The High
Yield Income
Fund, Inc.
- ------------------------------
Annual Report
August 31, 1994
<PAGE>
Letter to Shareholders
October 11, 1994
Dear Shareholder:
Over the past 12 months, high yield bonds, moving in sympathy with the
volatile financial markets and the lackluster Treasury market, weakened from
the rise in interest rates. In addition, the instability in the equity markets
was a drag on junk bonds. Under these conditions, the High Yield Income Fund
has produced average total returns.
FUND PERFORMANCE
As of August 31, 1994
<TABLE>
<CAPTION>
Total Return* NAV Market Price
6 months 12 months 8/31/94 8/31/94
<S> <C> <C> <C>
(Since 2/28/94) (Since 9/1/93)
(1.4)% 5.0% $7.21 $7.88
</TABLE>
*The Fund's total return represents the change in net asset value from the
beginning of the periods noted through August 31, 1994 and assumes the
reinvestment of dividends and distributions. Shares of the Fund are traded on
the NYSE. Past performance is no guarantee of future results.
Fund Overview
The High Yield Income Fund Inc. seeks high current income and capital
appreciation from a portfolio of high-yielding, noninvestment grade bonds,
commonly known as junk bonds. The Fund generally strives to invest in bonds
rated B or BB. During the past 12 months, the Fund paid a dividend of $0.95
per share. The Fund's weighted average maturity was 8.5 years as of August 31,
1994.
Choppy Financial Markets
After a year of above average market performance in 1993, investors found the
first half of 1994 a trying period. During this time, the Federal Reserve had
become quite concerned with the accelerating economy and its accompanying
inflationary pressures. Worried that higher prices could have an adverse
impact on the long-term viability of the economy, the Fed moved to raise
short-term rates in February for the first time in about five years. This set
in motion a chain of events that caused long-term yields to rise dramatically.
-1-
<PAGE>
Higher commodity and intermediate goods prices further exacerbated the
situation as the Fed has raised the fed funds rate 1.75 percentage points so
far this year. Although these actions were supposed to quell inflationary
worries, long-term rates rose even more. Sober bond investors, who had been
enjoying unusually high returns when rates were falling, have been staying on
the sidelines in anticipation of a resurgence in inflation.
Although high yield bonds normally react to movements in the treasury market,
these securities also respond to factors affecting the equity markets. Credit
quality is usually one of the foremost concerns on investors' minds.
Nonetheless, as the economy began to grow -- and the prospects for many
companies that have issued high yield securities improved along with it -- junk
bonds still suffered. While their hefty coupons supported them in the early
stages of the down draft, they faltered in March and April when the broad stock
market tumbled. When the markets are in turmoil, some speculative high yield
investors (''market timers'') tend to cash in their securities and wait out the
volatility, which can make bond prices fall.
The good economic news over the past six months, however, helped credit
quality improve tremendously. In fact, the default rate, as reported by
Moody's Investors Services Inc. has fallen below 1%. That's considerably lower
than the 9% rates of 1990; default is the primary risk to owning junk bonds.
The Fund Reacts
While the market was down, we sold weak credits we believed had little
appreciation potential and bought solid credits that appeared undervalued.
Since we also have been attempting to improve the Fund's yield without
significantly sacrificing credit quality, we aggressively sold low-coupon
bonds that have rallied and used the proceeds to buy new issues with coupons
in the 12% to 13% range. For instance we sold Weirton Steel Corp. (about 0.4%
of the portfolio before being sold) and bought Hollywood Casino (about 0.5% of
the portfolio at the end of the period). Two new issues we added to the
portfolio include: Charter Medical (about 0.5% of total assets), the mental
health conglomerate, and Showboat Inc., a gaming company (approximately 0.5%
of total assets).
Leverage Helped to Enhance Yield and Total Return
We did not significantly change our leveraged position over the past 12
months. In past years we have leveraged up to 20% of the portfolio -- borrowing
at short-term rates and investing in higher yield bonds -- to help increase
yield and total return. Now that rates have risen, our borrowing costs have
crept upward. However, the high yielding coupon securities we held to boost
yield were not as volatile as other types of bonds during the rough markets,
so the extra total return we are earning on our borrowed funds still outweighs
our borrowing expenses. Thus, we have no plans to reduce our leveraged position
until this balance shifts. Of course, this is subject to change.
-2-
<PAGE>
Our Outlook
With second quarter 1994 GDP at an annualized 4.1% and economic prospects
looking bright, the junk bond market's fundamental characteristics are strong.
However, while we do not anticipate a domestic recession in the near future,
we still are not without concerns. Mounting attention to the U.S. dollar's
weakness, poor trade relations with Japan and inflationary expectations are
giving investors pause. If Treasury bond prices keep falling in the coming
months, the high yield market should continue to be volatile. The stock market,
which also impacts the high yield market, could also be headed for further
turmoil. Nonetheless, investors who seek more income than what investment
grade bonds offer might wish to keep a portion of their fixed income portfolio
in high yield bonds.
Once again, we appreciate having you as a shareholder of the High Yield
Income Fund Inc. and are pleased to report our activities to you.
Sincerely,
Lawrence C. McQuade
President
George Edwards
Portfolio Manager
The High Yield Income Fund, Inc.'s common stock is traded on the New York Stock
Exchange under the symbol ''HYI'' and is frequently listed as ''HighYldIncome'
or 'HighYldFd' in the financial newspapers. It is also listed in a closed-end
fund table every Saturday in Barron's and every Monday in The Wall Street
Journal and The New York Times.
