The High
Yield Income
Fund, Inc.
- ------------------------------
Annual Report
August 31, 1995
<PAGE>
Letter to Shareholders
October 23, 1995
Dear Shareholder:
Performance at a Glance.
High yield bonds generated solid returns during the first eight months of the
year, powered by their coupons, slowly falling interest rates and a moderately
growing economy. The High Yield Income Fund slightly underperformed its peer
group of closed-end high yield bond funds during the past six months, as
measured by Lipper Analytical Services.
STOCK SYMBOL
The HIgh Yield Income Fund, Inc. is a closed-end fund traded on the New York
Stock Exchange under the symbol "HYI" and is frequently listed as "HighYldFd"
or "HiYld" in the financial sections of newspapers. Also, it is listed weekly
in Barron's and in a special table every Monday in The Wall Street Journal.
FUND'S PERFORMANCE
As of 8/31/95
<TABLE>
<CAPTION>
Total Return Total Return NAV Market Price
6 months 12 months 8/31/95 8/31/95
<S> <C> <C> <C> <C>
High Yield 9.25% 11.43% $7.12 $8.00
Income Fund1
Lipper Closed-End 9.42% 13.05% N/A N/A
High Current Yield Avg.2
</TABLE>
1. Source: Prudential Mutual Fund Management, Inc. Total return of the Fund
represents the change in net asset value from the beginning of the period
(8/31/94) through the end of the period (8/31/95) 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.
2. Source: Lipper Analytical Services, Inc. These are the average returns of
27 funds in the closed-end high current yield category for one year.
YOUR DIVIDENDS
As of 8/31/95
<TABLE>
<CAPTION>
Total Monthly Dividends Paid Per Share
6 months 12 months
<C> <C>
$0.44 $0.87
</TABLE>
The Fund seeks to maximize current income from a portfolio of high-yielding,
non-investment grade bonds, commonly known as junk bonds. Capital appreciation
is a secondary objective. There is no assurance that the Fund's investment
objective will be achieved. The Fund generally strives to invest in
-1-
<PAGE>
bonds rated B or better. B rated bonds may be considered "junk bonds," which
are subject to greater credit risk than higher rated bonds. We keep the Fund
diversified, researching bonds intensively to find those with attractive yields
and improving credit.
Current Strategy:
Think of high yield bonds as a hybrid of bonds and stocks. Like bonds, their
prices generally rise and fall. But interest rates are usually not the most
important factor influencing high yield bond prices. Instead, like stocks, the
strength of the economy and of corporate earnings are often more crucial.
That's why while the economy has been slowing and interest rates have been
falling, we've been upgrading the Fund's quality. We are focusing on bonds
rated B or higher. These bonds have slightly lower income levels than lower
rated bonds but offer more protection to the Fund's net asset value (should
credit quality weaken in a slowing economy). We have been emphasizing:
- - bonds of large, established issuers with proven products;
- - bonds that are more senior in the firm's capital structure (those with a
higher priority claims on the company's assets);
- - bonds from economically defensive companies (those that may do well even if
the economy slows), such as telecommunications, supermarkets, cable, gaming and
health care. These types of companies have products and services that
generally remain in strong demand regardless of the economic climate.
We are also consolidating the number of issues to permit more intensive
scrutiny of each holding. We have been holding a modestly leveraged position,
borrowing 1.3% of assets at short term rates and investing it at higher yields.
Bonds at Good Prices.
There was relatively light new issue activity in the first quarter which
supported bond prices. But in the second quarter, sharply falling interest
rates generated a flood of new supply which put a partial ceiling on price
appreciation. We have been buying new bonds at attractive prices. Given
prospects for weaker economic growth, we're looking to find companies that have
public equity, are leaders in their industries and have strong management. We
have been tempted to buy single B credits yielding as much as 13%, but we have
that are yielding around 10.5%. They offer lower yields, but they are still
four percentage points higher than U.S. treasurys of the same maturity. Some
of these companies that we purchased are: Tenet Healthcare, Intelcom Group and
Exide Corp.
-2-
<PAGE>
Credit Problem Awareness.
A number of high yield companies had serious financial difficulties in the
first eight months of 1995, including Bradlees, the discount department store
in the Northeast, and Mesa Petroleum, a natural gas company. Bradlees filed
for reorganization under the bankruptcy laws. When our credit analysts noted
these troubles before the filing, we sold are holdings at prices significantly
above bankruptcy levels. We sold our Mesa bonds before the failure of a major
asset sale, when our credit analysis showed that Mesa had little to gain and
more to lose.
Interest Rates and Higher Credit Quality Double-Edged Swords.
Falling interest rates raise bond prices, but they also reduce the income
offered on new bonds. In addition, the B and BB rated bonds that we've been
buying have lower coupons than riskier bonds, which also reduces our income.
As a result, we are closely monitoring the Fund's income level and our ability
to sustain our current distributions to you. In light of slower economic
growth, and the potential for an increase in high yield bond defaults, we
believe that our current strategy is prudent. Avoiding higher-yielding, lower
quality bonds which are more susceptible to default risk should help protect
the Fund's net asset value.
Looking Ahead.
