Years
Years Inception2
<S> <C> <C> <C>
<C> <C>
Class A 3.89% 11.14% 61.68%
N/A 152.75%
Class B 3.63 10.43 57.03
143.93% 560.51
Class C 3.63 10.43 N/A
N/A 51.58
Class Z 4.08 11.29 N/A
N/A 27.88
Lipper High
Current Yld. Avg.3 4.42 11.45 60.53
166.59 ***
</TABLE>
<TABLE>
Average Annual Total Returns1
As of 6/30/98
<CAPTION>
One Five
Ten Since
Year Years
Years Inception2
<S> <C> <C>
<C> <C>
Class A 6.70% 9.19%
N/A 11.08%
Class B 5.43 9.31
9.33% 10.30
Class C 9.43 N/A
N/A 11.22
Class Z 11.29 N/A
N/A 11.13
</TABLE>
<TABLE>
<CAPTION>
Distributions & Yields
As of 6/30/98
Total Distributions 30-
Day
Paid for Six Mos. SEC
Yield
<S> <C> <C>
Class A $0.38
8.46%
Class B $0.36
8.20
Class C $0.36
8.21
Class Z $0.39
8.97
</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 Investments Fund Management and Lipper
Analytical
Services. The cumulative total returns do not take into
account sales charges.
The average annual total 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
(CDSC) of 5%, 4%, 3%,
2%, 1% and 1% for six years for Class B shares. Class B
shares will
automatically convert to Class A shares, on a quarterly
basis, approximately
seven years after purchase. Class C shares have a 1% CDSC
for one year. Class
Z shares are not subject to a sales charge or distribution
fee.
2Inception dates: Class A, 1/22/90; Class B, 3/29/79; Class
C, 8/1/94; and
Class Z, 3/1/96.
3Lipper average returns are for all funds in each share
class for the six-
month, one-, five-, and ten-year periods.
***Lipper Since Inception returns are 166.36% for Class A;
659.97% for Class
B; 54.13% for Class C; and 29.61% for Class Z based on all
funds in each share
class.
How Investments Compared.
(As of 6/30/98)
(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 returns 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>
George Edwards & Ken Peterson, Fund Managers
(PHOTOS)
Portfolio
Managers
Report
The Fund's primary investment objective is to maximize
current income through
investment in a diversified portfolio of high yield fixed
income securities.
Capital appreciation is a secondary objective which will
only be sought when
consistent with the primary objective. 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.
Strategy Session.
Bond Issuance Soared.
High yield bond issuance soared early in the year, powered
by a combination of
low interest rates, tame inflation, and brisk U.S. economic
growth in the
first three months. Economic turmoil in Asia caused some
investors to sell
Asian stocks and bonds and purchase U.S. Treasuries, which
drove down the 30-
year bond yield (that moves in the opposite direction of
prices) to its lowest
level since 1977. At the same time, a buildup in business
inventories,
declining oil prices, and high consumer confidence helped
fuel the U.S.
economic expansion, while a strong U.S. dollar and cheaply
priced Asian
imports kept inflation in check. Corporations took
advantage of these
favorable conditions by selling $92.6 billion of below
investment grade bonds
in the first half of the year.
This large supply of new junk bonds initially met with
strong demand from
yield hungry investors as well as from those worried about
an increasingly
volatile stock market. By late spring, however, the appetite
for high yield
bonds dwindled as investors turned more cautious. The
corporate bond default
rate edged higher, earnings growth slowed, and the
difference between yields
on junk bonds and Treasuries increased, indicating that
investors required a
greater reward for taking a chance on junk bonds.
In late June, high yield bonds, on average, provided about
3.8% more in yield
than comparable Treasuries, up from about 3.5% the previous
month.
Bonds & More
Bonds.
Corporations rushed to issue new high yield bonds to take
advantage of low
borrowing costs. Issuance in the U.S. during the first six
months of 1998
totaled $92.6 billion, which is on track to surpass the
record $132.1 billion
sold in 1997.
Portfolio Composition.
Sectors expressed as a percentage of
net assets as of 6/30/98.
(PIE CHART)
What Went Well.
Tuned In To Cable TV.
We were attracted to the cable television sector by its
history of stable
cash flows and bright prospects for the future. News that
AT&T plans to buy
Tele-Communications, Inc. the nation's No. 2 cable
television company,
sparked a rally in cable television bonds as investors
expect more mergers
and acquisitions in that industry. The Fund participated in
the rally through
its considerable exposure to the sector, which provided a
boost to the Fund's
returns.
Taking Profits.
As you remember, a flood of new junk bonds were sold in the
first half of the
year. Proceeds from some were used to retire older bonds
with higher interest
rates. The Fund benefited from this trend because we booked
profits after some
of our healthcare and lodging industries bonds were retired
at prices above
their maturity values.
We Were Energized.
Oil prices tumbled to an 11 year low in late spring after
news that key
petroleum-producing countries planned to reduce production
by a less-than-
hoped-for amount. This decline fueled a sharp sell-off in
energy bonds,
particularly among junk bond companies. Because we were
underexposed to the
sector going into the downturn, we were able to take
advantage of this buying
opportunity by purchasing select energy bonds at discounted
prices.
And Not So Well.
Sorry, Wrong Number.
The most rapidly growing sector of the high yield market is
telecommunications.
During the first four months of the year, many start-up
telecommunications
companies were busy raising money by issuing zero coupon
bonds. By May,
however, the market had difficulty digesting the burgeoning
supply of new high
yield telecom-munications bonds mostly from speculative
companies. Indeed
many companies were forced to cheapen bond prices in order
to attract
investors, while some firms decided to withdraw or postpone
new debt issues.
Still, telecom-munications firms issued 19% of new junk
bonds sold from April
through June, an amount that was sufficient to put a damper
on price
increases. As a result, telecom-munications bonds returned
3.63% for the six-
month period compared with 4.50% for the overall high yield
index, according
to Lehman Brothers indexes. The Fund's performance suffered
as these bonds
comprised 16% of total investments as of June 30, a slightly
above-average
exposure compared to similar funds.
Five Largest Issuers.
2.3% Rogers Cablesystems, Inc.
1.8% Rogers Cantel, Inc.
1.8% Nextel Communications, Inc.
1.7% Fresenius Med. Care
Capital Trust
1.5% SFX Broadcasting, Inc.
Expressed as a percentage of net assetsas of 6/30/98.
Looking Ahead.
Heavy high yield bond issuance is expected to continue, at
least in the near
term. We plan to keep a close watch for attractive buying
opportunities in
the new issue market. A slowdown in U.S. economic growth
would affect
companies in the more cyclical industries such as steel,
technology,
commodities, paper and chemicals and could impair their
ability to comfortably
make interest and principal payments on their bonds. We
therefore plan to
reduce our exposure to bonds of cyclical industries to the
extent that the
economy continues to weaken.
- ------------------------------------------------------------
- -------------------
1
<PAGE>
President's Letter
August 4, 1998
(PHOTO)
Managing Expectations.
Dear Shareholder:
For nearly eight years we've enjoyed above-average, double-
digit returns from
stocks--a bull market of unprecedented duration. As a
result, many of us have
grown accustomed to seeing the Dow Jones Industrial Average,
the S&P 500 and
other market indexes set new records. That's why the
fluctuations normally
seen in financial markets may take investors by surprise.
Although the media has given ample coverage to the factors
that have caused
concern in 1998, we'd like to remind you that there is also
good news to
report: the US economy is healthy and continues to grow.
Inflation remains
subdued and employment is strong.
Even with a sound economy, it isn't easy to maintain your
investment
discipline when the market is fluctuating. Here are some
thoughts that may
help:
- - Manage Your Expectations. Experienced mutual fund
investors understand that
financial markets rise and fall. Over time, however,
stocks and bonds have
produced attractive returns that have kept ahead of
inflation.
- - Don't Invest Emotionally. If you have long-term (several
years or longer)
investment goals, it may be counter-productive to sell an
investment in
reaction to short-term market fluctuation. Over the course
of several
years, it's not unusual for stocks and bonds to experience
several periods
of market uncertainty.
- - Diversification Lessens Risk. Market sectors seldom move
in tandem. A well-
diversified portfolio that includes stock, bond, and money
market mutual
funds can lessen the effects of market volatility over
time.
- - We're On Your Side. Your Prudential professional can help
you understand
what's happening in the markets. He or she can assist you
in making informed
decisions based upon a thorough knowledge of your
financial needs and long-
term goals. Call your Prudential professional today.