-3-
<PAGE>
- ----------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Portfolio of Investments
August 31, 1994
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ---------------------------------------------------------------
<S> <C> <S> <C>
LONG-TERM INVESTMENTS--121.7%
BONDS--119.2%
Aerospace--2.1%
Fairchild Industries,
Inc.,
Sr. Sec. Notes,
B2 $ 685# 12.25%, 2/1/99.......... $ 688,425
PA Holdings Corp.,
Sr. Sub. Notes,
B3 396# 13.75%, 7/15/99......... 417,780
Rohr, Inc.,
Sr. Notes,
Ba3 500# 11.625%, 5/15/03........ 510,000
-----------
1,616,205
-----------
Air Transportation--1.7%
NWA, Inc.,**
Sr. Notes,
(cost $446,136;
purchase
date-6/17/94),
NR 494 12.091%, 12/31/00....... 484,365
US Air, Inc.,
Ba2 500# 10.375%, 3/1/13......... 452,500
Sr. Deb.,
B2 250# 12.875%, 4/1/00......... 230,000
Sr. Notes,
B2 250# 10.00%, 7/1/03.......... 177,500
-----------
1,344,365
-----------
Apparel--0.3%
Apparel Ventures, Inc.,
B3 250 12.25%, 12/31/00........ 248,750
-----------
Automotive Parts--4.5%
Aftermarket Technology
Corp.,
Sr. Sub. Notes,
B3 250 12.00%, 8/1/04.......... 250,000
Doehler Jarvis, Inc.,
Sr. Notes,
B3 500# 11.875%, 6/1/02......... 497,500
Foamex/Jps Automotive
L.P.,
Disc. Deb., Ser. A,
NR 1,000 13.50%, 7/1/04.......... 540,000
<CAPTION>
- ---------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ---------------------------------------------------------------
<S> <C> <S> <C>
Harvard Industries,
Inc.,
Sr. Notes,
B2 $ 750 12.00%, 7/15/04......... $ 755,625
JB Poindexter Inc.,
Sr. Notes,
B2 500 12.50%, 5/15/04......... 492,500
Motor Wheel Corp.,
Sr. Notes,
B2 500# 11.50%, 3/1/00.......... 500,000
SPX Corp.,
Sr. Sub. Notes,
B3 500# 11.75%, 6/1/02.......... 512,500
-----------
3,548,125
-----------
Beverages-Bottlers--0.9%
Heileman Acquisition
Corp.,
Sr. Sub. Notes,
B3 250# 9.625%, 1/31/04......... 213,750
Seven-Up/RC Bottling
Co.,
Sr. Sec. Notes,
Caa 500 11.50%, 8/1/99.......... 495,000
-----------
708,750
-----------
Broadcasting--2.6%
Newcity Communications,
Inc.,
Sr. Sub. Notes,
B3 1,000# 11.375%, 11/1/03........ 985,000
NWCG Holdings Corp.,
Sr. Sec. Disc. Notes,
Caa 1,000 Zero Coupon, 6/15/99.... 510,000
Univision Television
Group, Inc.,
Sr. Sub. Notes,
B2 500 11.75%, 1/15/01......... 527,500
-----------
2,022,500
-----------
Building & Related Industries--7.1%
Baldwin Co.,
Sr. Notes,
B2 750# 10.375%, 8/1/03......... 622,500
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ---------------------------------------------------------------
<S> <C> <S> <C>
Building & Related Industries
(cont'd)
Building Materials Corp.
of
America,
Sr. Notes,
B1 $ 1,000 Zero Coupon, 7/1/04..... $ 525,000
Inter-City Prods. Corp.,
Sr. Sec. Notes,
Ba3 750# 9.75%, 3/1/00........... 690,000
Nortek, Inc.,
Sr. Sub. Notes,
Caa 250 9.875%, 3/1/04.......... 227,500
NVR, Inc.,
Sr. Notes,
B2 1,000# 11.00%, 4/15/03......... 920,000
Southdown, Inc.,
Sr. Sub. Notes,
NR 500 14.00%, 10/15/01........ 565,000
Triangle Pacific Corp.,
Sr. Sub. Notes,
B2 1,000# 10.50%, 8/1/03.......... 995,000
Wickes Lumber Co.,
Sr. Sub. Notes,
B3 1,000# 11.625%, 12/15/03....... 1,020,000
-----------
5,565,000
-----------
Cable & Pay Television Systems--2.8%
Adelphia Communications
Corp.,
Sr. Notes,
B2 500 12.50%, 5/15/02......... 500,000
PIK Note Ser. B,
NR 523 9.50%, 2/15/04.......... 413,170
Bell Cablemedia Co.,
Sr. Disc. Notes,
B2 1,000 Zero Coupon, 7/15/04.... 561,250
Marcus Cable Operating
Co., L. P.,
Sr. Sub. Disc. Notes,
Zero Coupon (until
8/1/99) 13.50%,
B3 1,000 8/1/04................ 530,000
Scott Cable Communications, Inc.,
Sub. Deb.,
NR 250 12.25%, 4/15/01......... 197,500
-----------
2,201,920
-----------
<CAPTION>
- ---------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ---------------------------------------------------------------
<S> <C> <S> <C>
Chemical Fertilizer--1.0%
Arcadian Partners L.P.,
Sr. Notes, Ser. A,
B2 $ 750 10.75%, 5/1/05.......... $ 751,875
-----------
Chemicals & Plastics--6.9%
Applied Extrusion Technology, Inc.,
Sr. Notes, Ser. B,
B3 500# 11.50%, 4/1/02.......... 510,000
G-I Holdings, Inc.,
Sr. Def'd. Cpn. Notes,
Ba3 1,000 Zero Coupon, 10/1/98.... 612,500
Georgia Gulf Corp.,
Sr. Sub. Notes,
Ba3 500# 15.00%, 4/15/00......... 525,000
ICF International, Inc.,
Sr. Sub. Notes,
B3 500 12.00%, 12/31/03........ 455,000
INDSPEC Chemical Corp.,
Sr. Sub. Notes,
Zero Coupon (until
12/1/98)
NR 374 11.50%, 12/1/03....... 220,660
Laroche Industries,
Inc.,
Sr. Sub. Notes,
B3 500 13.00%, 8/15/04......... 500,000
NL Industries, Inc.,
Sr. Notes,
B1 500 11.75%, 10/15/03........ 517,500
Sr. Sec. Disc. Note,
B2 500 Zero Coupon, 10/15/05... 315,000
Polymer Group, Inc.,
Sr. Notes,
Caa 500 12.25%, 7/15/02......... 505,000
Rexene Corp.,
Sr. Notes,
NR 800 9.00%, 11/15/99......... 792,000
Uniroyal Technology
Corp.,
Notes,
B2 500 11.75%, 6/1/03.......... 475,000
-----------
5,427,660
-----------
Communications--2.2%
Dial Callable Communications, Inc.,
Sr. Disc. Notes,
NR 1,000(D)(D) Zero Coupon, 4/15/04.. 610,000
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ---------------------------------------------------------------
<S> <C> <S> <C>
Communications (cont'd)
Outdoor Systems, Inc.,
Sr. Notes,
B2 $ 500# 10.75%, 8/15/03......... $ 470,000
Page Mart, Inc.,
Sr. Disc. Notes,
NR 1,000(D)(D) Zero Coupon, 11/1/03. 625,000
-----------
1,705,000
-----------
Conglomerates--2.0%
IMO Industries, Inc.,
Sr. Sub. Deb.,
Caa 1,000 12.00%, 11/1/01......... 1,030,000
Interlake Corp.,
Sr. Sub. Deb.,
B3 125# 12.125%, 3/1/02......... 115,625
Talley Manufacturing &
Technology, Inc.,
Sr. Notes,
B2 500# 10.75%, 10/15/03........ 452,500
-----------
1,598,125
-----------
Consumer Products--4.3%
Acme Boot Co.,
Sr. Notes,
B2 250 11.50%, 12/15/00........ 175,000
Astrum International
Corp.,
Notes,
B3 500# 11.50%, 6/8/03.......... 508,750
Health O Meter, Inc.,
Sr. Sub. Notes,
B3 500(D)(D) 13.00%, 8/15/02...... 495,000
JB Williams Holdings,
Inc.,
Sr. Notes,
B3 500 12.00%, 3/1/04.......... 475,000
MacAndrews & Forbes
Group, Inc.,
Sub. Deb.,
NR 500 13.00%, 3/1/99.......... 500,000
Sub. Notes,
NR 500 12.25%, 7/1/96.......... 502,500
<CAPTION>
- ---------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ---------------------------------------------------------------
<S> <C> <S> <C>
Overhead Door Corp.,
Sr. Notes,
B1 $ 750# 12.25%, 2/1/00.......... $ 761,250
-----------
3,417,500
-----------
Containers--2.2%
Ivex Packaging Corp.,
Sr. Disc. Deb., Ser.