As long as economic growth remains positive, high yield bonds should continue
to perform well, although we don't expect the same type of gains experienced
earlier in the year. Investors should expect to mainly earn coupon income,
with more moderate price gains. Clients should also be prepared for more price
volatility ahead, since the sales and earnings of high yield issuers could slow
if the economy weakens further. In this climate we will carefully scrutinize
the creditworthiness of our holdings so that we can sell bonds of companies
that are most prone to weakening credit quality.
Sincerely,
Richard A. Redeker
President
Lars M. Berkman
Co-Manager
Michael A. Snyder
Co-Manager
-3-
<PAGE>
- ----------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Portfolio of Investments
August 31, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS--120.5%
BONDS--119.8%
Aerospace--3.1%
Fairchild Industries,
Inc.,
Sr. Sec. Notes,
B3 $ 1,125(c) 12.25%, 2/1/99.......... $ 1,147,500
K & F Industries, Inc.,
Sr. Sec. Notes,
B1 750(c) 11.875%, 12/1/03........ 780,000
Rohr, Inc.,
Sr. Notes,
Ba3 500(b) 11.625%, 5/15/03........ 532,500
-----------
2,460,000
-----------
Automotive Parts--7.0%
Exide Corp.,
Sr. Notes
B1 1,250 10.00%, 4/15/05......... 1,300,000
Foamex JPS Automotive
L.P.,
Sr. Sub. Deb.,
B3 500(b) 11.875%, 10/1/04........ 485,000
Harvard Industries,
Inc.,
Sr. Notes,
B3 1,125(b) 12.00%, 7/15/04......... 1,184,062
B3 250 11.125%, 8/1/05......... 251,875
JPS Automotive Products
Corp.,
Sr. Notes,
B2 750 11.125%, 6/15/01........ 746,250
Sr. Sec. Disc. Deb. Ser.
B,
Zero Coupon (until
7/1/99),
Caa 1,000 14.00%, 7/1/04........ 540,000
Motor Wheel Corp.,
Sr. Notes, Ser. B,
B2 500(b) 11.50%, 3/1/00.......... 452,500
SPX Corp.,
Sr. Sub. Notes,
B3 500(c) 11.75%, 6/1/02.......... 521,250
-----------
5,480,937
-----------
- ----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
Broadcasting-Radio & Television--4.3%
Benedek Broadcasting
Corp.,
Sr. Notes,
B2 $ 1,000(c) 11.875%, 3/1/05......... $ 1,050,000
Chancellor Broadcasting
Co.,
Sr. Sub. Notes,
B3 800(b) 12.50%, 10/1/04......... 844,000
Newcity Communications,
Inc.,
Sr. Sub. Notes,
B3 1,000(b) 11.375%, 11/1/03........ 975,000
Sinclair Broadcast
Group, Inc.,
Sr. Sub. Notes,
B1 500 10.00%, 9/30/05......... 503,125
-----------
3,372,125
-----------
Building & Related Industries--1.4%
Building Material Corp.
of America,
Sr. Notes, Ser. B,
Zero Coupon (until
7/01/99),
B1 1,250 11.750%, 7/1/04....... 768,750
Miles Homes, Inc.,
Sr. Notes,
B2 500(b) 12.00%, 4/1/01.......... 370,000
-----------
1,138,750
-----------
Cable & Pay Television
Systems--11.0%
American Telecasting,
Inc.,
Sr. Disc. Notes,
Zero Coupon, (until
8/15/00),
Caa 1,500(g) 14.50%, 8/15/05....... 735,000
Comcast Corp.,
Sr. Sub. Deb.,
B1 1,000(c) 9.375%, 5/15/05......... 1,007,500
Continental Cablevision,
Inc.,
Sr. Deb.,
Ba2 1,000(b) 9.50%, 8/1/13........... 1,025,000
Falcon Holdings Inc.,
Sr. Sub. Payment in
Kind Notes,
NR 1,113 11.00%, 9/15/03......... 1,012,830
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
<S> <C> <C> <C>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
Cable & Pay Television Systems
(cont'd)
Heartland Wireless
Communication, Inc.,
Sr. Notes,
B3 $ 500(g) 13.00%, 4/15/03......... $ 533,750
International Cabeltel,
Inc.,
Sr. Notes,
Zero Coupon (until
10/15/98),
NR 500 10.875%, 10/15/03..... 325,000
Sr. Notes, Ser. A,
Zero Coupon (until
4/15/00),
NR 950 12.75%, 4/15/05....... 551,000
Jones Intercable, Inc.,
Sr. Sub. Deb.,
B1 250 11.50%, 7/15/04......... 271,250
Marcus Cable Operating
Co., L.P.,
Sr. Sub. Disc. Notes,
Zero Coupon (until
8/1/99),
B3 2,250 13.50%, 8/1/04........ 1,468,125
People's Choice TV
Corp.,
Sr. Disc. Notes,
Zero Coupon (until
6/1/00),
Caa 750(g) 13.125%, 6/1/04....... 343,125
Rogers Cablesystems,
Inc.,
Sr. Sec. Notes,
10.00%, 3/15/05
Ba3 1,000(b)(h) (Canada).............. 1,027,500
United Int'l Holdings,
Inc.,
Sr. Disc. Notes,
B3 500(g) 14.00%, 11/15/99........ 315,000
-----------
8,615,080
-----------
Chemicals & Plastics--2.8%
Applied Extrusion
Technology, Inc.,
Sr. Notes, Ser. B,
NR 1,000(b) 11.50%, 4/1/02.......... 1,070,000
G-I Holdings, Inc.,
Sr. Disc. Notes, Ser.
