Letter to
Shareholders
April 2, 1996
Dear Shareholder:
Performance At A Glance.
In the past six months, receding inflation fears, a slower economy and
rising corporate profits helped high yield bond investors earn solid
total returns. We're pleased that shareholders of the High Yield Income
Fund, Inc. enjoyed better returns than shareholders of the average high
yield bond fund over the six months ended February 29, 1996, as measured
by Lipper Analytical Services.
<TABLE>
FUND'S PERFORMANCE
As of 2/29/96
<CAPTION>
Total Return Total Return NAV Market
Price
6 months 12 months 2/29/96 2/29/96
<S> <C> <C> <C> <C>
High Yield 9.3% 19.4% $7.36 $7.75
Income Fund1
Lipper Closed-End 8.6% 18.3% N/A N/A
High Current Yield Avg.2
Lipper Open-End 7.3% 16.2% N/A N/A
High Current Yield Avg.3
</TABLE>
1Source: Prudential Mutual Fund Management, Inc. Total return of the Fund
represents the change in net asset value from the beginning of the period
(9/1/95) through the end of the period (2/29/96) and assumes the
reinvestment of dividends and distributions. Shares of the Fund are
traded on the NYSE using the symbol HYI. Past performance is no guarantee
of future results.
2Source: Lipper Analytical Services, Inc. These are the average returns
of 16 funds in the closed end, high current yield category for one year.
3Source: Lipper Analytical Services, Inc. These are the average returns
of 128 funds in the open end, high current yield category for one year.
YOUR DIVIDENDS
As of 2/29/96
Total Monthly Dividends Paid Per Share
6 months 12 months
$0.42 $0.86
1
<PAGE>
The Fund seeks high current income primarily by investing in corporate
bonds rated BBB or lower by independent rating agencies. Below investment
grade bonds, commonly known as "junk bonds," are subject to greater risk
of default than investment grade bonds. The Fund is diversified
and we carefully research companies to find those with attractive yields
and improving credit quality.
About Your Dividend.
While falling interest rates raise
bond fund prices, they also reduce
fund income. We generally focus
on bonds rated single-B, which
we believe is a more prudent
approach in a slow growth economy.
But, these bonds typically provide
less income than bonds with the lowest
credit ratings. Since our Fund's
income has fallen, we were required
to lower the dividend rate. The first
dividend payment using the new rate
was on January 31. The new monthly
dividend rate is 6.5 cents. The old
monthly rate was 7.25 cents.
Our Strategy.
After plummeting in early 1995, the yield of the 10-year U.S. Treasury bond
edged about a quarter of a percentage point lower over the past six
months. Falling interest rates are generally good for bond funds
because bond prices are pushed higher. They also signal a slowing
economy, which concerns high yield bond investors. If the economy
grows too slowly, some corporations will find it more difficult to
pay the interest on their bonds, increasing the potential for default.
Considering this environment, we bought stronger single-B rated bonds.
They are still junk bonds -- last year they yielded between 8.8% and
9.3%, more than three full percentage points higher than the 10-year
U.S. Treasury bond. But, we believed that they were among the better
investment opportunities in the below-investment grade companies in
the market. We found these bonds in several industries, including
gaming, cable, telecommunications and health care. These types of
companies provide services and products that tend to remain in
strong demand regardless of the economic climate.
Our focus on single-B rated bonds did not prevent us from purchasing
select bonds with even higher yields and lower credit quality -- when
we felt comfortable with their underlying businesses. For example, we
bought bonds issued by several companies that provide local telephone
service, directly competing with the regional Bell telephone companies.
We thought that some of those businesses might be eventually acquired
by a Bell company, which would likely increase the bonds' prices. In
the meantime, these bonds yield in excess of 12%.
2
<PAGE>
What Went Well.
Our focus on single-B rated bonds improved the Fund's overall credit
quality and helped defend it against falling prices when interest
rates started to rise. Our ability to find bonds that were priced
attractively also helped. Here are two examples of companies that
provided current return in addition to appreciation potential:
- -- Revlon: For some time, we had expected a turnaround at Revlon. Last
year, the cosmetics company lived up to our expectations, as cash flow
increased 20% each quarter. Much of the company's success was the
result of new products, such as ColorStay Lipstick, which had a leading
market share only a year after its introduction. As a result of its
improving operations, Revlon has issued stock through an initial
public offering, which has lifted the price of its bonds.