Thank you for your continued confidence in Prudential mutual
funds. We'll do
everything we can to keep you informed and to earn your
trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
- ------------------------------------------------------------
- -------------------
2
<PAGE>
Portfolio of Investments
as of June 30, 1998 (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
LONG-TERM INVESTMENTS--95.9%
BONDS--90.9%
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Aerospace--1.0%
Compass Aerospace Corp., Sr. Sub. Notes
B-(a) 10.125% 4/15/05 $10,500 $
10,710,000
Sequa Corp., Sr. Sub. Notes
B1 9.375 12/15/03 34,450
35,655,750
- --------------
46,365,750
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Automotive Parts--2.6%
Foamex JPS Automotive LLC, Sr. Notes
B1 11.125 6/15/01 21,700(d)
23,653,000
Hayes Wheels Int'l., Inc., Sr. Sub. Notes
B3 11.00 7/15/06 32,000
35,920,000
Newcor, Inc., Sr. Sub. Notes
B3 9.875 3/01/08 6,200
6,277,500
Paragon Corporate Holdings, Inc., Sr. Notes
B3 9.625 4/01/08 7,500
6,675,000
Standyne Automotive Corp., Sr. Sub. Notes
NR 10.25 12/15/07 14,400
14,760,000
Venture Holdings, Sr. Notes
B2 9.50 7/01/05 19,500
19,719,375
Walbro Corp., Sr. Notes
B2 10.125 12/15/07 9,000
8,842,500
- --------------
115,847,375
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Broadcasting & Other Media--6.3%
American Lawyer Media, Inc.,
Sr. Sub. Notes
B1 9.75 12/15/07 17,000
17,637,500
Sr. Disc. Notes, Zero Coupon (until 12/15/02)
B3 12.25 12/15/08 10,500
6,680,625
AMSC Acquistion, Inc., Sr. Notes
NR 12.25 4/01/08 7,750
7,207,500
Capstar Radio Broadcasting,
Sr. Sub. Notes
B2 9.25 7/01/07 12,000
12,555,000
Sr. Disc. Notes, Zero Coupon (until 2/01/02)
B-(a) 12.75 2/01/09 16,675
12,673,000
Cumulus Media, Inc., Sr. Sub. Notes
NR 10.375 7/01/08 8,250
8,373,750
Globo Communicacoes,
Sr. Notes (Brazil)
B1 10.50 12/20/06 10,000
8,950,000
Gtd. Notes (Brazil)
B1 10.625 12/05/08 7,300
6,460,500
Lamar Advertising Co., Sr. Sub. Notes
B1 9.625 12/01/06 11,500
12,305,000
Liberty Group Publishing, Inc.,
Sr. Sub. Notes
B3 9.375 2/01/08 8,650
8,736,500
Sr. Disc. Deb., Zero Coupon (until 2/01/03)
CCC+(a) 11.625 2/01/09 12,150
7,502,625
Lin Holdings Corp., Sr. Disc. Notes, Zero Coupon (until
3/01/03)
B3 10.00 3/01/08 19,500
13,162,500
NTL, Inc., Sr. Notes, Zero Coupon (until 4/01/03)
B3 9.75 4/01/08 25,500
16,575,000
Outdoor Systems, Inc., Sr. Sub. Notes
B1 9.375 10/15/06 18,000
19,125,000
Production Resource LLC, Sr. Sub. Notes
B-(a) 11.50 1/15/08 15,000
14,550,000
Renaissance Media LLC., Sr. Disc. Notes
B3 10.00 4/15/08 5,500
3,423,750
SFX Broadcasting, Inc.,
Sr. Sub. Notes
B3 10.75 5/15/06 32,820
36,184,050
Sr. Sub. Notes
B3 9.125 2/01/08 33,350
32,683,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments
as of June 30, 1998 (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Broadcasting & Other Media (cont'd.)
Shop At Home, Inc., Sr. Sec'd. Notes
B1 11.00% 4/01/05 $ 6,500 $
6,857,500
Sun Media Corp., Sr. Sub. Notes (Canada)
B2 9.50 5/15/07 9,522
10,069,515
Telemundo Group, Inc., Sr. Disc. Notes
B1 7.00 2/15/06 10,000
10,775,000
Young America Corp., Sr. Sub. Notes
B3 11.625 2/15/06 11,400
11,343,000
- --------------
283,830,315
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Building & Related Industries--3.9%
American Builders, Sr. Sub. Notes
B3 10.625 5/15/07 11,000
11,000,000
Beazer Homes USA, Inc., Sr. Notes
B1 8.875 4/01/08 8,000
7,800,000
Falcon Building Prod., Inc.,
Sr. Sub. Disc. Notes, Zero Coupon (until 6/15/02)
B3 10.50 6/15/07 24,100
16,026,500
Sr. Sub. Notes
B3 9.50 6/15/07 20,150
19,747,000
Falcon Holdings Group, L.P.,
Sr. Disc. Notes
B2 9.285 4/15/10 11,500
7,446,250
Sr. Deb.
B2 8.375 4/15/10 5,000
5,037,500
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
12,480,000
Koppers Industries, Inc., Sr. Sub. Notes
B2 9.875 12/01/07 8,550
8,742,375
Nortek, Inc.,
Sr. Notes
B1 9.25 3/15/07 15,875
16,311,563
Sr. Notes
B1 9.125 9/01/07 22,500
23,006,250
Webb Delaware Corp., Sr. Sub. Deb.
B2 9.375 5/01/09 16,000
15,800,000
- --------------
175,197,438
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Cable--8.1%
Adelphia Communications Corp., Sr. Notes
B2 10.50 7/15/04 10,000
10,925,000
Comcast UK Cable Corp., Sr. Disc. Deb.,
Zero Coupon (until 11/15/00)
B2 11.20 11/15/07 19,900
16,616,500
CSC Holdings, Inc., Sr. Disc. Notes
B1 9.25 11/01/05 14,835
15,873,450
Diamond Cable Co., Sr. Disc. Notes, Zero Coupon (until
3/31/00) (United Kingdom)
B3 13.25 9/30/04 30,860
29,008,400
Diva Systems Corp., Sr. Disc. Notes
NR 12.625 3/01/08 15,900
7,473,000
International Cabletel, Inc., Sr. Disc. Notes,
Zero Coupon (until 4/15/00)
B3 12.75 4/15/05 25,950
22,965,750
Lenfest Communications, Inc., Sr. Notes
Ba3 8.375 11/01/05 20,050
21,303,125
Rogers Cablesystems, Inc., (Canada)
Sr. Sec'd. Notes
Ba3 10.00 3/15/05 61,075
67,793,250
Sr. Sec'd. Deb.
Ba3 10.00 12/01/07 10,500
11,655,000
Sr. Sec'd. Deb.
Ba3 10.125 9/01/12 24,575
26,725,312
Rogers Cantel, Inc., (Canada)
Sr. Sub. Notes
BB-(a) 8.80 10/01/07 42,350
41,926,500
Deb.
Ba3 9.375 6/01/08 40,000
41,600,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments
as of June 30, 1998 (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Cable (cont'd.)
Telewest plc, Sr. Disc. Deb., Zero Coupon (until 10/1/00)
(United Kingdom)
B1 11.00% 10/01/07 $ 20,500 $
16,912,500
United Int'l. Holdings, Inc., Sr. Disc. Notes,
Zero Coupon (until 2/15/03)
B3 10.75 2/15/08 56,500
34,465,000
- --------------
365,242,787
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Capital Goods--0.2%
Brand Scaffold Svcs., Inc., Sr. Notes
B3 10.25 2/15/08 7,900
8,018,500
Interlake Corp., Sr. Sub. Deb.
B3 12.125 3/01/02 1,500
1,530,000
Thermadyne Holdings, Sr. Disc. Deb., Zero Coupon (until
6/1/03)
Caa 12.50 6/01/08 2,000
1,110,000
- --------------
10,658,500
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Casinos--4.5%
Aladdin Gaming, Sr. Disc. Notes, Zero Coupon (until
3/1/03)
CCC+(a) 13.50 3/01/10 38,500
17,325,000
Boyd Gaming Corp., Sr. Sub. Notes
B1 9.50 7/15/07 32,375
33,508,125
Fitzgeralds Gaming Corp., Sr. Sec'd. Notes
B3 12.25 12/15/04 14,000
13,580,000
Grand Casinos, Inc.,
First Mtge. Notes
Ba3 10.125 12/01/03 35,050
38,204,500
Sr. Notes
B2 9.00 10/15/04 13,750
14,987,500
Horseshoe Gaming LLC., Sr. Sub. Notes
B3 9.375 6/15/07 22,100
23,398,375
Lady Luck Gaming Finance Corp., First Mtge. Notes
B2 11.875 3/01/01 2,000
2,075,000
Majestic Star Casino LLC., Sr. Notes
B(a) 12.75 5/15/03 1,250
1,370,312
Trump Atlantic City Assocs.,
First Mtge. Notes
B1 11.25 5/01/06 44,850
43,529,125
Trumps Castle Funding, Inc., First Mtge. Notes
Caa 11.75 11/15/03 5,000
4,687,500
Venetian Casino Resort LLC., First Mtge. Notes
NR 12.25 11/15/04 10,000
10,325,000
- --------------
202,990,437
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Chemicals--2.0%
Borden Chemical & Plastics Oper., Sr. Notes
Ba2 9.50 5/01/05 1,000
1,000,000
Huntsman Corp., Sr. Sub. Notes
B2 9.50 7/01/07 30,000
30,225,000
Polymer Group, Inc., Sr. Sub. Notes
B2 8.75 3/01/08 14,000
13,965,000
Sterling Chemical Holdings, Inc.,
Sr. Sub. Notes
B3 11.75 8/15/06 10,000
10,000,000
Sr. Disc. Notes, Zero Coupon (until 8/15/01)
Caa 13.50 8/15/08 21,000
11,970,000
Terra Industries, Inc., Sr. Notes
Ba3 10.50 6/15/05 24,100
25,967,750
- --------------
93,127,750
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments
as of June 30, 1998 (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Computer Services--1.0%
Universal Computer Holdings,
Sr. Disc. Notes, Zero Coupon (until 2/15/03)
B2 9.875% 2/15/08 $22,850 $
14,452,625
Sr. Disc. Notes, Zero Coupon (until 2/15/03)
B3 11.38 2/15/09 7,300
4,489,500
Viasystems, Inc., Sr. Sub. Notes
B3 9.75 6/01/07 24,500
25,480,000
- --------------
44,422,125
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Consumer Products--2.4%
American Banknote Corp., Sr. Sub. Notes
NR 11.25 12/01/07 8,500
8,287,500
Consumers Int'l., Inc., Sr. Sec'd. Notes
Ba3 10.25 4/01/05 16,600
17,886,500
Corning Consumer Prod. Co., Sr. Sub. Notes
B3 9.625 5/01/08 14,500
14,391,250
Desa Int'l., Inc., Sr. Sub. Notes
B3 9.875 12/15/07 11,500
11,270,000
Doskocil, Inc., Sr. Sub. Notes
B3 10.125 9/15/07 8,000
8,380,000
Holmes Prod. Corp., Sr. Sub. Notes
B3 9.875 11/15/07 9,825
10,119,750
Pierce Leahy Command Co., Sr. Notes
B3 8.125 5/15/08 6,250
6,179,688
Revlon Consumer Prod. Corp., Sr. Sub. Notes
B3 8.625 2/01/08 15,000
15,000,000
Sealy Mattress Co.,
Sr. Sub. Disc. Notes, Zero Coupon (until 12/15/02)
B3 10.875 12/15/07 10,000
6,500,000
Sr. Sub. Notes
B3 9.875 12/15/07 4,750
4,845,000
Waste Systems Int'l., Inc., Sub. Notes
NR 7.00 5/13/05 6,000
6,075,000
- --------------
108,934,688
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Drugs & Health Care--7.3%
Abbey Healthcare Group, Inc., Sr. Sub. Notes
B3 9.50 11/01/02 2,500
2,475,000
Alaris Med. Systems, Inc., Sr. Sub. Notes
B3 9.75 12/01/06 18,375
18,972,187
Alliance Imaging, Inc., Sr. Sub. Notes
B3 9.625 12/15/05 10,000
10,300,000
Dade Int'l., Inc., Sr. Sub. Notes
B3 11.125 5/01/06 40,510
45,776,300
Fresenius Med Care Capital Trust,
Gtd. Notes
NR 9.00 12/01/06 63,090
65,140,425
Gtd. Notes
NR 7.875 2/01/08 13,300
13,067,250
Grahm Field Health Prod., Inc., Sr. Sub Notes
B3 9.75 8/15/07 11,890
10,701,000
Integrated Health Svcs., Inc.,
Sr. Sub. Notes
B2 10.25 4/30/06 37,500
40,359,375
Sr. Sub. Notes
B2 9.50 9/15/07 19,000
19,902,500
Sr. Sub. Notes
B2 9.25 1/15/08 5,000
5,193,750
Magellan Health Svcs, Inc., Sr. Sub. Notes
B3 9.00 2/15/08 38,500
38,211,250
Medaphis Corp., Sr. Notes
B2 9.50 2/15/05 12,000
11,640,000
Mediq, Inc., Sr. Sub. Notes
B3 11.00 6/01/08 4,500
4,612,500
Paragon Health Network, Inc.,
Sr. Sub. Notes, Zero Coupon (until 11/1/02)
B3 10.50 11/01/07 25,900
17,094,000
Sr. Sub. Notes
B3 9.50 11/01/07 5,000
5,075,000
Tenet Healthcare Corp., Sr. Sub. Notes
Ba3 8.625 1/15/07 23,500
24,087,500
- --------------
332,608,037
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments
as of June 30, 1998 (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Energy--7.1%
AES Corp.,
Sr. Sub. Notes
Ba1 10.25% 7/15/06 $ 25,000 $
27,187,500
Sr. Sub. Exch.