B,
Ba3 500(b) Zero Coupon, 10/1/98.... 357,500
Terra Industries, Inc.,
Sr. Notes,
Ba3 750 10.50%, 6/15/05......... 781,875
-----------
2,209,375
-----------
- ----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
Consumer Products--6.7%
Herff Jones Inc.,
Sr. Sub. Notes,
B2 $ 1,500 11.00%, 8/15/05......... $ 1,526,250
MacAndrews & Forbes
Group, Inc.,
Sub. Deb.,
B3 500 13.00%, 3/1/99.......... 500,000
Sub. Notes,
NR 500 12.25%, 7/1/96.......... 500,000
Overhead Door Corp.,
Sr. Notes,
B1 1,000(c) 12.25%, 2/1/00.......... 985,000
Revlon Consumer Products
Corp.,
Deb.,
B2 500 9.375%, 4/1/01.......... 491,250
Revlon Worldwide Corp.,
Sr. Sec. Disc. Notes,
Ser. B,
NR 1,000 Zero Coupon, 3/15/98.... 707,500
Samsonite Corp.,
Sr. Sub. Notes,
B2 500 11.125%, 7/15/05........ 508,750
-----------
5,218,750
-----------
Energy--5.0%
Empire Gas Corp.,
Sr. Sec. Notes,
7.00% (until 7/15/99),
Caa 500 12.875%, 7/15/04...... 417,500
Falcon Drilling, Inc.,
Sr. Sub. Notes, Ser.
B,
NR 500 12.50%, 3/15/05......... 525,000
Gulf Canada Resources,
Ltd.,
Sr. Sub. Deb.,
9.625%, 7/1/05
Ba3 1,000(b)(h) (Canada).............. 1,000,000
Petroleum Heat & Power,
Inc.,
Sub. Deb.,
B2 1,000(c) 9.375%, 2/1/06.......... 910,000
TransTexas Gas Corp.,
Sr. Sec. Notes,
B2 1,000 11.50%, 6/15/02......... 1,047,500
-----------
3,900,000
-----------
Financial Services--0.3%
Acme Holdings, Inc.,
Sr. Sub. Notes,
Ca 500(d) 11.75%, 6/1/00.......... 255,000
-----------
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
<S> <C> <C> <C>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
Food & Beverage--6.0%
Del Monte Corp.,
Sub. Payment in Kind
Notes,
(cost $1,368,567;
purchase
date--3/12/93)
NR $ 1,343(e) 12.25, 9/1/02........... $ 1,181,840
Fresh Del Monte Produce,
N.V., Sr. Notes,
B3 1,000(b) 10.00%, 5/1/03.......... 850,000
Pilgrim's Pride Corp.,
Sr. Sub. Notes,
B3 875(b) 10.875%, 8/1/03......... 809,375
PSF Finance L.P.,
Sr. Sec. Disc. Notes,
Zero Coupon (until
9/15/96),
NR 1,385 12.00%, 9/15/03....... 1,080,300
Specialty Foods Corp.,
Sr. Notes, Ser. A,
B3 750 11.125%, 10/1/02........ 742,500
-----------
4,664,015
-----------
Gaming--9.3%
Bally's Park Place
Funding, Inc.,
First Mtge. Notes,
B1 1,000(c) 9.25%, 3/15/04.......... 942,500
Boyd Gaming Corp.,
Sr. Sub. Notes, Ser. B
B2 1,000(b) 10.75%, 9/1/03.......... 1,035,000
Casino America, Inc.,
First Mtge. Bonds,
B1 1,500 11.50%, 11/15/01........ 1,567,500
Empress River Casino
Finance Corp.,
Sr. Notes,
B1 1,000(b) 10.75%, 4/1/02.......... 1,000,000
Grand Casino Resorts,
Inc.,
First Mtg. Notes,
Ba3 500 12.50%, 2/1/00.......... 540,000
Sam Houston Race Park,
Ltd.,
Sr. Sec. Notes,
NR 500(d) 11.75%, 7/15/99......... 125,000
Showboat, Inc.,
Sr. Sub. Notes,
B2 750(b) 13.00%, 8/1/09.......... 804,375
- ----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
Trump Taj Mahal Funding,
Inc.,
First Mtg. Payment in
Kind Bonds, Class B,
Caa $ 1,500 11.35%, 11/15/99........ $ 1,256,250
-----------
7,270,625
-----------
Healthcare--2.0%
Tenet Healthcare Corp.,
Sr. Sub. Notes,
Ba3 1,500(c) 10.125%, 3/1/05......... 1,575,000
-----------
Home Builders & Real Estate--0.7%
Continental Homes
Holdings,
Sr. Notes,
B1 500(b) 12.00%, 8/1/99.......... 515,000
-----------
Industrial--9.6%
Envirodyne Industries,
Inc.,
Sr. Notes,
NR 1,000 12.00%, 6/15/00......... 990,000
Great Dane Holdings,
Inc.,
Sr. Sub. Notes.,
Caa 1,000 12.75%, 8/1/01.......... 970,000
IMO Industries, Inc.,
Sr. Sub. Deb.,
B3 500(b) 12.00%, 11/1/01......... 517,500
Interlake Corp.,
Sr. Notes,
B2 475 12.00%, 11/15/01........ 486,875
Sr. Sub. Deb.,
B3 1,000(b) 12.125%, 3/1/02......... 990,000
JB Poindexter, Inc.,
Sr. Notes,
B2 1,000(c) 12.50%, 5/15/04......... 945,000
MAXXAM Group, Inc.,
Sr. Sec. Disc. Notes,
Zero Coupon (until
8/1/98),
B3 1,000 12.25%, 8/1/03........ 655,000
Newflo Corp.,
Sub. Notes,
B3 1,150(b) 13.25%, 11/15/02........ 1,164,375
Terex Corp.