- -- Trump Taj Mahal: We decided to purchase Trump Taj Mahal bonds
beginning last June, when they were trading at a significant discount.
We believed they would recover since the Trump Taj Mahal is the premier
casino property in Atlantic City, New Jersey. We also thought the
gaming industry would benefit from plans to build a new casino
in the area. Other investors felt the same way and our Trump bonds
appreciated substantially. Trump bonds were approximately 2.1% of
net assets.
And Not So Well.
We've found that high yield bond issuers face their greatest period
of financial stress in the two-to-three years after the initial
issuance. Since an exceptionally large number of high yield bonds
were issued in 1992 and 1993 (when interest rates fell sharply), we
expected an increase in the default rate in 1995. What we
didn't expect was to own some of these defaulted issues. But we did:
- -- Anacomp: This leading provider of micrographics systems, supplies
and services was forced to file for reorganization under Chapter 11 of
the federal bankruptcy laws because of lower than expected sales of
its core communications system and an aggressive capital structure.
- -- Forstmann Textile: This manufacturer of wool fabric (for use in
men's and women's clothing) suffered from the warm winter of 1994-95,
high wool prices, a baseball strike (which hurt its hat business), and
a lackluster apparel market. Although we were aware of this challenging
business environment, we were unable to sell our holdings prior to default.
3
<PAGE>
Looking Ahead.
In 1996, we expect continued slow economic growth without recession and
a further modest decline in interest rates -- a healthy climate for
bonds. Although U.S. Treasurys and stocks stumbled a bit in February,
we expect that high yield bonds could do well if they resume their climb.
Under this scenario, we think that high yield bond investors should earn
their coupon income, plus perhaps some slight price appreciation.
However, we are also concerned about a decline in the credit quality
of some of the weaker high yield companies. We cannot ignore that a
slow-growing economy may not stimulate enough sales for less creditworthy
companies -- the types that often issue high yield bonds. We'll try to
focus on healthier companies.
We do expect the high yield bond default rate in 1996 to increase, as it
did in 1995. Therefore, we will continue to carefully scrutinize our
holdings and seek to avoid bonds of companies that are most prone to
weakening credit quality.
Sincerely,
Lars M. Berkman
Co-Manager
Michael A. Snyder
Co-Manager
Richard A. Redeker
President
4
<PAGE>
The High
Yield Income
Fund, Inc.
- -------------------------------------------------------------------
Semi-Annual Report
February 29, 1996
<PAGE>
- ----------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Portfolio of Investments
February 29, 1996
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
- ----------------------------------------------------------
<C> <C> <S> <C>
CORPORATE BONDS--118.1%
Aerospace--2.3%
K & F Industries, Inc.,
Sr. Sec'd. Notes,
B1 $ 750(b) 11.875%, 12/1/03........ $ 813,750
Talley Manufacturing &
Technolgy, Inc.,
Sr. Notes,
B2 1,000(c) 10.75%, 10/15/03........ 1,020,000
-----------
1,833,750
-----------
Automotive Parts--7.0%
Exide Corp.,
Sr. Notes,
B1 1,250 10.00%, 4/15/05......... 1,343,750
Foamex JPS Automotive
L.P.,
Sr. Notes,
B2 750(b) 11.125%, 6/15/01........ 750,000
Sr. Sec'd. Disc. Deb.