B,
Caa 1,250 Zero Coupon, 3/15/05.... 612,500
Sr. Sub. Notes,
B3 500# 12.50%, 12/15/02........ 520,000
Silgan Holdings, Inc.,
Sr. Disc. Deb.,
Zero Coupon (until
6/15/96)
B3 750 13.25%, 12/15/02...... 607,500
-----------
1,740,000
-----------
Convenience Stores--0.6%
Southland Corp.,
Sr. Sub. Deb.,
B3 500# 12.00%, 6/15/09......... 500,000
-----------
Electronics--1.3%
Berg Electronics, Inc.,
Sr. Sub. Deb.,
B3 1,000# 11.375%, 5/1/03......... 1,005,000
-----------
Energy--4.9%
Clark R&M Holdings,
Inc.,
Sr. Sec. Notes, Ser.
A,
B1 500 Zero Coupon, 2/15/00.... 265,000
Empire Gas Corp.,
Sr. Sec. PIK Notes,
Caa 500(D)(D) 7.00%, 7/15/04....... 386,250
Mesa Capital Corp.,
Sec. Disc. Notes,
B3 1,000 Zero Coupon, 6/30/98.... 880,000
National Propane Corp.,
Sr. Sub. Deb.,
Caa 700 13.125%, 3/1/99......... 701,750
Presidio Oil Co.,
Sr. Sec. Notes, Ser.
B,
B3 750# 11.50%, 9/15/00......... 716,250
Sr. Sub. Notes,Ser. B,
NR 400 14.125%, 7/15/02........ 386,000
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ---------------------------------------------------------------
<S> <C> <S> <C>
Energy (cont'd)
Trident, Inc.,
Sub. Notes,
B1 $ 500# 10.25%, 4/15/03......... $ 506,250
-----------
3,841,500
-----------
Entertainment--2.9%
Imax Corp.,
Sr. Notes,
NR 500 7.00%, 3/1/01........... 440,000
Plitt Theatres, Inc.,
Sr. Sub. Notes,
B3 250# 10.875%, 6/15/04........ 248,750
Spectravision, Inc.,
Sr. Disc. Notes,
B2 485 Zero Coupon, 10/1/01.... 312,825
Sr. Sub. PIK Notes,
Caa 312# Zero Coupon, 12/1/02.... 177,840
United Artists, Inc.,
Sr. Sec. Notes,
Ba3 1,000 11.50%, 5/1/02.......... 1,080,000
-----------
2,259,415
-----------
Financial Services--1.9%
Acme Holdings, Inc.,
Sr. Notes,
Caa 500# 11.75%, 6/1/00.......... 212,500
Scotsman Group, Inc.,
Sr. Sec. Notes,
B1 250# 9.50%, 12/15/00......... 233,750
Tiphook Finance Corp.,
Sr. Notes,
Caa 593 7.125%, 5/1/98.......... 441,785
Caa 399 8.00%, 3/15/00.......... 287,280
Trump Taj Mahal Funding, Inc.,
First Mtg. PIK Bonds,
Class B,
Caa 500 Zero Coupon, 11/15/99... 350,000
-----------
1,525,315
-----------
Food & Beverage--7.1%
Del Monte Corp.,
Sr. Notes,
B1 1,000# 10.00%, 5/1/03.......... 915,000
<CAPTION>
- ---------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ---------------------------------------------------------------
<S> <C> <S> <C>
Del Monte Corp.,
Sub. PIK Notes,**
(cost $1,152,693;
purchase
date-3/28/94),
NR $ 1,193 Zero Coupon, 9/1/02..... $ 1,109,490
Pilgrim's Pride Corp.,
Sr. Sub. Notes,
B3 1,000# 10.875%, 8/1/03......... 970,000
Premium Standard Farms,
Sr. Sec. Disc. Notes,
Zero Coupon (until
9/15/96)
NR 939 12.00%, 9/15/03....... 727,725
PSF Finance L.P.,
Sr. Sec. Disc. Notes,
NR 446 Zero Coupon, 9/15/03.... 345,650
Specialty Foods
Acquisition Corp.,
Sr. Sec. Disc. Notes,
Zero Coupon (unitl
8/15/99)
Caa 500 13.00%, 8/15/05....... 187,500
Specialty Foods Corp.,
Sr. Notes, Ser. 13,
B2 1,000 10.25%, 8/15/01......... 885,000
Sr. Sub. Notes,
B3 500 11.25%, 8/15/03......... 415,000
-----------
5,555,365
-----------
Gaming--7.6%
Axia Holdings Corp.,
Sr. Sub. Notes,
NR 500 11.00%, 3/15/01......... 485,000
Aztar Corp.,
Sr. Sub. Notes, Ser.
B,
B2 500# 11.00%, 10/1/02......... 440,000
Bally's Casino, Inc.,
Sr. Disc. Notes,
B3 750 Zero Coupon, 6/15/98.... 467,812
Bally's Park Place Funding, Inc.,
First Mtge. Notes,
B1 500 9.25%, 3/15/04.......... 420,000
Casino America, Inc.,
First Mtge. Bonds,
B1 1,000 11.50%, 11/15/01........ 870,000
Casino Magic Finance
Corp.,
First Mtge. Bonds,
B1 750 11.50%, 10/15/01........ 630,000
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ---------------------------------------------------------------
<S> <C> <S> <C>
Gaming (cont'd)
Fitzgerald Gaming Corp.,
Sr. Sec. Notes,
NR $ 250 13.00%, 3/15/96......... $ 197,500
GB Property Funding
Corp.,
First Mtg. Notes,
B2 500 10.875%, 1/15/04........ 380,000
Grand Casino Resorts,
Inc.,
First Mtg. Notes, Ser
B,
12.50%, 2/1/00, Ser.
NR 500 B..................... 492,500
Hollywood Casino Corp.,
Sr. Sec. Notes,
NR 500 14.00%, 4/1/98.......... 510,000
Sam Houston Race Park,
Ltd.,
Sr. Sec. Notes,
NR 500(D)(D) 11.75%, 7/15/99...... 200,000
Showboat, Inc.,
Sr. Sub. Notes,
B2 500 13.00%, 8/1/09.......... 492,500
Station Casinos, Inc.,
Sr. Sub. Notes,
B2 500 9.625%, 6/1/03.......... 415,000
-----------
6,000,312
-----------
Health Care--3.4%
American Medical
International, Inc.,
Sr. Sub. Notes, Ser.