Ba1 8.375 8/15/07 10,000
10,100,000
Sr. Sub. Notes
NR 8.50 11/01/07 20,000
20,250,000
Anker Coal Group, Inc., Sr. Notes
B3 9.75 10/01/07 13,750
12,375,000
Bayard Drilling Technologies, Sr. Notes
B2 11.00 6/30/05 7,500
7,518,750
Benton Oil & Gas Co., Sr. Notes
B2 11.625 5/01/03 11,300
12,034,500
Chesapeake Energy Corp., Sr. Notes
B1 9.625 5/01/05 14,000
14,035,000
Chiles Offshore Corp. LLC., Sr. Notes
B3 10.00 5/01/08 4,500
4,331,250
Cliffs Drilling Co.,
Sr. Notes
B1 10.25 5/15/03 12,800
13,626,000
DI Industies, Inc., Sr. Notes
B1 8.875 7/01/07 9,750
9,360,000
Forcenergy, Inc., Sr. Sub. Notes
B2 9.50 11/01/06 10,000
10,100,000
Gothic Prod. Corp., Sr. Sec'd. Notes
B3 11.125 5/01/05 9,500
9,025,000
Grant Geophysical, Inc., Sr. Notes
B3 9.75 2/15/08 10,000
9,925,000
Great Lakes Carbon Corp.,
Sr. Sub. Notes
B3 10.25 5/15/08 5,000
5,050,000
Sr. Disc. Deb., Zero Coupon (until 5/15/03)
B-(a) 13.125 5/15/09 7,200
3,924,000
Grey Wolf, Inc., Sr. Notes
B1 8.875 7/01/07 4,100
3,936,000
Houston Expl. Co., Sr. Sub. Notes
B2 8.625 1/01/08 7,000
7,000,000
McDermott J. Ray, Sr. Sub. Notes
B1 9.375 7/15/06 27,850
29,381,750
Ocean Rig, Gtd. Sr. Sec'd. Notes
B3 10.25 6/01/08 16,000
15,200,000
Parker Drilling Co.,
Gtd. Sr. Sub. Notes
B+(a) 9.75 11/15/06 1,400
1,431,500
Sr. Notes
B1 9.75 11/15/06 13,600
13,940,000
Plains Resources, Inc., Sr. Sub. Notes
B2 10.25 3/15/06 11,000
11,742,500
Pogo Producing Co., Sr. Sub. Notes
B1 8.75 5/15/07 15,600
15,834,000
Snyder Oil Corp., Sr. Sub. Notes
B2 8.75 6/15/07 9,000
9,045,000
Tesoro Petroleum Corp., Sr. Sub. Notes
NR 9.00 7/01/08 19,000
19,023,750
Vintage Petroleum, Inc.,
Sr. Sub. Notes
B1 9.00 12/15/05 10,000
10,250,000
Sr. Sub. Notes
B1 8.625 2/01/09 16,185
16,346,850
- --------------
321,973,350
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Financial Services--2.3%
Americredit Corp.,
Gtd. Sr. Sub. Notes
Ba2 9.25 2/01/04 19,100
19,482,000
Amresco Mtg., Inc., Sr. Sub. Notes
B2 9.875 3/15/05 10,700
10,807,000
Delta Financial Corp., Sr. Notes
B1 9.50 8/01/04 11,150
11,038,500
First Nationwide Holdings, Inc., Sr. Sub. Notes
Ba3 10.625 10/01/03 16,000
18,080,000
Fugi JGB Investment, LLC.
Baa2 9.87 12/31/49 8,250
7,290,938
Nationwide, Inc., Sr. Sub. Notes
B3 10.25 1/15/08 6,500
6,532,500
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments
as of June 30, 1998 (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Financial Services (cont'd.)
PX Escrow Corp., Sr. Disc. Notes, Zero Coupon (until
2/1/02)
B3 9.625% 2/01/06 $24,100 $
17,352,000
SB Treasury Co.
Baa1 9.40 12/29/49 14,500
14,373,125
- --------------
104,956,063
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Food & Beverage--3.1%
Ameriserve Food Dist., Inc., Sr. Sub. Notes
B3 10.125 7/15/07 37,945
39,273,075
Cott Corp., Sr. Notes
Ba3 8.50 5/01/07 4,500
4,365,000
Curtice Burns Foods, Inc., Sr. Sub. Notes
B3 12.25 2/01/05 21,080
22,977,200
Envirodyne Industries, Inc., Sr. Notes
B3 10.25 12/01/01 10,000
9,950,000
Favorite Brands Int'l., Inc., Sr. Notes
B3 10.75 5/15/06 7,750
7,827,500
Foodmaker, Inc., Sr. Sub. Notes
B1 8.375 4/15/08 3,500
3,504,375
Fresh Foods, Inc., Sr. Notes
B3 10.75 6/01/06 8,200
8,210,250
Grupo Azucarero Mexico S.A., Sr. Notes
B3 11.50 1/15/05 10,000
8,300,000
Packaged Ice, Inc., Sr. Notes
B3 9.75 2/01/05 8,500
8,585,000
PSF Holdings, LLC., Sr. Sec'd. Notes, (cost $11,050,490;
purchased 5/20/94 and 5/8/97)
NR 11.00 9/17/03 11,050(b)
11,934,529
Purina Mills, Inc., Sr. Sub. Notes
B2 9.00 3/15/10 14,700
15,104,250
- --------------
140,031,179
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Industrials--2.6%
Allied Waste Industries, Inc., Sr. Disc. Notes,
Zero Coupon (until 6/1/02)
B3 11.30 6/01/07 29,750
21,866,250
Alpha Shipping, Sr. Notes
B1 9.50 2/15/08 16,000
15,080,000
Anchor Lamina, Inc., Sr. Sub. Notes
B3 9.875 2/01/08 13,500
13,162,500
Eagle Picher Holdings, Inc., Sr. Sub. Notes
B3 9.375 3/01/08 9,500
9,547,500
Insilco Corp., Sr. Sub. Notes
B3 10.25 8/15/07 12,800
13,184,000
International Util. Structures, Inc., Sr. Sub. Notes
B-(a) 10.75 2/01/08 4,900
4,949,000
Simonds Industries, Inc., Sr. Sub. Notes
B3 10.25 7/01/08 3,500
3,500,000
Thermadyne Mfg., Sr. Sub. Notes
B3 9.875 6/01/08 12,000
12,090,000
Trench Electric S.A., Gtd. Sr. Sub. Notes (Netherlands)
B3 10.25 12/15/07 23,000
23,287,500
- --------------
116,666,750
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Leisure & Tourism--2.6%
Ballys Health & Tennis Corp., Sr. Sub. Notes
B3 9.875 10/15/07 11,500
11,845,000
Empress Entertainment, Inc., Sr. Sub. Notes
B1 8.125 7/01/06 3,000
3,007,500
Extended Stay America, Inc., Sr. Sub. Notes
B2 9.15 3/15/08 16,000
15,760,000
Hedstrom Corp., Sr. Sub. Notes
B3 10.00 6/01/07 9,400
9,635,000
Hedstrom Holdings, Inc., Sr. Disc. Notes
Caa Zero 6/01/09 3,400
2,142,000
HMC Acquisition Properties, Inc., Sr. Notes
Ba3 9.00 12/15/07 21,760
23,609,600
HMH Properties, Inc., Sr. Sec'd. Notes
Ba3 9.50 5/15/05 1,700
1,848,750
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments
as of June 30, 1998 (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Leisure & Tourism (cont'd.)