Ser. B,
Zero Coupon (until
7/1/99),
Caa 1,000 14.00%, 7/1/04........ 580,000
Sr. Sub. Deb.,
B3 500(b) 11.875%, 10/1/04........ 455,000
Harvard Industries,
Inc.,
Sr. Notes,
B3 375 11.125%, 8/1/05......... 391,875
B3 1,125(b) 12.00%, 7/15/04......... 1,209,375
Motor Wheel Corp.,
Sr. Notes, Ser. B,
B3 500(b) 11.50%, 3/1/00.......... 450,000
SPX Corp.,
Sr. Sub. Notes,
B3 500(b) 11.75%, 6/1/02.......... 530,000
-----------
5,710,000
-----------
Broadcasting & Other Media--19.6%
Adelphia Communications
Corp.,
Sr. Notes,
B3 125 12.50%, 5/15/02......... 130,937
Sr. Payment in Kind
Notes, Ser. B,
B3 $ 240 9.50%, 2/15/04.......... $ 210,000
American Telecasting,
Inc.,
Sr. Disc. Notes,
Zero Coupon (until
8/15/00),
NR 1,500 14.50%, 8/15/05....... 982,500
Benedek Broadcasting
Corp.,
Sr. Notes,
B2 1,000(b) 11.875%, 3/1/05......... 1,080,000
Cablevision Systems
Corp.,
B2 665(c) 9.25%, 11/1/05.......... 694,925
CAI Wireless Systems
Inc.,
Sr. Notes,
B3 1,000(b) 12.25%, 9/15/02......... 1,085,000
Century Communications
Corp.,
Sr. Notes,
Ba3 625(b) 9.50%, 3/1/05........... 645,313
Chancellor Broadcasting
Co.,
Sr. Sub. Notes,
B3 315(c) 12.50%, 10/1/04......... 352,800
Comcast Corp.,
Sr. Sub. Deb.,
B1 1,000(b) 9.375%, 5/15/05......... 1,030,000
Continental Cablevision,
Inc.,
Sr. Deb.,
Ba2 1,000(b) 9.50%, 8/1/13........... 1,150,000
Falcon Holdings Inc.,
Sr. Sub. Payment in
Kind Notes,
NR 1,174 11.00%, 9/15/03......... 1,127,064
Heartland Wireless
Communication, Inc.,
Sr. Notes,
B3 500 13.00%, 4/15/03......... 552,500
International Cabletel,
Inc.,
Sr. Notes,
Zero Coupon (until
10/15/98)
B3 500 10.875%, 10/15/03....... 375,000
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
<C> <C> <S> <C>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
- ----------------------------------------------------------
Broadcasting & Other Media (cont'd)
Zero Coupon (until
2/2/01)
B3 $ 1,000 11.50%, 2/1/06.......... $ 590,000
Sr. Notes, Ser. A,
Zero Coupon (until
4/15/00),
B3 950 12.75%, 4/15/05....... 617,500
Lenfest Communications,
Inc.,
Sr. Notes,
Ba3 100 8.375%, 11/1/05......... 99,375
Marcus Cable Operating
Co., L.P.,
Sr. Sub. Disc. Notes,
Zero Coupon (until
2/1/00),
B3 2,250 13.50%, 8/1/04........ 1,687,500
Newcity Communications,
Inc.,
Sr. Sub. Notes,
B3 1,000(b) 11.375%, 11/1/03........ 1,000,000
Rogers Cablesystems,
Inc.,
Sr. Notes,
10.00%, 3/15/05
Ba3 1,000(b)(h) (Canada).............. 1,075,000
United Artists, Inc.,
Sr. Sec'd. Notes,
Ba3 1,000(b) 11.50%, 5/1/02.......... 1,080,000
United Int'l. Holdings,
Inc.,
Sr. Disc. Notes,
B3 500 14.00%, 11/15/99........ 323,750
-----------
15,889,164
-----------
Building & Related Industries--1.6%
Building Material Corp.
of America,
Sr. Notes, Ser. B,
Zero Coupon (until
7/1/99),
B1 1,250 11.75%, 7/1/04........ 943,750
Miles Homes, Inc.,
Sr. Notes,
Caa 500 12.00%, 4/1/01.......... 370,000
-----------
1,313,750
-----------
Casinos--12.1%
Bally's Park Place
Funding, Inc.,
First Mtge. Notes,
Ba3 $ 1,000(b) 9.25%, 3/15/04.......... $ 1,025,000
Boyd Gaming Corp.,
Sr. Sub. Notes, Ser.