B,
B1 1,000 9.50%, 4/15/06.......... 960,000
Charter Medical Corp.,
Sr. Sub. Notes,
B2 500# 11.25%, 4/15/04......... 515,000
Ornda HealthCorp, Inc.,
Sr. Sub. Notes,
B2 500# 12.25%, 5/15/02......... 526,250
Paracelsus Healthcare
Corp.,
Sr. Sub. Notes,
B1 500# 9.875%, 10/15/03........ 475,000
Total Renal Care, Inc.,
Sr. Disc. Notes,
B3 250(D)(D) Zero Coupon, 8/15/04.. 177,500
-----------
2,653,750
-----------
<CAPTION>
- ---------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ---------------------------------------------------------------
<S> <C> <S> <C>
Home Building & Real Estate--3.3%
Continental Homes
Holdings,
Sr. Notes,
B1 $ 500# 12.00%, 8/1/99.......... $ 490,000
Engle Homes, Inc.,
Sr. Sub. Notes,
B2 500 11.75%, 12/15/00........ 472,500
Forecast Group, L.P.,
Sr. Notes,
B3 500# 11.375%, 12/15/00....... 415,000
JM Peters Co., Inc.,
Sr. Notes,
B3 500#(D)(D) 12.75%, 5/1/02...... 487,500
Miles Homes, Inc.,
Sr. Notes,
B2 500(D)(D) 12.00%, 4/1/01....... 485,000
The Presley Companies,
Sr. Notes,
B2 250 12.50%, 7/1/01.......... 243,750
-----------
2,593,750
-----------
Insurance--1.0%
American Financial
Corp.,
Sub. Deb., Ser. B,
NR 815 12.00%, 9/3/99.......... 798,700
-----------
Leisure & Tourism--1.8%
Host Marriott
Hospitality, Inc.,
Sr. Notes,
B1 437 10.625%, 2/1/00......... 437,000
Kloster Cruise, Ltd.,
Sr. Sec. Notes,
B2 500# 13.00%, 5/1/03.......... 505,000
Red Roof Inns, Inc.,
Sr. Notes,
B3 500# 9.625%, 12/15/03........ 466,250
-----------
1,408,250
-----------
Miscellaneous Services--2.0%
Affinity Group, Inc.,
Sr. Sub. Notes,
B2 500# 11.50%, 10/15/03........ 500,000
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ---------------------------------------------------------------
<S> <C> <S> <C>
Miscellaneous Services (cont'd)
Americold Corp.,
First Mtg. Bonds, Ser.
B,
B2 $ 500# 11.50%, 3/1/05.......... $ 457,500
Neodata Services, Inc.,
Sr. Def'd. Cpn. Notes,
Ser. B,
Zero Coupon (until
10/15/98)
B3 750 12.00%, 5/1/03........ 585,000
-----------
1,542,500
-----------
Paper & Packaging--9.0%
Berry Plastics,
Sr. Sub. Notes,
Caa 250(D)(D) 12.25%, 4/15/04...... 252,500
Container Corp. of
America,
Sr. Notes, Ser. A,
B2 500# 11.25%, 5/1/04.......... 525,000
Sr. Sub. Notes,
B2 1,000# 13.50%, 12/1/99......... 1,088,750
Domtar, Inc.,
Notes,
Ba1 750# 12.00%, 4/15/01......... 802,500
Sr. Notes,
Ba1 250# 11.75%, 3/15/99......... 264,375
Fort Howard Corp.,
Jr. Sub. Deb.,
Zero Coupon (until
11/1/94)
B3 750 14.125%, 11/1/04...... 736,875
Sr. Sub. Notes,
B2 300# 9.00%, 2/1/06........... 258,000
Gaylord Container Corp.,
Sr. Notes,
B3 500# 11.50%, 5/15/01......... 511,250
Indah Kiat International
Finance Co.,
Sr. Sec. Notes, Ser.
C,
Ba3 500 12.50%, 6/15/06......... 490,000
Malette, Inc.,
Sr. Sec. Notes,
Ba3 500 12.25%, 7/15/04......... 505,000
Seminole Kraft Corp.,
Sub. Notes,
NR 392 13.50%, 10/15/96........ 392,000
Stone Container Corp.,
Sr. Notes,
B1 750# 12.625%, 7/15/98........ 785,625
<CAPTION>
- ---------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ---------------------------------------------------------------
<S> <C> <S> <C>
Stone Container Corp.,
Sr. Notes,
B1 $ 500# 9.875%, 2/1/01.......... $ 465,000
-----------
7,076,875
-----------
Printing--2.8%
Mail Well Envelope
Corp.,
Sr. Sub. Notes,
B3 250 10.50%, 2/15/04......... 220,000
Mail Well Holding, Inc.,
Sr. Notes,
Zero Coupon (until
2/15/97)
Caa 900(D)(D) 11.75%, 2/15/06.... 432,000
Sullivan Graphics, Inc.,
Sr. Sub. Notes,
Ca 1,000 15.00%, 2/1/00.......... 1,060,000
Williamhouse Regency
Delaware, Inc.,
Sr. Sub. Deb.,
B2 500 11.50%, 6/15/05......... 502,500
-----------
2,214,500
-----------
Publishing--2.8%
Affiliated Newspapers
Investments, Inc.,
Sr. Disc. Notes,
B3 500 13.25%, 7/1/06.......... 265,000
Bell & Howell Holding
Co.,
Deb., Ser. B,
Zero Coupon (until
3/1/00)
B3 1,000# 11.50%, 3/1/05........ 505,000
Big Flower Press, Inc.,
Sr. Sub. Notes,
B3 1,000# 10.75%, 8/1/03.......... 935,000
Garden State Newspapers,
Sr. Sub. Notes,
B2 500# 12.00%, 7/1/04.......... 500,000
-----------
2,205,000
-----------
Restaurants--2.8%
Carrols Corp.,
Sr. Notes,
B3 1,000# 11.50%, 8/15/03......... 940,000
Family Restaurants,
Inc.,
Sr. Notes,
B1 500# 9.75%, 2/1/02........... 445,000
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ---------------------------------------------------------------
<S> <C> <S> <C>
Restaurants (cont'd)
Flagstar Corp.,
Sr. Sub. Deb.,
Caa $ 939# 11.25%, 11/1/04......... $ 814,583
-----------
2,199,583
-----------
Retail--5.4%
Caldor Corp.,
Sr. Sub. Notes,
B1 1,275 15.00%, 6/1/00.......... 1,424,813
Cole National Group,
Inc.,
Sr. Notes,
B1 625# 11.25%, 10/1/01......... 612,500
Eye Care Centers
America, Inc.,
Sr. Notes,
B3 500 12.00%, 10/1/03......... 425,000
Loehmanns Holdings,
Inc.,
Sr. Sub. Notes,
Caa 250 13.75%, 2/15/99......... 242,500
Pier 1 Imports, Inc.,
Sub. Deb.,
B1 339# 11.50%, 7/15/03......... 349,170
Thrifty Payless, Inc.,
Sr. Notes,
B2 500# 11.75%, 4/15/03......... 500,000
Sr. Sub. Notes,
B3 500(D)(D) 12.25%, 4/15/04...... 513,750
Wherehouse Entertainment, Inc.,
Sr. Sub. Notes, Ser. B,
B3 300# 13.00%, 8/1/02.......... 210,000
-----------
4,277,733
-----------
Steel & Metals--3.6%
Geneva Steel Co.,
Sr. Notes,
B1 500# 11.125%, 3/15/01........ 507,500
GS Technologies Operating, Inc.,
Sr. Notes,
B2 500 12.00%, 9/1/04.......... 509,375
Kaiser Aluminum &
Chemical Corp.,
Sr. Sub. Notes,
B2 250# 12.75%, 2/1/03.......... 251,250
<CAPTION>
- ---------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ---------------------------------------------------------------