Hollywood Theaters, Inc., Gtd. Sr. Sub. Notes
B3 10.625% 8/01/07 $ 8,000 $
8,300,000
Outboard Marine Corp., Sr. Notes
(cost $6,000,000; purchased 5/21/98)
B3 10.75 6/01/08 6,000(b)
6,060,000
Premier Cruise Ltd., Sr. Notes
B3 11.00 3/15/08 13,000
8,710,000
Premier Parks, Inc., Sr. Disc. Notes, Zero Coupon (until
4/1/03)
B3 10.00 4/01/08 12,250
8,115,625
Six Flags Entertainment Corp., Gtd., Sr. Notes
B3 8.875 4/01/06 7,300
7,373,000
Town Sports Int'l., Inc., Sr. Notes
B2 9.75 10/15/04 13,450
13,517,250
- --------------
119,923,725
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Miscellaneous Services--1.7%
Coinstar, Inc., Sr. Sub. Disc. Notes, Zero Coupon (until
10/1/98)
NR 13.00 10/01/06 9,300
7,765,500
Color Spot Nurseries, Sr. Sub. Notes
B-(a) 10.50 12/15/07 12,000
11,340,000
Continental Global Group, Inc., Sr. Notes
B2 11.00 4/01/07 10,000
10,400,000
Kindercare Learning Center, Inc., Sr. Sub. Notes
B3 9.50 2/15/09 21,875
21,984,375
Louisiana Petite Academy, Inc., Sr. Notes
B3 10.00 5/15/08 5,000
5,050,000
Sinking Fund Holdings Group, Inc., Sr. Disc. Notes,
Zero Coupon (until 3/15/03)
B-(a) 12.75 3/15/08 16,500
8,827,500
United Stationer Supply Co., Sr. Sub. Notes
B1 12.75 5/01/05 12,000
13,680,000
- --------------
79,047,375
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Paper & Forest Products--1.7%
Gaylord Container Corp., Sr. Sub. Notes
B-(a) 9.875 2/15/08 2,700
2,592,000
Graham Packaging Holdings Co.,
Sr. Sub. Notes
B3 8.75 1/15/08 7,150
7,132,125
Sr. Disc. Notes, Zero Coupon (until 1/15/03)
B-(a) 10.75 1/15/09 15,925
9,913,313
Indah Kiat Fin Mauritius Ltd., Gtd., Sr. Notes
(Indonesia)
B2 10.00 7/01/07 17,000
11,560,000
Millar Western Prod. Ltd., Sr. Notes
B3 9.875 5/15/08 10,000
9,800,000
Moll Industries, Inc., Sr. Sub. Notes
B3 10.50 7/01/08 4,250
4,335,000
Stone Container Corp., Sr. Sub. Deb.
B3 12.25 4/01/02 12,000
12,420,000
Tekni Plex, Inc., Sr. Sub. Notes
B3 9.25 3/01/08 17,550
17,550,000
- --------------
75,302,438
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Real Estate--0.6%
CB Richards Ellis Svcs., Inc., Sr. Sub. Notes
Ba3 8.875 6/01/06 13,500
13,398,750
Saul B F Real Estate Investment Trust, Sr. Sec'd. Notes
B-(a) 9.75 4/01/08 13,000
12,870,000
- --------------
26,268,750
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Retail--2.6%
Big 5 Corp., Sr. Notes
B2 10.875 11/15/07 20,900
21,736,000
Big 5 Holdings Corp., Sr. Disc. Notes, Zero Coupon (until
11/30/02)
NR 13.45 11/30/08 10,000
5,600,000
Cole National Group, Inc., Sr. Sub. Notes
B1 9.875 12/31/06 16,200
17,496,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments
as of June 30, 1998 (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Retail (cont'd.)
Duane Reade, Inc., Sr. Sub. Notes
B3 9.25% 2/15/08 $ 4,480 $
4,536,000
Franks Nursery & Crafts, Inc., Sr. Sub. Notes
B3 10.25 3/01/08 17,400
17,530,500
French Fragrances, Inc., Sr. Notes
B2 10.375 5/15/07 18,580
19,769,950
Pamida, Inc., Sr. Sub. Notes
Caa 11.75 3/15/03 10,000
10,350,000
Phar Mor, Inc., Sr. Notes
B3 11.72 9/11/02 1,197
1,256,850
Syratech Corp., Sr. Notes
B3 11.00 4/15/07 8,475
7,542,750
U.S. Office Prod. Co., Sr. Sub. Notes
B3 9.75 6/15/08 12,000
11,880,000
- --------------
117,698,050
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Steel & Metals--4.8%
AK Steel Corp., Sr. Notes
Ba2 9.125 12/15/06 11,200
11,704,000
Doe Run Res. Corp., Sr. Notes
B2 11.25 3/15/05 10,000
10,100,000
Great Central Mines Ltd., Sr. Notes
Ba2 8.875 4/01/08 10,000
9,825,000
International Wire Group, Inc., Sr. Sub. Notes
B3 11.75 6/01/05 18,500
20,350,000
Jorgensen (Earle M) Co., Sr. Notes
B3 9.50 4/01/05 6,500
6,305,000
Metals USA, Inc., Sr. Sub. Notes
B2 8.625 2/15/08 5,000
4,825,000
P & L Coal Holdings Corp.,
Sr. Sub. Notes
B2 9.625 5/15/08 6,500
6,670,625
Sr. Notes
Ba3 8.875 5/15/08 24,000
24,690,000
Pohang Iron & Steel Ltd.
Ba1 7.125 7/15/04 14,000
11,246,340
Renco Steel Holdings, Inc., Sr. Sec'd. Notes
NR 10.875 2/01/05 11,200
11,228,000
Silgan Holdings, Inc., Sr. Sub. Deb.
B1 9.00 6/01/09 13,000
13,455,000
Steel Heddle Mfg. Co., Sr. Sub. Notes
B3 10.625 6/01/08 4,500
4,511,250
UCAR Global Enterprises, Inc., Sr. Sub. Notes
B1 12.00 1/15/05 4,250
4,621,875
WCI Steel, Inc., Sr. Sec'd. Notes
B2 10.00 12/01/04 39,600
40,689,000
Wheeling Pittsburgh Corp., Sr. Notes
B2 9.25 11/15/07 19,650
20,043,000
WHX Corp., Sr. Notes
B3 10.50 4/15/05 15,500
15,693,750
- --------------
215,957,840
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Supermarkets--0.5%
Pantry, Inc., Gtd. Sr. Sub. Notes
B3 10.25 10/15/07 22,250
22,639,375
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Technology--1.4%
Anacomp, Inc., Sr. Sub. Notes
B3 10.875 4/01/04 12,000
12,660,000
Details Holding Corp., Sr. Disc. Notes, Zero Coupon
(until 11/15/02)
NR 12.50 11/15/07 16,200
9,963,000
Details, Inc., Sr. Sub. Notes
B3 10.00 11/15/05 11,375
11,318,125
DII Group, Inc., Sr. Sub. Notes
B1 8.50 9/15/07 11,500
11,270,000
MCMS, Inc., Sr. Sub. Notes
B3 9.75 3/01/08 14,000
12,880,000
Zilog, Inc., Sr. Sec'd. Notes
B2 9.50 3/01/05 9,000
6,390,000
- --------------
64,481,125
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 10
<PAGE>
Portfolio of Investments
as of June 30, 1998 (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Telecommunications--16.3%
21st Century Telecom Group, Inc., Sr. Disc. Notes,
Zero Coupon (until 2/15/03)
NR 12.25% 2/15/08 $ 11,500 $
6,497,500
Allegiance Telecom, Inc., Sr. Disc. Notes, Zero Coupon
(until 2/15/03)
NR 11.75 2/15/08 14,200
7,100,000
Arch Communications Group, Inc., Sr. Notes
NR 12.75 7/01/07 3,000
3,022,500
Barak ITC Int'l. Telecom, Sr. Disc. Notes, Zero Coupon
(until 11/15/02)
(Israel)
B3 12.50 11/15/07 36,500
21,443,750
Bell Technology Group Ltd., Sr. Notes
NR 13.00 5/01/05 8,500
8,585,000
Bestel S.A. De CV, Sr. Disc. Notes, Zero Coupon (until
5/15/01)
NR 12.75 5/15/05 9,000
6,075,000
Birch Telecom, Inc., Sr. Notes
NR 14.00 6/15/08 5,000
5,006,250
Cellnet Data Systems, Inc., Sr. Disc. Notes,
Zero Coupon (until 10/1/02)
(cost $14,757,683; purchased 9/24/97 and 10/13/97)
NR 14.00 10/01/07 27,000 (b)(d)
14,580,000
Centennial Cellular Corp., Sr. Notes
Ba3 10.125 5/15/05 750
840,000
Communication Cellular, S.A., Sr. Def'd. Bonds,
Zero Coupon (until 11/15/00) (Columbia)
B3 13.125 11/15/03 34,750
26,931,250
Crown Castle Int'l. Corp., Sr. Disc. Notes,
Zero Coupon (until 11/15/02)
B3 10.625 11/15/07 10,000
6,800,000
Dialog Corp., Sr. Sub. Notes (United Kingdom)
B3 11.00 11/15/07 18,000
19,710,000
DTI Holdings, Inc., Sr. Disc. Notes, Zero Coupon (until
3/1/03)
NR 12.50 3/01/08 7,250
3,915,000
Econophone, Inc., Sr. Disc. Notes, Zero Coupon (until
2/15/03)
NR 11.00 2/15/08 16,000
9,120,000
Firstworld Communications, Inc., Sr. Disc. Notes
NR 13.00 4/15/08 16,750
7,453,750
Focal Communications Corp., Sr. Disc. Notes,
Zero Coupon (until 2/15/03)
NR 12.125 2/15/08 10,000
5,950,000
Geotek Communications, Inc., Sr. Conv. Notes, PIK, Zero
Coupon (until 4/15/03)
NR 12.00 2/15/01 12,000 (e)
3,000,000
Global Telesystems Group, Inc., Sr. Notes
B-(a) 9.875 2/15/05 10,300
10,454,500
Grupo Iusacell S.A. De CV, Sr. Notes
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
11,500,000
GST Network Funding, Inc., Sr. Disc. Notes,
Zero Coupon (until 5/1/03)
NR 10.50 5/01/08 6,500
3,916,250
GST Telecommunications, Inc.,
Conv. Sr. Disc. Notes, Zero Coupon (until 12/15/00)
NR 13.875 12/15/05 2,262
2,386,410
Sr. Sub. Notes
NR 12.75 11/15/07 8,200
9,471,000
GST USA, Inc., Sr. Disc. Notes, Zero Coupon (until
12/15/00)
NR 13.875 12/15/05 16,096
13,037,760
Hyperion Telecommunications Inc., Sr. Disc. Notes,
Zero Coupon (until 4/15/01)
B3 13.00 4/15/03 6,150
4,581,750
ICG Holdings, Inc.,
Sr. Disc. Notes, Zero Coupon (until 9/15/00)
NR 13.50 9/15/05 3,800
3,239,500
Sr. Disc. Notes, Zero Coupon (until 5/1/03)
NR 9.875 5/01/08 14,500
8,482,500
IDT Corp., Sr. Notes
NR 8.75 2/15/06 14,900
14,304,000
Impsat Corp.,
Sr. Notes
B1 12.125 7/15/03 13,500
13,635,000
Sr. Notes
B2 12.375 6/15/08 12,000
12,180,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 11
<PAGE>
Portfolio of Investments
as of June 30, 1998 (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Telecommunications (cont'd.)