Sr. Sec. Notes,
NR 1,000(g) 13.75%, 5/12/02......... 770,000
-----------
7,488,750
-----------
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
<S> <C> <C> <C>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
Leisure & Tourism--4.2%
HMH Properties, Inc.,
Sr. Sec. Notes
BB- $ 1,350 9.50%, 5/15/05.......... $ 1,297,688
Host Marriot Travel
Plazas, Inc.,
Sr. Notes,
B1 1,000 9.50%, 5/15/05.......... 957,500
United Artists, Inc.,
Sr. Sec. Notes,
Ba3 1,000(b) 11.50%, 5/1/02.......... 1,072,500
-----------
3,327,688
-----------
Miscellaneous Services--2.2%
Neodata Services, Inc.,
Sr. Def'd. Cpn. Notes,
Ser. B,
Zero Coupon (until
5/1/96),
B3 750 12.00%, 5/1/03........ 667,500
United Stationers Supply
Co.,
Sr. Sub. Notes,
B3 1,000 12.75%, 5/1/05.......... 1,050,000
-----------
1,717,500
-----------
Paper, Packaging & Forest
Products--9.6%
Domtar, Inc.,
Notes,
Ba1 750(b) 12.00%, 4/15/01......... 858,750
Sr. Notes,
Ba1 250(b) 11.75%, 3/15/99......... 274,687
Gaylord Container Corp.,
Sr. Sub. Disc. Notes,
Zero Coupon (until
5/15/96),
Caa 1,610 12.75%, 5/15/05....... 1,601,950
Indah Kiat International
Finance Co.,
Sr. Sec. Notes, Ser.
C,
12.50%, 6/15/06
Ba3 1,000(h) (Indonesia)........... 1,015,000
Mail Well Envelope
Corp.,
Sr. Sub. Notes,
B3 250(b) 10.50%, 2/15/04......... 240,000
Mail Well Holding, Inc.,
Sr. Notes,
Zero Coupon (until
2/15/00),
NR 900 11.75%, 2/15/06....... 562,500
- ----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
Malette, Inc.,
Sr. Sec. Notes,
Ba3 $ 1,000 12.25%, 7/15/04......... $ 1,110,000
Stone Consolidated
Corp.,
Sr. Sec. Notes,
10.25%, 12/15/00
B1 500(h) (Canada).............. 527,500
Stone Container Corp.,
Sr. Notes,
B1 750(b) 12.625%, 7/15/98........ 817,500
Williamhouse Regency
Delaware, Inc.,
Sr. Sub. Deb.,
B2 500(b) 11.50%, 6/15/05......... 502,500
-----------
7,510,387
-----------
Publishing--3.9%
Big Flower Press, Inc.,
Sr. Sub. Notes,
B3 1,000(b) 10.75%, 8/1/03.......... 1,010,000
Sullivan Graphics, Inc.,
Sr. Sub. Notes,
Caa 1,000 15.00%, 2/1/00.......... 1,060,000
Sr. Sub. Notes,
Caa 1,000 12.75%, 8/1/05.......... 996,500
-----------
3,066,500
-----------
Restaurants--1.4%
Flagstar Corp.,
Sr. Notes,
B2 675(b) 10.75%, 9/15/01......... 624,375
B2 500 10.875%, 12/1/02........ 457,500
-----------
1,081,875
-----------
Retail--1.6%
Apparel Retailers, Inc.
Sr. Disc. Deb., Ser.