<S> <C> <S> <C>
MAXXAM Group, Inc.,
Sr. Sec. Disc. Notes,
Zero Coupon (until
5/1/96)
B3 $ 1,000 12.25%, 8/1/03........ $ 615,000
Sr. Sec. Notes,
B3 1,000# 11.25%, 8/1/03.......... 935,000
-----------
2,818,125
-----------
Supermarkets--7.2%
Di Giorgio Corp.,
Sr. Notes,
B2 375# 12.00%, 2/15/03......... 376,875
Farm Fresh, Inc.,
Sr. Notes,
B2 1,000# 12.25%, 10/1/00......... 925,000
Food 4 Less Supermarkets, Inc.,
Sr. Disc. Notes, Ser. B,
Zero Coupon (until
12/15/97)
Caa 250 15.25%, 12/15/04...... 172,500
Sr. Sub. Notes,
B3 1,000# 13.75%, 6/15/01......... 1,070,000
Grand Union Acquistion
Corp.,
Sr. Sub. Notes,
NR 500 13.00%, 3/2/98.......... 375,000
Grand Union Co.,
Sr. Sub. Notes,
B3 500# 12.25%, 7/15/02......... 396,250
Pathmark Stores, Inc.,
Jr. Sub. Deb.,
Zero Coupon (until
11/1/99)
B3 500# 10.75%, 11/1/03....... 235,000
Sub. Notes,
B3 500# 12.625%, 6/15/02........ 515,000
Purity Supreme, Inc.,
Sr. Sec. Notes, Ser.
B,
B3 250# 11.75%, 8/1/99.......... 232,500
Ralphs Grocery Co.,
Sr. Sub. Notes,
B2 250 9.00%, 4/1/03........... 229,375
Smittys Super Value,
Inc.,
Sr. Sub. Notes,
B2 500(D)(D) 12.75%, 6/15/04...... 502,500
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ---------------------------------------------------------------
<S> <C> <S> <C>
Supermarkets (cont'd)
White Rose Foods, Inc.,
Sr. Notes,
NR $ 1,000 Zero Coupon, 11/1/98.... $ 540,000
-----------
5,570,000
-----------
Technology--2.4%
Unisys Corp.,
Notes,
Ba3 1,300# 13.50%, 7/1/97.......... 1,407,250
Waters Corp.,
Sr. Sub. Notes,
B3 500 12.75%, 9/30/04......... 500,000
-----------
1,907,250
-----------
Textiles--3.5%
CMI Inds., Inc.,
Sr. Sub. Notes,
B1 500# 9.50%, 10/1/03.......... 400,000
Dan River, Inc.,
Sr. Sub. Notes,
B3 500 10.125%, 12/15/03....... 455,000
Forstmann Textiles,
Inc.,
Sr. Sub. Notes,
B3 1,135# 14.75%, 4/15/99......... 1,327,950
JPS Textile Group, Inc.,
Sr. Sub. Disc. Notes,
Caa 420 10.85%, 6/1/99.......... 336,000
Westpoint Stevens, Inc.,
Sr. Sub. Deb.,
B3 250# 9.375%, 12/15/05........ 225,625
-----------
2,744,575
-----------
Transportation--0.7%
Transtar Holdings L.P.,
Sr. Disc. Notes,
B-* 1,000 Zero Coupon, 12/15/03... 535,000
-----------
Waste Management--0.6%
Clean Harbors, Inc.,
Sr. Notes,
B2 500 12.50%, 5/15/97......... 500,000
-----------
Total bonds
(cost $97,362,365)...... 93,628,273
-----------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ---------------------------------------------------------------
<S> <C> <S> <C>
COMMON STOCKS--0.4%
Broadcasting
311 Citicasters, Inc........ $ 5,909
-----------
Building & Related Industries
Thermadyne Holdings,
80,000 Class B(D)............ 2,400
Thermadyne Industries,
4,110 Inc.(D)............... 48,549
-----------
50,949
-----------
Conglomerates
PG Partners I L.P.,**
Lmtd. Participating
Int.,
(cost $0; purchase
NR 4 date-3/31/93)........... 187,582
-----------
Food & Beverage
Specialty Foods
Acquisition
Corp.,**(D)
(cost $5,451; purchase
7,500 date-8/10/93)......... 5,625
-----------
Oil & Gas
Petrolane, Inc.,
4,900 Class B................. 51,450
-----------
Total common stocks
(cost $1,195,730)....... 301,515
-----------
PREFERRED STOCKS--2.0%
Retail--0.2%
Color Tile, Inc.,**
(cost $195,000;
purchase
date-3/10/94),
7,500 13.00%.................. 196,875
-----------
Steel--0.5%
Republic Engineered
Steel, Inc.,**
(cost $418,657;
purchase
37,888 date-5/13/94), PIK.... 378,875
-----------
Supermarkets--0.5%
Pantry Pride, Inc.,
14.875%, Exchangeable,
2,500 Ser. B................ 243,750
Supermarkets General
Holdings Corp.,
5,000 14.08%.................. 130,000
-----------
373,750
-----------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Value
Shares Description (a) (Note 1)
<C> <S> <C>
- ----------------------------------------------------
Tobacco--0.6%
RJR Nabisco, Inc.,
72,160 8.25%, Convertible...... $ 505,120
-----------
Wholesale--0.2%
National Intergroup,
Inc.,
4,434 Ser. A.................. 155,199
-----------
Total preferred stocks
(cost $1,645,291)....... 1,609,819
-----------
WARRANTS(D)--0.1%
Building & Related Industries
Southdown, Inc.,
5,000 expiring 10/15/96....... 20,000
-----------
Chemicals
ICF International, Inc.,
2,400 expiring 12/31/98....... 1,200
-----------
Chemicals & Plastics
Uniroyal Technology
Corp.,
5,000 expiring 6/1/03......... 5,000
-----------
Energy
Ugi Corp.,
833 expiring 3/31/98....... 833
-----------
Gaming
Casino America Corp.,
Inc.,
3,263 expiring 1/15/96........ 4,894
Casino Magic Finance
Corp.,
4,500 expiring 10/14/96....... 2,250
Fitzgerald Gaming Corp.,
250 expiring 3/15/96........ 12,500
-----------
19,644
-----------
<CAPTION>
- ----------------------------------------------------------
Value
Shares Description (a) (Note 1)
<C> <S> <C>
- ----------------------------------------------------------
Supermarkets
Purity Supreme, Inc.,
1,733 expiring 8/6/97......... $ 35
-----------
Total warrants
(cost $47,465).......... 46,712
-----------
Total long-term investments
(cost $100,250,851)..... 95,586,319
-----------
SHORT-TERM INVESTMENTS--0.8%
REPURCHASE AGREEMENT--0.8%
Joint Repurchase Agreement Account,
4.78%, 9/1/94,
(cost $643,000; Note 4).. 643,000
-----------
Total Investments--122.5%
(cost $100,893,851; Note
3)...................... 96,229,319
Liabilities in excess of
other assets--(22.5%)... (17,704,039)
-----------
Net Assets--100%.......... $78,525,280
-----------
-----------
</TABLE>
- ------------------
(a) The following abbreviations are used in portfolio descriptions:
PIK--Payment in kind securities.