Intermedia Cap. Partners L.P., Sr. Notes
B2 11.25% 8/01/06 $ 30,250 $
33,804,375
Intermedia Communications of Florida,
Sr. Disc. Notes, Zero Coupon (until 5/15/01)
B2 12.50 5/15/06 22,500
18,393,750
Sr. Disc. Notes, Zero Coupon (until 7/15/02)
B2 11.25 7/15/07 20,750
15,147,500
Sr. Notes
B2 8.60% 6/01/08 3,000
3,037,500
International Wireless Communications, Inc., Sr. Disc.
Notes
(cost $5,300,862; purchased 8/9/96 and 9/13/96)
NR Zero 8/15/01 8,000 (b)(d)
1,360,000
IPC Information Systems, Inc., Sr. Disc. Notes,
Zero Coupon (until 11/1/01)
B3 10.78 5/01/08 16,000
11,120,000
Iridium Cap. Corp.,
Gtd. Notes
B3 14.00 7/15/05 5,000
5,550,000
Gtd. Notes
B3 10.875 7/15/05 3,750
3,721,875
Jordan Telecommunication Prod., Sr. Sub. Notes
B3 9.875 8/01/07 10,000
10,200,000
Level 3 Commerce, Inc., Sr. Notes
B3 9.125 5/01/08 2,500
2,431,250
Long Distance Int'l., Inc., Sr. Notes
NR 12.25 4/15/08 6,500
6,467,500
Mastec, Inc., Sr. Sub. Notes
Ba3 7.75 2/01/08 19,500
18,622,500
McLeod, Inc., Sr. Notes
B2 9.25 7/15/07 15,000
15,600,000
Metronet Communications Corp., Sr. Disc. Notes,
Zero Coupon (until 6/15/03)
B3 9.95 6/15/08 27,000
16,706,250
MJD Comm., Inc., Sr. Sub. Notes
B3 9.50 5/01/08 7,250
7,413,125
Netia Holdings BV, (Poland)
Gtd. Sr. Disc. Notes, Zero Coupon (until 11/1/01)
B3 11.00 11/01/07 12,500
8,312,500
Gtd. Sr. Notes
B3 10.25 11/01/07 11,000
10,560,000
Nextel Communications, Inc.,
Sr. Disc. Notes, Zero Coupon (until 2/15/99)
B2 9.75 8/15/04 28,000
27,230,000
Sr. Disc. Notes, Zero Coupon (until 10/31/02)
B2 9.75 10/31/07 50,000
32,625,000
Sr. Disc. Notes, Zero Coupon (until 2/15/03)
B2 9.95 2/15/08 32,600
20,782,500
Nextlink Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 4/15/03)
B3 9.45 4/15/08 10,500
6,431,250
Omnipoint Corp.,
Sr. Notes
B3 11.625 8/15/06 3,000
3,180,000
Onepoint Communications Corp., Sr. Notes
NR 14.50 6/01/08 7,000
6,580,000
Pagemart Nationwide, Inc., Sr. Disc. Notes, Zero Coupon
(until 2/01/00)
B3 15.00 2/01/05 23,000
20,930,000
Pagemart Wireless, Inc., Sr. Disc. Notes, Zero Coupon
(until 2/01/03)
NR 11.25 2/01/08 37,900
22,740,000
Paging Network, Inc.,
Sr. Sub. Notes
B2 8.875 2/01/06 2,625
2,572,500
Sr. Sub. Notes
B2 10.00 10/15/08 16,450
16,984,625
Price Communications Wireless,
Sr. Sec'd. Notes
Ba3 9.125 12/15/06 15,000
15,000,000
Sr. Sub. Notes
B3 11.75 7/15/07 10,000
10,950,000
PTC Int'l. Fin BV, Gtd. Sr. Sub. Disc. Notes
B3 Zero 7/01/07 19,250
13,090,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<PAGE>
Portfolio of Investments
as of June 30, 1998 (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description
Rating 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)
Ba1 9.47% 10/15/07 $ 5,500 $
4,125,000
RCN Corp., Sr. Disc. Notes, Zero Coupon (until 11/15/02)
B3 11.125 10/15/07 16,000
10,280,000
RSL Communications, Sr. Disc. Notes, Zero Coupon (until
3/1/03)
B3 10.125 3/01/08 4,000
2,370,000
Rural Cellular Corp., Sr. Sub. Notes
B3 9.625 5/15/08 16,000
15,920,000
Star Choice Communications, Sr. Sec'd. Notes
B3 13.00 12/15/05 5,000
5,100,000
U.S. Exchange LLC., Sr. Notes
NR 15.00 7/01/08 7,000
7,140,000
Versatel Telecom BV, Sr. Notes
NR 13.25 5/15/08 9,000
9,450,000
Viatel, Inc.,
Sr. Disc. Notes, Zero Coupon (until 4/15/03)
NR 12.50 4/15/08 8,400
5,145,000
Sr. Notes
NR 11.25 4/15/08 4,050
4,262,625
WamNet, Inc., Sr. Disc. Notes, Zero Coupon (until 3/1/02)
NR 13.25 3/01/05 10,100
6,363,000
- --------------
736,646,545
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Textiles--1.0%
Cluett American Corp., Sr. Sub. Notes
B3 10.125 5/15/08 9,750
9,676,875
Foamex L.P. Cap. Corp., Sr. Sub. Notes
B3 9.875 6/15/07 12,550
13,805,000
Phillips Van Heusen Corp., Sr. Sub. Notes
B1 9.50 5/01/08 9,000
8,955,000
Worldtex, Inc., Sr. Notes
B1 9.625 12/15/07 15,000
15,000,000
- --------------
47,436,875
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Transportation/Trucking/Shipping--2.5%
American Commercial Lines, Sr. Notes
B1 10.25 6/30/08 15,000
15,225,000
Autopistas Del Sol S.A., Sr. Notes
NR 10.25 8/01/09 10,000
9,750,000
Ermis Maritime Holdings Ltd., First Mtge.
B3 12.50 3/15/06 10,800
10,475,806
Espirito Santo Centrais Electric, Sr. Notes (Luxembourg)
B1 10.00 7/15/07 20,500
17,630,000
Holt Group, Inc., Sr. Notes
B+(a) 9.75 1/15/06 8,320
8,153,600
Kitty Hawk, Inc., Gtd. Notes
B1 9.95 11/15/04 22,505
23,405,200
MRS Logistica S.A., Sr. Notes (Brazil)
B(a) 10.625 8/15/05 10,000
8,500,000
Stena AB, (Sweden)
Sr. Notes
Ba2 8.75 6/15/07 7,000
7,000,000
Sr. Notes
B1 10.625 6/01/08 11,500
11,643,750
- --------------
111,783,356
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Waste Management--0.8%
Allied Waste Industries, Inc., Sr. Sub. Notes
B2 10.25 12/01/06 23,400
25,681,500
Companhia De Saneamento Basico, Notes (Mexico)
NR 10.00 7/28/05 10,000
8,700,000
- --------------
34,381,500
- --------------
Total corporate bonds (cost $4,068,667,275)
4,114,419,498
- --------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 13
<PAGE>
Portfolio of Investments
as of June 30, 1998 (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note
1)
<S> <C> <C>
- ------------------------------------------------------------
PREFERRED STOCKS--4.1%
Adelphia Communications Corp.,
$13.00 51,500 $
6,180,000
California Fed. Corp., $9.125 1,822,245
49,770,067
Cendant Corp., $7.50 20,000
748,750
Chesapeake Energy Corp., $7.00 110,000
4,675,000
Concentric Network Corp., $13.50 8,000
7,960,000
CSC Holdings, Inc.,
Ser. 1995K-1, $11.125 78,084
8,940,564
Ser. 1995K-2, $11.125 3,632
41,580,675
Ser. 1995K-4, $11.75 128,343
14,791,552
Eagle Picher Holdings, Inc.,
$11.75 1,530
8,797,500
GPA Group plc, Conv. 13,200
7,522,574
Hyperion Telecommunications,
Inc., $12.875 279
27,687
Paxson Communications Corp., Jr.,
$13.25 1,400
14,000,000
Primedia, Inc., $8.625 117,000
11,466,000
Rural Cellular Corp., $11.375 4,000
4,020,000
Viasystems Group, Inc., 8.% 156,060
3,199,230
---------
- -----
Total preferred stocks
(cost $163,150,777)
183,679,599
---------
- -----
- ------------------------------------------------------------
COMMON STOCKS(c)--0.3%
Cellnet Data Systems, Inc.