B,
Zero Coupon (until
8/15/98),
Caa 500 12.75%, 8/15/05....... 305,000
Pier 1 Imports, Inc.,
Sub. Deb.,
B1 211(c) 11.50%, 7/15/03......... 218,385
Specialty Retailers,
Inc.,
Sr. Sub. Notes,
B3 750(b) 11.00%, 8/15/03......... 705,000
-----------
1,228,385
-----------
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
<S> <C> <C> <C>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
Steel & Metals--4.9%
Geneva Steel Co.,
Sr. Notes,
B1 $ 75 11.125%, 3/15/01........ $ 63,000
Horsehead Industries,
Inc.,
Sub. Notes,
B2 500 14.00%, 6/1/99.......... 510,000
Kaiser Aluminum &
Chemical Corp.,
Sr. Notes,
B1 500 9.875%, 2/15/02......... 495,000
Sr. Sub. Notes,
B2 1,250(b) 12.75%, 2/1/03.......... 1,362,500
Tubos De Aceros De
Mexico S A,
13.75%, 12/8/99
NR 500(h) (Mexico).............. 490,000
Ucar Global Enterprises,
Inc.,
Sr. Sub. Notes,
B2 400(b) 12.00%, 1/15/05......... 448,000
W C I Steel, Inc.,
Sr. Notes,
B1 500(b) 10.50%, 3/1/02.......... 490,000
-----------
3,858,500
-----------
Supermarkets--9.4%
Dominicks Finer Foods,
Inc.,
Sr. Notes,
B3 1,000(b) 10.875%, 5/1/05......... 1,005,000
Farm Fresh, Inc.,
Sr. Notes,
B2 750(b) 12.25%, 10/1/00......... 648,750
Pathmark Stores, Inc.,
Sub. Notes,
B3 500(b) 12.625%, 6/15/02........ 535,000
Sr. Sub. Notes,
B3 750(b) 9.625%, 5/1/03.......... 746,250
Penn Traffic Co.,
Sr. Notes,
Ba3 250 10.65%, 11/1/04......... 240,000
Sr. Sub. Notes,
B2 2,000(c) 9.625%, 4/15/05......... 1,645,000
Pueblo Xtra
International, Inc.,
Sr. Notes,
B2 1,000 9.50%, 8/1/03........... 960,000
- ----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
Ralphs Grocery Co.,
Sr. Notes,
B1 $ 500 10.45%, 6/15/04......... $ 488,750
B3 1,000(b) 13.75%, 6/15/05......... 1,050,000
-----------
7,318,750
-----------
Technology--3.5%
Anacomp, Inc.,
Sr. Disc. Notes,
Ca 1,000(b)(d) 15.00%, 11/1/00......... 720,000
Dictaphone Corp.,
Sr. Sub. Notes,
B3 1,000 11.75%, 8/1/05.......... 990,000
Waters Corp.,
Sr. Sub. Notes,
NR 985 12.75%, 9/30/04......... 1,051,488
-----------
2,761,488
-----------
Telecommunications--7.6%
Cellnet Data Systems,
Inc.,
Sr. Disc. Notes,
(cost $546,366;
purchase date--7/6/95)
Zero Coupon (until
6/15/00),
NR 1,000(e)(g) 13.00%, 6/15/05....... 560,000
Cencall Communications
Corp.,
Sr. Disc. Notes,
Zero Coupon (until
1/15/99),
Caa 500 10.125%, 1/15/04...... 250,000
Centennial Cellular
Corp.,
Sr. Notes,
B2 750 10.125%, 5/15/05........ 742,500
Dial Call
Communications, Inc.,
Sr. Disc. Notes,
Zero Coupon (until
4/15/99),
Caa 1,000 12.250%, 4/15/04...... 515,000
Intelcom Group USA,
Inc.,
Sr. Disc. Notes,
Zero Coupon (until
9/15/00),
NR 2,000(g) 13.50%, 9/15/05....... 1,092,500
Intermedia
Communications, Inc.,
Sr. Notes,
B3 750(g) 13.50%, 6/1/05.......... 785,625
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
<S> <C> <C> <C>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
Telecommunications (cont'd)
Pagemart Nationwide,
Inc.,
Sr. Disc. Notes,
Zero Coupon (until
11/1/98),
NR $ 1,000 12.25%, 11/1/03....... $ 655,000
Zero Coupon (until
2/1/00),
NR 1,000 15.00%, 2/1/05........ 595,000
Paging Network, Inc.,
Sr. Sub. Notes,
B2 750(c) 10.125%, 8/1/07......... 757,500
-----------
5,953,125
-----------
Textiles--2.1%
Forstmann Textiles,
Inc.,
Sr. Sub. Notes,
B3 1,135(c) 14.75%, 4/15/99......... 1,180,400
Westpoint Stevens, Inc.,
Sr. Sub. Deb.,
B3 500(b) 9.375%, 12/15/05........ 482,500
-----------
1,662,900
-----------
Waste Management--0.2%
Clean Harbors, Inc.,
Sr. Notes,
B2 150 12.50%, 5/15/01......... 129,000
-----------
Total bonds
(cost $94,299,086).... 93,779,505
-----------
Shares COMMON STOCKS--0.4%
----------
Building & Related Industries
Walter Industries,
532(f) Inc................... 7,448
Conglomerates
Thermadyne Industries,
2,660(f) Inc................... 48,379
Paper, Packaging & Forest Products
Mail Well Holding,
4,500(f) Inc.,................. 193,500
Retail
Thrifty Payless, Inc.,
9,500 Class C............... 35,625
Telecommunications
Pagemart Nationwide,
3,500(f) Inc................... 33,250
-----------
Total common stocks
(cost $654,249)....... 318,202
-----------
- ----------------------------------------------------------
Value
Shares Description (a) (Note 1)
- ----------------------------------------------------------
PREFERRED STOCKS--0.2%
Supermarkets--0.2%
Supermarkets General
Holdings Corp.,
14.08% (cost
5,000 $112,500)............. $ 145,000
-----------
Warrants WARRANTS(f)--0.1%
----------
Automotive Parts
Foamex JPS Automotive
L.P.,
1,000 expiring 7/1/99......... 10,000
-----------
Building & Related Industries
Miles Homes, Inc.,
6,000 expiring 4/1/97......... 3,000
-----------
Energy
Empire Gas Corp.,
690 expiring 7/15/04........ 690
-----------
Gaming
Casino America, Inc.,
3,263 expiring 11/15/96....... 16,315
Casino Magic Finance
Corp.,
4,500 expiring 10/14/96....... 225
Sam Houston Race Park,
Ltd.