# Portion of security segregated as collateral for line of credit.
Aggregate value of segregated securities--$43,375,373;
(Note 5).
* Standard & Poor's Rating.
** Indicates a restricted security; the aggregate cost of such securities
is $2,217,937. The aggregate value ($2,362,812) is approximately
3.0% of net assets.
(D) Non-income producing securities.
(D)(D) Consists of more than one class of securities traded together as a
unit; generally bonds with attached stock or warrants.
NR--Not rated by Moody's or Standard & Poor's.
See Notes to Financial Statements.
12
<PAGE>
<PAGE>
- ----------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Statement of Assets and Liabilities
August 31, 1994
- ----------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost
$100,893,851)......................... $96,229,319
Cash.................................... 1,717
Interest receivable..................... 2,352,522
Receivable for investments sold......... 414,375
Prepaid expenses and other assets....... 16,108
-----------
Total assets...................... 99,014,041
-----------
Liabilities
Loan payable (Note 5)................... 20,000,000
Payable for investments purchased....... 152,788
Accrued expenses........................ 119,484
Loan interest payable................... 95,208
Dividends payable....................... 53,186
Due to Manager.......................... 42,566
Deferred trustees' fees................. 25,529
-----------
Total liabilities................. 20,488,761
-----------
Net Assets.............................. $78,525,280
-----------
-----------
Net assets were comprised of:
Common stock, at par.................. $ 108,973
Paid-in capital in excess of par...... 99,040,683
-----------
99,149,656
Distributions in excess of net
investment income................... (53,186)
Accumulated net realized loss on
investments......................... (15,906,658)
Net unrealized depreciation on
investments......................... (4,664,532)
-----------
Net assets, August 31, 1994........... $78,525,280
-----------
-----------
Net asset value and redemption price per
share ($78,525,280 / 10,897,326 shares
of common stock issued and
outstanding).......................... $7.21
-----------
-----------
</TABLE>
- ----------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Statement of Operations
Year Ended August 31, 1994
- ----------------------------------------------------------
<TABLE>
<S> <C>
Net Investment Income
Income
Interest............................... $11,316,475
Dividends.............................. 154,052
-----------
11,470,527
-----------
Expenses
Management fee......................... 583,987
Custodian's fees and expenses.......... 112,000
Audit fee.............................. 55,000
Reports to shareholders................ 55,000
Transfer agent's fees and expenses..... 54,000
Trustees' fees......................... 40,000
Registration fees...................... 26,000
Legal fees............................. 20,000
Insurance.............................. 17,000
Miscellaneous.......................... 19,410
-----------
Total operating expenses............. 982,397
Loan interest expense (Note 5)......... 923,282
-----------
Total expenses....................... 1,905,679
-----------
Net investment income.................... 9,564,848
-----------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain on investment
transactions........................... 1,939,634
Net change in unrealized
appreciation/depreciation on
investments............................ (7,045,586)
-----------
Net loss on investments.................. (5,105,952)
-----------
Net Increase in Net Assets
Resulting from Operations................ $ 4,458,896
-----------
-----------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
13
<PAGE>
<PAGE>
- ----------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Statement of Cash Flows
Year Ended August 31, 1994
- ----------------------------------------------------------
<TABLE>
<S> <C>
Increase (Decrease) in Cash
Cash flows provided from operating
activities:
Interest and dividends received
(excluding
discount amortization of
$977,545).......................... $ 10,807,580
Operating expenses paid.............. (986,999)
Loan interest paid................... (901,095)
Maturities of short-term portfolio
investments, net................... 429,000
Purchases of long-term portfolio
investments........................ (82,291,443)
Proceeds from disposition of
long-term
portfolio investments.............. 82,666,049
Deferred expenses.................... 998
----------------
Net cash provided from operating
activities......................... 9,724,090
----------------
Cash flows used for financing
activities:
Cash dividends paid (excluding
reinvestment of dividends of
$708,165).......................... (9,722,640)
----------------
Net increase in cash................... 1,450
Cash at beginning of year.............. 267
----------------
Cash at end of year.................... $ 1,717
----------------
----------------
Reconciliation of Net Increase in Net Assets
to Net Cash Provided from Operating Activities
Net increase in net assets resulting
from operations...................... $ 4,458,896
----------------
Decrease in investments................ 2,195,922
Net realized gain on investment
transactions......................... (1,939,634)
Net change in net unrealized
appreciation/depreciation on
investments.......................... 7,045,586
Decrease in receivable for investments
sold................................. 693,767
Decrease in interest receivable........ 314,596
Increase in deferred expenses and other
assets............................... (673)
Decrease in payable for investments
purchased............................ (3,063,625)
Increase in interest payable........... 22,187
Decrease in accrued expenses and other
liabilities.......................... (2,932)
----------------
Total adjustments.................... 5,265,194
----------------
Net cash provided from operating
activities....................... $ 9,724,090
----------------
----------------
</TABLE>
- ----------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Statement of Changes
in Net Assets
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) in Net
Assets
Year Ended August 31,
------------------------------------
Operations 1994 1993
----------------- ---------------
<S> <C> <C>
Net investment income..... $ 9,564,848 $ 10,877,734
Net realized gain on
investment
transactions............ 1,939,634 2,816,719
Net change in unrealized
appreciation/depreciation
of investments.......... (7,045,586) (801,331)
----------------- ---------------
Net increase in net assets
resulting from
operations.............. 4,458,896 12,893,122
----------------- ---------------
Dividends paid to
shareholders from net
investment income......... (9,945,260) (9,692,422)
Dividends paid to
shareholders in excess of
net investment income..... (485,187) --
Net asset value of shares
issued to shareholders in
reinvestment of
dividends................. 708,165 580,867
----------------- ---------------
Total increase (decrease)... (5,263,386) 3,781,567
Net Assets
Beginning of year........... 83,788,666 80,007,099
----------------- ---------------
End of year................. $78,525,280 $ 83,788,666
----------------- ---------------
----------------- ---------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
14
<PAGE>
<PAGE>
- ----------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Notes to Financial Statements
- ----------------------------------------------------------
The High Yield Income Fund, Inc. (the ``Fund'') was organized in Maryland on
August 21, 1987 as a diversified, closed-end management investment company. The
Fund's primary investment objective is to maximize current income to
shareholders through investment in a diversified portfolio of high-yield,
fixed-income securities rated in the medium to lower categories by recognized
rating services or non-rated securities of comparable quality. As a secondary
investment objective, the Fund will seek capital appreciation, but only when
consistent with its primary objective. The ability of issuers of debt
securities held by the Fund to meet their obligations may be affected by
economic or political developments in a specific industry or region.