(cost $1,080; purchased
6/25/97) 216,000 (b)
2,092,500
Coinstar, Inc. 65,100
602,175
Dr Pepper Bottling Co., Cl. A 72,580
2,032,240
Envirosource, Inc. 61,190
1,070,827
Gaylord Container Corp., Cl. A 82,735
636,025
Hedstrom Holdings, Inc. 206,223
257,779
Nextel Communications, Inc. 135,298
3,365,538
Pagemart Nationwide, Inc. 71,750
645,750
Peachtree Cable Assn., Ltd. 31,559
239,217
SF Holdings Group, Inc. 33,000
0
Time Warner, Inc. 2,430
207,613
---------
- -----
Total common stocks
(cost $8,122,009)
11,149,664
---------
- -----
- ------------------------------------------------------------
Common Trust Units(c)--0.3% Units
PSF Holdings, LLC (cost
$15,959,021;
purchased - 5/20/94) 951,717 (b)(f)
15,389,467
---------
- -----
WARRANTS(c)--0.3%
Aladdin Gaming, expiring 3/1/10 385,000 $
0
Allegiance Telecom, Inc., 14,200
expiring 2/15/08
35,500
American Banknote Corp., 8,500
expiring 12/1/07
85,000
American Mobile Satellite Corp., 7,750
expiring 4/1/08
0
Bell Technology Group Ltd., 8,500
expiring 1/1/49
0
Bestel S.A. De CV, expiring 9,000
5/15/05
0
Birch Telecom, Inc., expiring 5,000
6/15/08
0
Cellnet Data Systems, Inc.,
expiring 9/15/07
(cost $0; purchased 9/24/97
and 10/13/97) 44,455 (b)(d)
1,333,650
Clearnet Communications, Inc.,
expiring 9/15/05 66,495
598,455
Comcel, expiring 11/15/03 29,000
2,030,000
Ermis Maritime Holdings Ltd., 9,818
expiring 3/15/16
0
Firstworld Communications, Inc., 16,750
expiring 4/15/08
0
Foamex JPS Automotive L.P.,
expiring 7/1/99 20,250 (d)
405,000
Gaylord Container Corp.,
expiring 11/1/02 417,518
3,079,195
Heartland Wireless Comm., Inc.,
expiring 12/31/00 39,000
0
Intelcom Group, Inc., expiring 127,809
9/15/05
3,195,225
Intermedia Communications of
Florida,
expiring 6/1/00
(cost $0; purchased 5/25/95) 11,250 (b)
1,743,750
International Wireless
Communications, Inc.,
expiring 8/15/01
(cost $0; purchased 8/9/96
and 9/13/96) 8,000 (b)(d)
0
Long Distance Int'l., Inc., 6,500
expiring 4/15/08
(cost $0; purchased 8/9/96
and 9/13/96)
0
Onepoint Communications Corp.,
expiring 6/1/08 7,000
0
President Riverboat Casinos,
Inc., expiring 9/30/99 44,150
883
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 14
<PAGE>
Portfolio of Investments
as of June 30, 1998 (Unaudited) PRUDENTIAL HIGH
YIELD FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Warrants (Note
1)
<S> <C> <C>
- ------------------------------------------------------------
WARRANTS (cont'd)
Price Communications Cellular
Corp., expiring 8/1/07 17,200 $
447,200
Primus Telecommunications Group,
expiring 8/1/04 12,250 (d)
245,000
Star Choice Communications,
expiring 12/15/05
(cost $0; purchased 4/15/98) 115,800 (b)
45,628
Sterling Chemical Holdings, Inc.,
expiring 8/15/08 5,450
130,800
United Int'l. Holdings, Inc.,
expiring 11/15/99 44,500 $
667,500
USN Communications, Inc.,
expiring 10/15/06 92,500
1,110,000
Versatel Telecom BV, expiring 9,000
5/15/08
0
Viatel, Inc., expiring 4/15/10 60,722
0
WamNet, Inc., expiring 3/1/05 30,300
0
---------
- -----
Total warrants (cost $832,019)
15,152,786
---------
- -----
Total long-term investments (cost
$4,256,731,101)
$4,339,791,014
---------
- -----
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Principal
Interest Maturity Amount Value
Rate Date (000) (Note 1)
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
<S>
<C> <C> <C> <C>
SHORT-TERM INVESTMENTS--3.2%
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Commercial Paper--3.2%
General Electric Cap. Corp.
5.52% 8/19/98 $14,000 $ 13,871,200
Conagra, Inc.
6.02 7/10/98 15,543 15,519,608
Detroit Edison Co.
7.00 7/01/98 5,000 5,000,000
Enron Oil & Gas
7.00 7/01/98 26,847 26,847,000
Lehman Brothers Holdings, Inc.
6.40 7/01/98 57,689 57,689,000
Public Service Electric & Gas Co.
7.00 7/01/98 5,000 5,000,000
Public Service Electric & Gas Co.
5.80 7/09/98 2,150 2,147,229
Textron Financial
5.71 7/10/98 3,853 3,847,500
Textron Financial
5.71 7/13/98 15,500 15,470,498
- --------------
Total commercial paper (cost $145,415,648)
145,392,035
- --------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
<CAPTION>
Value
Warrants
Warrants (Note 1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
American Telecasting, Inc., expiring 6/15/99
41,000 410
Nextel Communications, Inc.,
expiring 12/15/98
14,273 143
expiring 4/25/99
7,000 8,120
- --------------
Total warrants (cost $0)
8,673
- --------------
Total short-term investments (cost $145,415,648)
145,400,708
- --------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Total Investments--99.1 %
(cost $4,402,146,749; Note 4)
4,485,191,722
Other assets in excess of liabilities--0.9%
42,825,595
- --------------
Net Assets--100%
$4,528,017,317
- --------------
- --------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 15
<PAGE>
Portfolio of Investments
as of June 30, 1998 (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
(a) Standard & Poor's Rating.
(b) Indicates a restricted security; the aggregate cost of
such securities is
$53,069,136. The aggregate value $54,539,524 is
approximately 1.2% 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) Represents issuer in default on interest payments, non-
income producing
security.
(f) Fair valued security.
NR--Not rated by Moody's or Standard & Poor's.
PIK--Payment in kind securities.
L.P.--Limited Partnership.
LLC--Limited Liability Company.
The Fund's current Prospectus contains a description of
Moody's and Standard &
Poor's ratings.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 16
<PAGE>
Statement of Assets and Liabilities
(Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
Assets
June 30, 1998
<S>
<C>
Investments, at value (cost
$4,402,146,749).............................................
.................... $4,485,191,722
Cash........................................................
................................................
1,240,200
Interest
receivable..................................................
....................................... 74,120,503
Receivable for Fund shares
sold........................................................
..................... 15,083,613
Receivable for investments
sold........................................................
..................... 9,146,763
Deferred expenses and other
assets......................................................
.................... 61,681
- --------------
Total
assets......................................................
....................................... 4,584,844,482
- --------------
Liabilities
Payable for investments
purchased...................................................
........................ 34,999,847
Dividends
payable.....................................................
...................................... 9,661,123
Payable for Fund shares
reacquired..................................................
........................ 7,623,806
Due to
Manager.....................................................
.........................................
2,347,831
Due to
Distributor.................................................
.........................................
1,383,634
Accrued
expenses....................................................
........................................ 810,924
- --------------
Total
liabilities.................................................
....................................... 56,827,165
- --------------
Net
Assets......................................................
............................................
$4,528,017,317
- --------------
- --------------
Net assets were comprised of:
Common stock, at
par.........................................................
............................ $ 5,259,913
Paid-in capital in excess of
par.........................................................
................ 4,929,674,466
- --------------
4,934,934,379
Distributions in excess of net investment
income......................................................
... (766,518)
Accumulated net realized loss on
investments.................................................
............ (489,195,517)
Net unrealized appreciation on
investments.................................................
.............. 83,044,973
- --------------
Net assets, June 30,
1998........................................................
........................... $4,528,017,317
- --------------
- --------------
Class A:
Net asset value and redemption price per share
($1,752,389,380 / 203,266,010 shares of common stock
issued and outstanding)..........................
$8.62
Maximum sales charge (4.00% of offering
price)......................................................
..... .36
Maximum offering price to
public......................................................
................... $8.98
Class B:
Net asset value, offering price and redemption price per
share
($2,642,837,886 / 307,305,671 shares of common stock
issued and outstanding)..........................
$8.60
Class C:
Net asset value, offering price and redemption price per
share
($70,274,480 / 8,171,570 shares of common stock issued
and outstanding)...............................
$8.60
Class Z:
Net asset value, offering price and redemption price per
share
($62,515,571 / 7,248,059 shares of common stock issued
and outstanding)...............................
$8.63
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 17
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
Net Investment Income 1998
<S> <C>
Income
Interest...................................
$207,644,773
Dividends..................................
2,079,162
-----------
- -
Total Income............................
209,723,935
-----------
- -
Expenses
Distribution fee--Class A..................
1,309,754
Distribution fee--Class B..................
10,020,275
Distribution fee--Class C..................
234,246
Management fee.............................
9,175,360
Transfer agent's fees and expenses.........
2,132,000
Custodian's fees and expenses..............
165,000
Reports to shareholders....................
89,000
Registration fees..........................
62,000
Insurance expense..........................
26,000
Audit fee..................................
22,500
Legal fees and expenses....................
17,500
Directors' fees and expenses...............
17,000
Miscellaneous..............................
23,213
-----------
- -
Total expenses..........................
23,293,848
-----------
- -
Net investment income.........................
186,430,087
-----------
- -
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain on investment
transactions...............................
71,324,427
Net change in unrealized appreciation of
investments................................
(79,915,831)
-----------
- -
Net loss on investments.......................
(8,591,404)
-----------
- -
Net Increase in Net Assets
Resulting from Operations.....................
$177,838,683
-----------
- -
-----------
- -
</TABLE>
PRUDENTIAL HIGH YIELD FUND, INC.