2,000 expiring 7/15/99...... 200
-----------
16,740
-----------
Telecommunications--0.1%
Dial Page, Inc.
1,000 expiring 4/25/97........ 1,500
Pagemart Nationwide,
Inc.,
4,600 expiring 12/31/03....... 28,750
-----------
30,250
-----------
Total warrants
(cost $16,899)........ 60,680
-----------
Total long-term
investments
(cost $95,082,734).... 94,303,387
-----------
Principal
Amount
(000) SHORT-TERM INVESTMENTS--1.8%
----------
Joint Repurchase
Agreement
Account,
5.82%, 9/1/95,
(cost $1,436,000; Note
$ 1,436 4).................... 1,436,000
-----------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
<PAGE>
<TABLE>
- ----------------------------------------------------------
<CAPTION>
Value
Description (a) (Note 1)
<S> <C> <C> <C>
- ----------------------------------------------------------
Total
Investments--122.3%
(cost $96,518,734; Note
3).................... $95,739,387
Liabilities in excess of
other
assets--(22.3%)....... (17,484,775)
-----------
Net Assets--100%........ $78,254,612
-----------
-----------
</TABLE>
- ------------------
(a) The following abbreviations are used in portfolio descriptions:
NR--Not rated by Moody's or Standard & Poor's.
(b) Total segregated as collateral for line of credit.
Aggregate value of segregated
securities--$31,805,876; (Note 5).
(c) Portion of security segregated as collateral for
line of credit. Aggregate value of segregated
securities--$8,366,768; (Note 5).
(d) Issue in Default.
(e) Indicates a security restricted as to resale; the
aggregate cost of such securities is $1,914,933.
The aggregate value $1,741,840 is approximately
2.2% of net assets.
(f) Non-income producing securities.
(g) Consists of more than one class of securities
traded together as a unit; generally bonds with
attached stock or warrants.
(h) US $ Denominated Bonds.
See Notes to Financial Statements.
10
<PAGE>
- ----------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Statement of Assets and Liabilities
August 31, 1995
- ----------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost
$96,518,734).......................... $95,739,387
Cash.................................... 387
Interest receivable..................... 2,233,809
Receivable for investments sold......... 976,528
Prepaid expenses and other assets....... 15,563
-----------
Total assets...................... 98,965,674
-----------
Liabilities
Loan payable (Note 5)................... 20,000,000
Payable for investments purchased....... 276,573
Accrued expenses........................ 166,876
Loan interest payable................... 116,597
Dividends payable....................... 55,423
Due to Manager.......................... 48,242
Deferred trustees' fees................. 47,351
-----------
Total liabilities................. 20,711,062
-----------
Net Assets.............................. $78,254,612
-----------
-----------
Net assets were comprised of:
Common stock, at par.................. $ 109,894
Paid-in capital in excess of par...... 99,612,746
-----------
99,722,640
Distributions in excess of net
investment income................... (55,423)
Accumulated net realized loss on
investments......................... (20,633,258)
Net unrealized depreciation on
investments......................... (779,347)
-----------
Net assets, August 31, 1995........... $78,254,612
-----------
-----------
Net asset value and redemption price per
share ($78,254,612 / 10,989,396 shares
of common stock issued and
outstanding).......................... $7.12
-----------
-----------
</TABLE>
- ----------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Statement of Operations
Year Ended August 31, 1995
- ----------------------------------------------------------
<TABLE>
<S> <C>
Net Investment Income
Income
Interest............................... $11,524,117
Dividends.............................. 228,348
-----------
11,752,465
-----------
Expenses
Management fee......................... 535,901
Custodian's fees and expenses.......... 120,000
Reports to shareholders................ 102,000
Audit fee and expenses................. 55,000
Transfer agent's fees and expenses..... 55,000
Trustees' fees and expenses............ 40,000
Registration fees...................... 26,000
Insurance.............................. 17,000
Legal fees and expenses................ 15,000
Miscellaneous.......................... 3,987
-----------
Total operating expenses............. 969,888
Loan interest expense (Note 5)......... 1,347,118
-----------
Total expenses....................... 2,317,006
-----------
Net investment income.................... 9,435,459
-----------
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on investment
transactions........................... (4,726,600)
Net change in unrealized
appreciation/depreciation on
investments............................ 3,885,185
-----------
Net loss on investments.................. (841,415)
-----------
Net Increase in Net Assets
Resulting from Operations................ $ 8,594,044
-----------
-----------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
11
<PAGE>
<PAGE>
- ----------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Statement of Cash Flows
Year Ended August 31, 1995
- ----------------------------------------------------------
<TABLE>
<S> <C>
Increase (Decrease) in Cash
Cash flows provided from operating
activities:
Interest and dividends received
(excluding
discount amortization of
$1,862,741)........................ $ 10,008,437
Operating expenses paid.............. (894,998)
Loan interest paid................... (1,325,729)
Purchases of short-term portfolio