Note 1. Accounting The following is a summary of
Policies 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 the mean between the
most recently quoted bid and asked prices provided by principal market makers.
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 mean between the bid and asked prices
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.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
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 invest up to 20% of its total assets in securities which are not
readily marketable, including those which are restricted as to disposition under
securities law (``restricted securities''). Certain issues of restricted
securities held by the Fund at August 31, 1994 include registration rights under
which the Fund may demand registration by the issuer, some of which are
currently under contract to be registered. Restricted securities are valued
pursuant to the valuation procedures noted above.
Cash Flow Information: The Fund invests in securities and distributes dividends
from net investment income which are paid in cash or are reinvested at the
discretion of shareholders. These activities are reported in the Statement of
Changes in Net Assets and additional information on cash receipts and cash
payments is presented in the Statement of Cash Flows.
Accounting practices that do not affect reporting activities on a cash basis
include carrying investments at value, accruing income on PIK securities and
amortizing discounts on debt obligations. Cash, as used in the Statement of Cash
Flows, is the amount reported as ``Cash'' in the Statement of Assets and
Liabilities.
Security Transactions and Investment Income: Security transactions are recorded
on the trade date. Realized and unrealized gains and losses from securities
transactions are calculated on the identified cost basis. Interest income which
is comprised of three elements: stated coupon rate, original issue discount and
market discount, is recorded on the accrual basis. Dividend income is recorded
on the ex-dividend date.
Federal Income Taxes: It is the Fund's policy 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 shareholders.
Therefore, no federal income tax provision is required.
Dividends and Distributions: The Fund expects to pay dividends of net investment
income monthly and make distributions at least annually of net capital gains, if
any. 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.
Reclassification of Capital Accounts: Effective September 1, 1992, the Fund
began accounting and reporting for distributions to shareholders in accordance
with Statement of Position 93-2; Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain, and Return of
15
<PAGE>
<PAGE>
Capital Distributions by Investment Companies. For the year ended August 31,
1994, the effect caused by this statement was to decrease paid-in capital in
excess of par by $432,001 and increase undistributed net investment income by
432,001. Net investment income, net realized gains and net assets were not
affected by this change.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''). PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the services of PIC,
the cost of compensation of officers of the Fund, occupancy and certain clerical
and bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PMF is computed weekly and payable monthly, at an
annual rate of .70 of 1% of the Fund's average weekly net assets.
PMF and PIC are indirect, wholly-owned subsidiaries of the (``Prudential'')
Insurance Company of America.
Note 3. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the year ended August
31, 1994 aggregated $79,227,818 and $82,046,653, respectively.
The cost basis of investments for federal income tax purposes at August 31,
1994 was $100,975,177 and, accordingly, net unrealized depreciation including
short-term investments, for federal income tax purposes was $4,745,858 (gross
unrealized appreciation-$1,376,939; gross unrealized depreciation-$6,122,797).
The Fund had a capital loss carryforward as of August 31, 1994 of
approximately $15,825,300 of which $514,200 expires in 1998, $6,419,700 expires
in 1999 and $8,891,400 expires in 2000. During the fiscal year ended August 31,
1994 the Fund utilized approximately $2,117,231 of its capital loss
carryforward. Accordingly, no capital gains distribution is expected to be paid
to shareholders until net realized gains have been realized in excess of such
amounts.
Note 4. Joint The Fund, along with other
Repurchase affiliated registered invest
Agreement ment companies, transfers
Account uninvested cash balances into
a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of August 31, 1994, the Fund
had a 0.07% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Fund represented $643,000 in principal
amount. As of such date, each repurchase agreement in the joint account and the
collateral therefor was as follows:
Bear, Stearns & Co., 4.79%, in the principal amount of $200,000,000,
repurchase price $200,026,611, due 9/1/94. The value of the collateral including
accrued interest is $204,531,683.
BT Securities Corp., 4.78%, in the principal amount of $225,000,000,
repurchase price $225,029,873, due 9/1/94. The value of the collateral including
accrued interest is $229,711,473.
J.P. Morgan Securities, Inc., 4.78%, in the principal amount of $200,000,000,
repurchase price $200,026,556, due 9/1/94. The value of the collateral including
accrued interest is $204,090,875.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 4.78%, in the principal amount
of $275,000,000, repurchase price $275,036,514, due 9/1/94. The value of the
collateral including accrued interest is $281,061,725.
Note 5. Borrowings The Fund approved a
$20,000,000 uncommitted line of credit with State
Street Bank & Trust Co. Interest on any such borrowings outstanding fluctuates
daily, at one percentage higher than the London Interbank offered rate.
The average daily balance outstanding and the maximum face amount of
borrowings outstanding at any month end for the year ended August 31,1994 was
$20,000,000 at a weighted average interest rate of 4.55%.
Note 6. Capital There are 200 million shares
of $.01 par value common stock authorized.
Prudential owned 11,000 shares of common stock as of August 31, 1994.
During the fiscal years ended August 31, 1994 and August 31, 1993 the Fund
issued 89,141 and 76,192 shares, respectively, in connection with the
reinvestment of dividends.
Note 7. Dividends On September 1 and October
and Distributions 3, 1994 the Board of Directors
of the Fund declared dividends of $.0725 per share
payable on September 30 and October 31, 1994, respectively, to shareholders of
record on September 15 and October 14, 1994, respectively.