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
Ended
Increase in June 30, December
31,
Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income..... $ 186,430,087 $
354,105,853
Net realized gain on
investment
transactions........... 71,324,427
146,274,171
Net change in unrealized
appreciation
(depreciation) of
investments............ (79,915,831)
7,321,433
--------------- ----------
- -----
Net increase in net assets
resulting from
operations............. 177,838,683
507,701,457
--------------- ----------
- -----
Dividends and distributions (Note 1)
Dividends from net
investment income
Class A................ (75,046,500)
(139,641,643)
Class B................ (106,531,497)
(207,750,363)
Class C................ (2,496,566)
(3,608,339)
Class Z................ (2,355,524)
(3,105,508)
--------------- ----------
- -----
(186,430,087)
(354,105,853)
--------------- ----------
- -----
Dividends in excess of net
investment income
Class A................ (2,219,131)
(8,405,450)
Class B................ (4,261,560)
(12,505,119)
Class C................ (99,499)
(217,197)
Class Z................ (65,761)
(186,930)
--------------- ----------
- -----
(6,645,951)
(21,314,696)
--------------- ----------
- -----
Fund share transactions (Net
of
share conversions) (Note
5)
Net proceeds from shares
sold................... 1,846,923,269
2,751,808,904
Net asset value of shares
issued in reinvestment
of dividends and
distributions.......... 92,278,558
185,528,878
Cost of shares
reacquired............. (1,864,415,951)
(2,836,907,445)
--------------- ----------
- -----
Net increase in net assets
from Fund share
transactions........... 74,785,876
100,430,337
--------------- ----------
- -----
Total increase............... 59,548,521
232,711,245
Net Assets
Beginning of period.......... 4,468,468,796
4,235,757,551
--------------- ----------
- -----
End of period(a)............. $ 4,528,017,317 $
4,468,468,796
--------------- ----------
- -----
--------------- ----------
- -----
- ---------------
(a) Distributions in excess
of
net investment income...... $ (766,518) $
(1,041,743)
--------------- ----------
- -----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 18
<PAGE>
Notes to Financial Statements (Unaudited) 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 June
30, 1998 include registration rights under which the Fund
may demand
registration by the issuer, of which the Fund may bear the
cost of such
registration. 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 and increase
- ------------------------------------------------------------
- --------------------
19
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
accumulated net realized loss on investments by $6,921,176.
This was primarily
due to the sale of securities purchased with market discount
for the six months
ended June 30, 1998. 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 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. Effective July 1, 1998,
Prudential Investment
Management Services LLC will become the distributor of the
Fund and will serve
the Fund under the same terms and conditions as under the
arrangement with PSI.
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 six months ended June
30, 1998.
PSI has advised the Fund that it has received approximately
$872,000 in
front-end sales charges resulting from sales of Class A
shares during the six
months ended June 30, 1998. 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 six months ended June
30, 1998, it
received approximately $1,714,000 and $23,000 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 as an alternative source of funding for capital
share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement
as of June 30, 1998.
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. The Agreement expires on
December 29, 1998.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC, a wholly owned
subsidiary of PIFM, serves
as the Fund's transfer agent and during the six months ended
June 30, 1998, the
Fund incurred fees of approximately $1,831,400 for the
services of PMFS. As of
June 30, 1998, $310,000 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 nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than
short-term investments,
for the six months ended June 30, 1998 were $2,475,258,987
and $2,476,891,066,
respectively.
The federal income tax basis of the Fund's investments,
including short-term
investments, as of June 30, 1998 was $4,402,196,624;
accordingly, net unrealized
appreciation for federal income tax purposes was $82,995,098
(gross unrealized
appreciation--$160,655,167; gross unrealized depreciation--
$77,660,069).
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
- ------------------------------------------------------------
- --------------------
20
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
expires in 2000, $162,249,600 expires in 2003. 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>
Six months ended June 30,
1998:
Shares sold................... 141,396,471 $
1,238,980,946
Shares issued in reinvestment
of
dividends and
distributions............... 4,580,106
40,046,843
Shares reacquired............. (148,417,409)
(1,301,459,828)
------------ -----------
- ----
Net decrease in shares
outstanding before
conversions................. (2,440,832)
(22,432,039)
Shares issued upon conversion
from Class B................ 5,626,375
48,993,242
------------ -----------
- ----
Net increase in shares
outstanding................. 3,185,543 $
26,561,203
------------ -----------
- ----
------------ -----------
- ----
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
------------ -----------
- ----
------------ -----------
- ----
<CAPTION>
Class B Shares Amount
- ------------------------------ ------------ -----------
- ----
<S> <C> <C>
Six months ended June 30,
1998:
Shares sold................... 61,035,891 $
532,881,804
Shares issued in reinvestment
of
dividends and
distributions............... 5,574,071
48,623,296
Shares reacquired............. (59,593,052)
(520,433,870)
------------ -----------
- ----
Net increase in shares
outstanding before
conversion.................. 7,016,910
61,071,230
Shares reacquired upon
conversion into Class A..... (5,639,328)
(48,993,242)
------------ -----------
- ----
Net increase in shares
outstanding................. 1,377,582 $
12,077,988
------------ -----------
- ----
------------ -----------
- ----
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)
------------ -----------
- ----
------------ -----------
- ----
<CAPTION>
Class C
- ------------------------------
Six months ended June 30,
1998:
Shares sold................... 3,324,364 $
29,002,205
Shares issued in reinvestment
of
dividends and
distributions............... 167,743
1,462,799
Shares reacquired............. (1,794,502)
(15,680,281)
------------ -----------
- ----
Net increase in shares
outstanding................. 1,697,605 $
14,784,723
------------ -----------
- ----
------------ -----------
- ----
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
------------ -----------
- ----
------------ -----------
- ----
<CAPTION>
Class Z
- ------------------------------
Six months ended June 30,
1998:
Shares sold................... 5,261,842 $
46,058,314
Shares issued in reinvestment
of
dividends and
distributions............... 245,377
2,145,620
Shares reacquired............. (3,069,817)
(26,841,972)
------------ -----------
- ----
Net increase in shares
outstanding................. 2,437,402 $
21,361,962
------------ -----------
- ----
------------ -----------
- ----
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
------------ -----------
- ----
------------ -----------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
21
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A
-
- ------------------------------------------------------------
- -------
Six Months
Ended Year Ended December 31,
June 30, ----------------------------------------------
- -------
1998 1997 1996 1995
1994
-
- --------- ---------- ---------- ---------- -
- -------
<S>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................... $
8.65 $ 8.39 $ 8.19 $ 7.68 $
8.70
-
- --------- ---------- ---------- ---------- -
- -------
Income from investment operations
Net investment income..................................
.37 .73 .75 .81
.80
Net realized and unrealized gain (loss) on
investments.........................................
(.01) .30 .22 .53
(1.00)
-
- --------- ---------- ---------- ---------- -
- -------
Total from investment operations....................
.36 1.03 .97 1.34
(.20)
-
- --------- ---------- ---------- ---------- -
- -------
Less distributions
Dividends from net investment income...................
(.37) (.73) (.75) (.81)
(.80)
Distributions in excess of net investment income.......
(.02) (.04) (.02) (.02)
(.02)
-
- --------- ---------- ---------- ---------- -
- -------
Total distributions.................................
(.39) (.77) (.77) (.83)
(.82)
-
- --------- ---------- ---------- ---------- -
- -------
Net asset value, end of period......................... $
8.62 $ 8.65 $ 8.39 $ 8.19 $
7.68
-
- --------- ---------- ---------- ---------- -
- -------
-
- --------- ---------- ---------- ---------- -
- -------
TOTAL RETURN(a)........................................
3.89% 12.81% 12.60% 18.17%
(2.35)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$1,752,389 $1,730,473 $1,564,429 $1,336,354
$161,435
Average net assets (000)...............................
$1,760,810 $1,635,480 $1,385,143 $1,056,555
$165,517
Ratios to average net assets:
Expenses, including distribution fees...............
.67%(b) .69% .72% .75%
.78%
Expenses, excluding distribution fees...............
.52%(b) .54% .57% .60%
.63%
Net investment income...............................
8.59%(b) 8.59% 9.20% 10.13%
9.86%
For Classes A, B, C and Z shares:
Portfolio turnover rate.............................
57% 113% 89% 78%
74%
<CAPTION>
1993
---
- -----
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................... $
8.19
---
- -----
Income from investment operations
Net investment income..................................
.84
Net realized and unrealized gain (loss) on
investments.........................................
.52
---
- -----
Total from investment operations....................
1.36
---
- -----
Less distributions
Dividends from net investment income...................
(.84)
Distributions in excess of net investment income.......
(.01)
---
- -----
Total distributions.................................
(.85)
---
- -----
Net asset value, end of period......................... $
8.70
---
- -----
---
- -----
TOTAL RETURN(a)........................................
17.32%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$171,364
Average net assets (000)...............................
$149,190
Ratios to average net assets:
Expenses, including distribution fees...............
.76%
Expenses, excluding distribution fees...............
.61%
Net investment income...............................
9.93%
For Classes A, B, C and Z shares:
Portfolio turnover rate.............................
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 period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(b) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 22
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B
-
- ------------------------------------------------------------
- ---------
Six Months
Ended Year Ended December 31,
June 30, ----------------------------------------------
- ---------
1998 1997 1996 1995
1994
-
- --------- ---------- ---------- ---------- -
- ---------
<S>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................... $
8.63 $ 8.38 $ 8.18 $ 7.67 $
8.69
-
- --------- ---------- ---------- ---------- -
- ---------
Income from investment operations
Net investment income..................................
.34 .68 .71 .76
.76
Net realized and unrealized gain (loss) on
investments.........................................
(.01) .29 .22 .53
(1.00)
-
- --------- ---------- ---------- ---------- -
- ---------
Total from investment operations....................
.33 .97 .93 1.29
(.24)
-
- --------- ---------- ---------- ---------- -
- ---------
Less distributions
Dividends from net investment income...................
(.34) (.68) (.71) (.76)
(.76)
Distributions in excess of net investment income.......
(.02) (.04) (.02) (.02)
(.02)
-
- --------- ---------- ---------- ---------- -
- ---------
Total distributions.................................
(.36) (.72) (.73) (.78)
(.78)
-
- --------- ---------- ---------- ---------- -
- ---------
Net asset value, end of period......................... $
8.60 $ 8.63 $ 8.38 $ 8.18 $
7.67
-
- --------- ---------- ---------- ---------- -
- ---------
-
- --------- ---------- ---------- ---------- -
- ---------
TOTAL RETURN(a)........................................