investments, net................... (793,000)
Purchases of long-term portfolio
investments........................ (100,650,895)
Proceeds from disposition of
long-term
portfolio investments.............. 102,516,784
Deferred expenses.................... 545
----------------
Net cash provided from operating
activities......................... 8,861,144
----------------
Cash flows used for financing
activities:
Cash dividends paid (excluding
reinvestment of dividends of
$659,121).......................... (8,862,474)
----------------
Net decrease in cash................... (1,330)
Cash at beginning of period............ 1,717
----------------
Cash at end of period.................. $ 387
----------------
----------------
Reconciliation of Net Increase in Net Assets
to Net Cash Provided from Operating Activities
Net increase in net assets resulting
from operations...................... $ 8,594,044
----------------
Increase in investments................ (351,484)
Net realized loss on investment
transactions......................... 4,726,600
Net change in net unrealized
appreciation/depreciation on
investments.......................... (3,885,185)
Increase in receivable for investments
sold................................. (562,153)
Decrease in interest receivable........ 118,713
Decrease in deferred expenses and other
assets............................... 545
Increase in payable for investments
purchased............................ 123,785
Increase in accrued expenses and other
liabilities.......................... 96,279
----------------
Total adjustments.................... 267,100
----------------
Net cash provided from operating
activities....................... $ 8,861,144
----------------
----------------
</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 1995 1994
----------------- ---------------
Net investment income..... $ 9,435,459 $ 9,564,848
<S> <C> <C>
Net realized gain (loss)
on investment
transactions............ (4,726,600) 1,939,634
Net change in unrealized
appreciation/depreciation
of investments.......... 3,885,185 (7,045,586)
----------------- ---------------
Net increase in net assets
resulting from
operations.............. 8,594,044 4,458,896
Dividends paid to
shareholders from net
investment income......... (9,435,459) (9,945,260)
Dividends paid to
shareholders in excess of
net investment income..... (88,374) (485,187)
Net asset value of shares
issued to shareholders in
reinvestment of
dividends................. 659,121 708,165
----------------- ---------------
Total decrease.............. (270,668) (5,263,386)
Net Assets
Beginning of year........... 78,525,280 83,788,666
----------------- ---------------
End of year................. $78,254,612 $ 78,525,280
----------------- ---------------
----------------- ---------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
12
<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'').
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 (payment-in-kind)
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: The Fund accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. For the year ended
August 31, 1995, the effect caused by this statement was to decrease paid-in
capital in excess of par by $86,137 and increase undistributed net investment
income by
13
<PAGE>
<PAGE>
$86,137. 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 (``Prudential'').
Note 3. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the year ended August
31, 1995 aggregated $99,766,934 and $102,850,126, respectively.
The cost basis of investments for federal income tax purposes at August 31,
1995 was $96,539,984 and net unrealized depreciation including short-term
investments, for federal income tax purposes was $800,597 (gross unrealized
appreciation-$2,631,909; gross unrealized depreciation-$3,432,506).
The Fund had a capital loss carryforward as of August 31, 1995 of
approximately $16,088,300 of which $514,200 expires in 1998, $6,419,700 expires
in 1999, $8,891,400 expires in 2000 and $263,000 expires in 2003. Accordingly,
no capital gains distribution is expected to be paid to shareholders until net
realized gains have been realized in excess of such amounts.
The Fund will elect to treat net capital losses of approximately $4,523,700
incurred in the ten months period ended August 31, 1995 as having been incurred
in the following fiscal year.
Note 4. Joint The Fund, along with other
Repurchase affiliated registered invest-
Agreement Account ment companies, transfers
uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or federal agency
obligations. As of August 31, 1995, the Fund had a 0.18% undivided interest in
the repurchase agreements in the joint account. The undivided interest for the
Fund represented $1,436,000 in principal amount. As of such date, each
repurchase agreement in the joint account and the collateral therefor was as
follows:
Barclays de Zoete, 5.85%, in the principal amount of $100,000,000 repurchase
price $100,016,250, due 9/1/95. The value of the collateral including accrued
interest is $102,000,840.
Bear, Stearns & Co., 5.82%, in the principal amount of $240,000,000
repurchase price $240,038,800, due 9/1/95. The value of the collateral including
accrued interest is $245,325,326.
BT Securities Corp., 5.80%, in the principal amount of $40,000,000 repurchase
price $40,006,444, due 9/1/95. The value of the collateral including accrued
interest is $40,859,047.
CS First Boston, 5.81%, in the principal amount of $240,000,000 repurchase
price $240,038,733, due 9/1/95. The value of the collateral including accrued
interest is $244,888,109.