16
<PAGE>
<PAGE>
Note 8. Quarterly Data
(Unaudited)
<TABLE>
<CAPTION>
Net realized and Net increase
unrealized in net assets
Net Investment gains (losses) on resulting from
Quarterly Total income investments operations
period ended income Amount Per share Amount Per share Amount Per share
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------ ---------- ------------------------ -------------------------- -------------------------
November 30, 1992 $2,983,763 $2,530,119 $ .23 $ (1,883,941) $ (.18) $ 646,178 $ .06
February 28, 1993 3,100,143 2,659,916 .25 1,747,668 .16 4,407,584 .40
May 31, 1993 2,985,599 2,541,318 .24 1,893,736 .18 4,435,054 .41
August 31, 1993 3,585,185 3,146,381 .29 257,925 .02 3,404,306 .32
November 30, 1993 2,959,989 2,507,291 .23 1,136,926 .11 3,644,217 .34
February 28, 1994 2,718,394 2,272,046 .21 1,785,670 .16 4,057,716 .37
May 31, 1994 2,841,363 2,357,649 .22 (5,939,341) (.55) (3,581,692) (.33)
August 31, 1994 2,950,781 2,427,862 .21 (2,089,206) (.18) 338,656 .03
<CAPTION>
Dividends
and Share
Quarterly distributions price
period ended Amount Per share High Low
<S> <C> <C> <C> <C>
- ------------------ ------------------------ ------------
November 30, 1992 $2,417,334 $ .2250 $8 $7
February 28, 1993 2,421,213 .2250 83/8 7 1/4
May 31, 1993 2,424,024 .2250 81/2 8 1/8
August 31, 1993 2,429,851 .2250 87/8 8 1/8
November 30, 1993 2,488,477 .2300 81/2 8 1/8
February 28, 1994 3,046,577 .2800 91/8 8 3/8
May 31, 1994 2,526,830 .2300 91/8 7 3/4
August 31, 1994 2,368,563 .2100 81/2 7 3/4
</TABLE>
17
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
--------------------------------------------------------------
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
-------------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year*...................... $ 7.75 $ 7.46 $ 6.84 $ 6.79 $ 8.60
-------------- ------- ------- ------- -------
Net investment income.................................... .87 1.01 .90 .90 .97
Net realized and unrealized gain (loss) on investments... (.46) .18 .62 .08 (1.68)
-------------- ------- ------- ------- -------
Total from investment operations....................... .41 1.19 1.52 .98 (.71)
-------------- ------- ------- ------- -------
Dividends paid to shareholders from net investment
income................................................. (.91) (.90) (.90) (.90) (.97)
Distributions from net realized capital gains............ -- -- -- -- --
Distributions to shareholders in excess of net investment
income................................................. (.04) -- -- -- --
Return of capital distributions.......................... -- -- -- (.03) (.13)
-------------- ------- ------- ------- -------
Total dividends and distributions...................... (.95) (.90) (.90) (.93) (1.10)
-------------- ------- ------- ------- -------
Net asset value, end of year*............................ $ 7.21 $ 7.75 $ 7.46 $ 6.84 $ 6.79
-------------- ------- ------- ------- -------
-------------- ------- ------- ------- -------
Market price per share, end of year*..................... $ 7.88 $ 8.75 $ 7.75 $ 6.63 $ 5.75
-------------- ------- ------- ------- -------
-------------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN(D)............................... 1.67% 26.80% 31.79% 34.15% (31.20)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............................ $ 78,525 $83,789 $80,007 $73,080 $72,494
Average net assets (000)................................. $ 83,241 $80,747 $77,579 $67,388 $80,780
Ratio of expenses to average net assets.................. 2.29% 2.20% 1.55% 1.39% 1.43%
Ratio of net investment income to average net assets..... 11.49% 13.47% 12.35% 14.23% 12.79%
Portfolio turnover rate.................................. 79% 83% 74% 72% 27%
Asset coverage........................................... 493% 519% 500% -- --
Total debt outstanding at year end (000)................. $ 20,000 $20,000 $20,000 -- --
</TABLE>
- ---------------
* NAV and market value published in The Wall Street Journal each Monday.
(D) Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each period reported. Dividends
are assumed, for purposes of this calculation, to be reinvested at prices
obtained under the Fund's dividend and reinvestment plan. Does not
reflect brokerage commissions.
See Notes to Financial Statements.
18
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
The High Yield Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, of cash
flows and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of The High Yield Income Fund,
Inc. (the ``Fund'') at August 31, 1994, the results of its operations and its
cash flows for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as ``financial statements'') are the responsibility of
the Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at August 31, 1994 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
October 18, 1994
19
<PAGE>
<PAGE>
OTHER INFORMATION
Dividend Reinvestment Plan. Shareholders may elect to have all distributions
of dividends and capital gains automatically reinvested in Fund shares (Shares)
pursuant to the Fund's Dividend Reinvestment Plan (the Plan). Shareholders who
do not participate in the Plan will receive all distributions in cash paid by
check mailed directly to the shareholders of record (or, if the shares are held
in street or other nominee name, then to the nominee) by the custodian, as
dividend disbursing agent. Shareholders who wish to participate in the Plan
should contact the Fund at (800) 451-6788.
State Street Bank and Trust Co. (the Plan Agent) serves as agent for the
shareholders in administering the Plan. After the Fund declares a dividend or
capital gains distribution, if (1) the market price is lower than net asset
value, the participants in the Plan will receive the equivalent in Shares valued
at the market price determined as of the time of purchase (generally, following
the payment date of the dividend or distribution); or if (2) the market price of
Shares on the payment date of the dividend or distribution is equal to or
exceeds their net asset value, participants will be issued Shares at a price
equal to net asset value but not less than 95% of the market price. If net asset
value exceeds the market price of Shares on the payment date or the Fund
declares a dividend or other distribution payable only in cash, the Plan Agent
will, as agent for the participants, receive the cash payment and use it to buy
Shares in the open market. If, before the Plan Agent has completed its
purchases, the market price exceeds the net asset value per share, the average
per share purchase price paid by the Plan Agent may exceed the net asset value
per share, resulting in the acquisition of fewer shares than if the dividend or
distribution had been paid in shares issued by the Fund. The Fund will not issue
Shares under the Plan below net asset value.
There is no charge to participants for reinvesting dividends or capital gain
distributions, except for certain brokerage commissions, as described below. The
Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Fund. There will be no brokerage commissions
charged with respect to shares issued directly by the Fund. However, each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases in connection with the
reinvestment of dividends and distributions. The automatic reinvestment of
dividends and distributions will not relieve participants of any federal income
tax that may be payable on such dividends or distributions.
The Fund reserves the right to amend or terminate the Plan upon 90 days'
written notice to shareholders of the Fund.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Shares and cash for
fractional Shares.
All correspondence concerning the Plan should be directed to the Plan Agent,
State Street Bank & Trust Company, P.O. Box 8200, Boston, MA 02266-8200.
20
<PAGE>
<PAGE>
Directors
Eugene C. Dorsey
Donald D. Lennox
Lawrence C. McQuade
Richard A. Redeker
Stanley E. Shirk
Robin B. Smith
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Marguerite E.H. Morrison, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Custodian and Transfer Agent
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Dechert Price & Rhoads
1500 K Street N.W.
Washington, D.C. 20005
This report is for stockholder information. This is not a
prospectus intended for use in the purchase or sale of fund
shares.
The High Yield Income Fund, Inc.
One Seaport Plaza
New York, NY 10292
Toll free (800) 451-6788
or collect (212) 214-3332
429904105