3.63% 12.07% 11.97% 17.49%
(2.92)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$2,642,838 $2,640,491 $2,596,207 $2,730,903
$3,311,323
Average net assets (000)...............................
$2,694,217 $2,589,122 $2,652,883 $2,725,385
$3,566,709
Ratios to average net assets:
Expenses, including distribution fees...............
1.27%(b) 1.29% 1.32% 1.35%
1.38%
Expenses, excluding distribution fees...............
.52%(b) .54% .57% .60%
.63%
Net investment income...............................
7.97%(b) 7.99% 8.62% 9.56%
9.28%
<CAPTION>
1993
---
- -------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................... $
8.19
---
- -------
Income from investment operations
Net investment income..................................
.79
Net realized and unrealized gain (loss) on
investments.........................................
.51
---
- -------
Total from investment operations....................
1.30
---
- -------
Less distributions
Dividends from net investment income...................
(.79)
Distributions in excess of net investment income.......
(.01)
---
- -------
Total distributions.................................
(.80)
---
- -------
Net asset value, end of period......................... $
8.69
---
- -------
---
- -------
TOTAL RETURN(a)........................................
16.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$3,745,985
Average net assets (000)...............................
$3,389,439
Ratios to average net assets:
Expenses, including distribution fees...............
1.36%
Expenses, excluding distribution fees...............
.61%
Net investment income...............................
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 period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(b) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 23
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C
-
- ------------------------------------------------------------
- --
August 1,
Six Months 1994(c)
Ended Year Ended December 31, Through
June 30, ------------------------------- December
31,
1998 1997 1996 1995 1994
<CAPTION>
-
- --------- ------- ------- ------- ----------
- --
<S>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................
$ 8.63 $ 8.38 $ 8.18 $ 7.67 $ 8.05
-
- --------- ------- ------- ------- ------
Income from investment operations
Net investment income..................................
.34 .68 .71 .76 .32
Net realized and unrealized gain (loss) on
investments.........................................
(.01) .29 .22 .53 (.37)
-
- --------- ------- ------- ------- ------
Total from investment operations....................
.33 .97 .93 1.29 (.05)
-
- --------- ------- ------- ------- ------
Less distributions
Dividends from net investment income...................
(.34) (.68) (.71) (.76) (.32)
Distributions in excess of net investment income.......
(.02) (.04) (.02) (.02) (.01)
-
- --------- ------- ------- ------- ------
Total distributions.................................
(.36) (.72) (.73) (.78) (.33)
-
- --------- ------- ------- ------- ------
Net asset value, end of period.........................
$ 8.60 $ 8.63 $ 8.38 $ 8.18 $ 7.67
-
- --------- ------- ------- ------- ------
-
- --------- ------- ------- ------- ------
TOTAL RETURN(a)........................................
3.63% 12.07% 11.97% 17.49% (0.79)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$ 70,274 $55,879 $43,374 $24,021 $ 4,860
Average net assets (000)...............................
$ 62,983 $45,032 $28,647 $12,063 $ 2,840
Ratios to average net assets:
Expenses, including distribution fees...............
1.27%(b) 1.29% 1.32% 1.35% 1.48%(b)
Expenses, excluding distribution fees...............
.52%(b) .54% .57% .60% .73%(b)
Net investment income...............................
7.99%(b) 7.99% 8.60% 9.49% 9.80%(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.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 24
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL
HIGH YIELD FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class Z
-
- -------------------------------------------
March 1,
Six Months 1996(c)
Ended Year Ended Through
June 30, December 31, December 31,
1998 1997 1996
<CAPTION>
-
- --------- ------------ ------------
<S>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................
$ 8.65 $ 8.39 $ 8.34
-
- --------- ------ ------
Income from investment operations
Net investment income..................................
.37 .74 .63
Net realized and unrealized gain (loss) on
investments.........................................
- -- .30 .07
-
- --------- ------ ------
Total from investment operations....................
.37 1.04 .70
-
- --------- ------ ------
Less distributions
Dividends from net investment income...................
(.37) (.74) (.63)
Distributions in excess of net investment income.......
(.02) (.04) (.02)
-
- --------- ------ ------
Total distributions.................................
(.39) (.78) (.65)
-
- --------- ------ ------
Net asset value, end of period.........................
$ 8.63 $ 8.65 $ 8.39
-
- --------- ------ ------
-
- --------- ------ ------
TOTAL RETURN(a)........................................
4.08% 12.96% 8.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$ 62,516 $ 41,625 $ 31,748
Average net assets (000)...............................
$ 54,217 $ 35,808 $ 28,978
Ratios to average net assets:
Expenses, including distribution fees...............
.52%(b) .54% 57%(b)
Expenses, excluding distribution fees...............
.52%(b) .54% .57%(b)
Net investment income...............................
8.76%(b) 8.74% 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 Z shares.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 25
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
Some mutual fund shareholders won't ever read this -- they
don't read annual
and semi-annual reports. It's quite understandable. These
annual and semi-
annual reports are prepared to comply with Federal
regulations. They are often
written in language that is difficult to understand. So when
most people run
into those particularly daunting sections of these reports,
they don't read
them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it
easier to understand and more pleasant to read, in hopes
you'll find it
profitable to spend a few minutes familiarizing yourself
with your investment.
Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary concern,
we present performance information in two different formats.
You'll find it
first on the "At A Glance" page where we compare the Fund
and the comparable
average calculated by Lipper Analytical Services, a
nationally recognized
mutual fund rating agency. We report both the cumulative
total returns and
the average annual total returns. The cumulative total
return is the total
amount of income and appreciation the Fund has achieved in
various time
periods. The average annual total return is an annualized
representation of
the Fund's performance -- it generally smoothes out returns
and gives you an
idea how much the Fund has earned in an average year, for a
given time period.
Under the performance box, you'll see legends that explain
the performance
information, whether fees and sales charges have been
included in returns,
and the inception dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more
performance information. And keep in mind that past perfor-
mance is not
indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports
onsuccessful --
and not-so-successful -- strategies in this section of your
report. Look for
recent purchases and sales here, as well as information
about the sectors the
portfolio manager favors and any changes that are on the
drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's
really just a
listing of each security held at the end of the reporting
period, along with
valuations and other information. Please note that sometimes
we discuss a
security in the Portfolio Manager's Report that doesn't
appear in this listing
because it was sold before the close of the reporting
period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings),
liabilities (how much the Fund owes) and net assets (the
Fund's equity, or
holdings after the Fund pays its debts) as of the end of the
reporting period.
It also shows how we calculate the net asset value per share
for each class of
shares. The net asset value is reduced by payment of your
dividend, capital
gain, or other distribution, but remember that the money or
new shares are
being paid or issued to you. The net asset value fluctuates
daily along with
the value of every security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly
interest and
dividends earned) and expenses (including what you pay us to
manage your
money). You'll also see capital gains here -- both realized
and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into
changes in net
assets. The Fund is required to pay out the bulk of its
income to
shareholders every year, and this statement shows you how we
do it -- through
dividends and distributions -- and how that affects the net
assets. This
statement also shows how money from investors flowed into
and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate
readers, but it
does contain useful information. The Notes provide a brief
history and
explanation of your Fund's objectives. In addition, they
also outline how
Prudential Mutual Funds prices securities. The Notes also
explain who manages
and distributes the Fund's shares, and more importantly, how
much they are
paid for doing so. Finally, the Notes explain how many
shares are outstanding
and the number issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share
basis. It is designed to help you understand how the Fund
performed and to
compare this year's performance and expenses to those of
prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies that the
information is fairly presented and complies with generally
accepted
accounting principles.
Tax Information
This is information which we report annually about how much
of your total
return is taxable. Should you have any questions, you may
want to consult a
tax advisor.
Performance Comparison
These charts are included in the annual report and are
required by the
Securities Exchange Commission. Performance is presented
here as a
hypothetical $10,000 investment in the Fund since its
inception or for
10 years (whichever is shorter). To help you put that return
in context,
we are required to include the performance of an unmanaged,
broad based
securities index, as well. The index does not reflect the
cost of buying the
securities it contains or the cost of managing a mutual
fund. Of course, the
index holdings do not mirror those of the fund -- the index
is a broadly
based reference point commonly used by investors to measure
how well they
are doing. A definition of the selected index is also
provided. Investors
generally cannot invest directly in an index.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other
financial materials --
and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like
to help. So we'll
use this space from time to time to explain some of the
words you might have
read, but not understood. And if you have a favorite word
that no one can
explain to your satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one half of one
percent is 50 basis
points.
Call Option: A contract giving the holder a right to buy
stocks or bonds at a
predetermined price (called the strike price) before a
predetermined
expiration date. A buyer of a call option generally expects
to benefit from
a rise in the price of the stock or bond.
Collateralized Mortgage Obligations (CMOs): Pools of
mortgage-backed
securities sliced in maturity ranges that bear differing
interest rates.
These instruments are sensitive to changes in interest rates
and homeowner
refinancing activity. They are subject to prepayment and
maturity extension
risk.
Derivatives: Securities that derive their value from another
security. The
rate of return of these financial products rises and falls -
- - sometimes very
suddenly -- in response to changes in some specific interest
rate, currency,
stock, or other variable.
Discount Rate: The interest rate charged by the Federal
Reserve on loans to
banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank to
another on
overnight loans.
Futures Contract: An agreement to deliver a specific amount
of a commodity or
financial instrument at a set price at a stipulated time in
the future.
Leverage: The use of borrowed assets to enhance return on
equity. The
expectation is that the interest rate charged will be lower
than the return
on the investment. While leverage can increase profits, it
can also magnify
losses.
Liquidity: The ease with which a financial instrument (or
mutual fund) can be
bought or sold (converted into cash) in the financial
markets.
Price/Earnings Ratio: The price of a share of stock divided
by the earnings
per share for a 12-month period.
Option: An agreement to sell something, such as shares of
stock, by a certain
time for a specified price. An option need not be exercised.
Spread: The difference between two values; most often used
to describe the
difference between prices bid and asked for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold by
a foreign company
or government in the U.S. market.
<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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, 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.
The accompanying financial statements as of June 30, 1998
were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
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