Goldman Sachs & Co., 5.80%, in the principal amount of $88,139,000 repurchase
price $88,153,200, due 9/1/95. The value of the collateral including accrued
interest is $89,901,854.
Smith Barney Inc., 5.82%, in the principal amount of $100,000,000 repurchase
price $100,016,167, due 9/1/95. The value of the collateral including accrued
interest is $102,000,070.
Note 5. Borrowings The Fund has 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 point over the Federal Funds rate.
The average daily balance outstanding and the maximum face amount of
borrowings outstanding at any month end for the year ended August 31, 1995 was
$20,000,000 at a weighted average interest rate of 6.6%.
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, 1995.
During the fiscal years ended August 31, 1995 and 1994 the Fund issued 92,070
and 89,141 shares, respectively, in connection with the reinvestment of
dividends.
14
<PAGE>
<PAGE>
Note 7. Dividends On September 1 and October
and Distributions 2, 1995 the Board of Directors
of the Fund declared dividends of $.0725 per share
payable on September 29 and October 31, respectively, to shareholders of record
on September 13 and October 13, 1995, respectively.
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, 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
November 30, 1994 2,921,772 2,392,424 .22 (4,432,809)
(.40) (2,040,385) (.18)
February 28, 1995 2,953,281 2,395,980 .22 1,200,534
.11 3,596,514 .33
May 31, 1995 2,999,431 2,406,218 .22 2,467,225
.22 4,873,443 .44
August 31, 1995 2,877,981 2,240,837 .20 (76,365)
(.01) 2,164,472 .19
<CAPTION>
Dividends
and Share
Quarterly distributions price
period ended Amount Per share High Low
<S> <C> <C> <C> <C>
- ------------------ ------------------------ ------------
November 30, 1993 $2,488,477 $ .2300 8 1/2 8 1/8
February 28, 1994 3,046,577 .2800 9 1/8 8 3/8
May 31, 1994 2,526,830 .2300 9 1/8 7 3/4
August 31, 1994 2,368,563 .2100 8 1/2 7 3/4
November 30, 1994 2,373,295 .2100 8 7
February 28, 1995 2,377,311 .2200 7 5/8 6 7/8
May 31, 1995 2,383,098 .2200 8 7 3/8
August 31, 1995 2,390,129 .2200 8 7 3/4
</TABLE>
15
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
- -------------------------------------------------------
1995 1994
1993 1992 1991
<S> <C> <C>
<C> <C> <C>
-------
- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year(a)...................... $ 7.21 $
7.75 $ 7.46 $ 6.84 $ 6.79
-------
- ------- ------- ------- -------
Net investment income...................................... .86
.87 1.01 .90 .90
Net realized and unrealized gain (loss) on investments..... (.08)
(.46) .18 .62 .08
-------
- ------- ------- ------- -------
Total from investment operations......................... .78
.41 1.19 1.52 .98
-------
- ------- ------- ------- -------
Dividends paid to shareholders from net investment
income................................................... (.87)
(.91) (.90) (.90) (.90)
Distributions to shareholders in excess of net investment
income................................................... --
(.04) -- -- --
Return of capital distributions............................ --
- -- -- -- (.03)
-------
- ------- ------- ------- -------
Total dividends and distributions........................ (.87)
(.95) (.90) (.90) (.93)
-------
- ------- ------- ------- -------
Net asset value, end of year(a)............................ $ 7.12 $
7.21 $ 7.75 $ 7.46 $ 6.84
-------
- ------- ------- ------- -------
-------
- ------- ------- ------- -------
Market price per share, end of year(a)..................... $ 8.00 $
8.00 $ 8.75 $ 7.75 $ 6.63
-------
- ------- ------- ------- -------
-------
- ------- ------- ------- -------
TOTAL INVESTMENT RETURN(b)................................. 12.84%
3.21% 26.80% 31.79% 34.15%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).............................. $78,255
$78,525 $83,789 $80,007 $73,080
Average net assets (000)................................... $76,345
$83,241 $80,747 $77,579 $67,388
Ratio of expenses to average net assets.................... 3.03%
2.29% 2.20% 1.55% 1.39%
Ratio of net investment income to average net assets....... 12.36%
11.49% 13.47% 12.35% 14.23%
Portfolio turnover rate.................................... 106%
79% 83% 74% 72%
Asset coverage............................................. 491%
493% 519% 500% --
Total debt outstanding at year end (000)................... $20,000
$20,000 $20,000 $20,000 --
</TABLE>
- ---------------
(a) NAV and market value are published in The Wall Street Journal each Monday.
(b) 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
closing market price on the last day of each period reported. Dividends
are assumed, for purposes of this calculation, to be reinvested at prices
obtainable under the Fund's dividend and reinvestment plan. This amount
does not reflect brokerage commissions.
See Notes to Financial Statements.
16
<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, 1995, 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, 1995 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 24, 1995
17
<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.
18
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Directors
Eugene C. Dorsey
Donald D. Lennox
Richard A. Redeker
Stanley E. Shirk
Robin B. Smith
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
Stephen M. Ungerman, Assistant 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
429904105
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