B,
B2 1,000(b) 10.75%, 9/1/03.......... 1,057,500
Casino America, Inc.,
First Mtge. Bonds,
B1 1,500 11.50%, 11/15/01........ 1,462,500
Casino Magic Finance
Corp.,
First Mtge. Bonds,
B1 1,000 11.50%, 10/15/01........ 940,000
Empress River Casino
Finance Corp.,
Sr. Notes,
B1 1,000(b) 10.75%, 4/1/02.......... 1,035,000
Grand Casino Inc.,
Ba3 700 10.125%, 12/1/03........ 754,250
Mohegan Tribal Gaming
Auth.,
Sr. Notes,
NR 1,500 13.50%, 11/15/02........ 1,800,000
Trump Taj Mahal Funding,
Inc.,
First Mtg. Payment in
Kind Bonds, Class B,
Caa 970 11.35%, 11/15/99........ 1,001,525
Trumps Castle Funding,
Inc.,
First Mtg. Notes,
Caa 760 11.75%, 11/15/03........ 722,000
-----------
9,797,775
-----------
Chemicals--1.0%
Terra Industries, Inc.,
Sr. Notes,
NR 750 10.50%, 6/15/05......... 828,750
-----------
Conglomerate--3.0%
Interlake Corp.,
Sr. Notes,
B2 1,100(c) 12.00%, 11/15/01........ 1,133,000
Sr. Sub. Deb.,
B3 125(b) 12.125%, 3/1/02......... 118,750
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
<C> <C> <S> <C>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
- ----------------------------------------------------------
Conglomerate (cont'd)
Newflo Corp.,
Sub. Notes,
B3 $ 1,150(b) 13.25%, 11/15/02........ $ 1,196,000
-----------
2,447,750
-----------
Consumer Goods--6.3%
Herff Jones Inc.,
Sr. Sub. Notes,
B2 1,500(b) 11.00%, 8/15/05......... 1,620,000
Hines Horticulture,
Inc.,
Sr. Sub. Notes,
B-* 1,000 11.75%, 10/15/05........ 1,050,000
Knoll Furniture, Inc.,
Sr. Sub. Notes,
B3 500 10.875%, 3/15/06........ 512,500
MacAndrews & Forbes
Group Holdings, Inc.,
Sub. Deb.,
NR 500 13.00%, 3/1/99.......... 500,000
Sub. Notes,
NR 500 12.25%, 7/1/96.......... 502,500
Revlon Consumer Products
Corp.,
Sr. Notes,
B2 500(b) 9.375%, 4/1/01.......... 507,500
Revlon Worldwide Corp.,
Sr. Sec. Disc. Notes,
Ser. B,
B3 475 Zero Coupon, 3/15/98.... 381,781
-----------
5,074,281
-----------
Diversified Industries--2.2%
Fairchild Industries,
Inc.,
Sr. Sec. Notes,
B3 1,125 12.25%, 2/1/99.......... 1,215,000
Terex Corp.,
Sr. Sec'd. Notes,
Caa 630(g) 13.75%, 5/15/02......... 604,800
-----------
1,819,800
-----------
Drugs & Health Care--2.9%
Phar Mor Inc.,
Notes,
B3 750 11.72%, 9/11/02......... 727,500
Tenet Healthcare Corp.,
Sr. Sub. Notes,
Ba3 $ 1,500(b) 10.125%, 3/1/05......... $ 1,655,625
-----------
2,383,125
-----------
Energy--6.7%
Clark USA, Inc.,
Sr. Notes,
B2 625 10.875%, 12/1/05........ 657,812
Empire Gas Corp.,
Sr. Sec. Notes,
Caa 500 7.00%, 7/15/04.......... 445,000
Falcon Drilling, Inc.,
Sr. Notes, Ser. B
Ba3 650 9.75%, 1/15/01.......... 676,000
Sr. Sub. Notes, Ser. B,
NR 500 12.50%, 3/15/05......... 562,500
Gulf Canada Resources,
Ltd.,
Sr. Sub. Deb.,
9.625%, 7/1/05
Ba3 1,000(b)(h) (Canada).............. 1,065,000
KCS Energy, Inc.,
Sr. Notes,
B1 1,000(b) 11.00%, 1/15/03......... 1,037,500
Petroleum Heat & Power,
Inc.,
Sub. Deb.,
B2 1,000(c) 9.375%, 2/1/06.......... 1,000,000
-----------
5,443,812
-----------
Entertainment--1.4%
Cobb Theaters,
Sr. Sec'd. Notes,
B2 100 10.625%, 3/1/03......... 100,000
Plitt Theatres, Inc.,
Sr. Sub. Notes,
B3 1,000(b) 10.875%, 6/15/04........ 1,005,000
-----------
1,105,000
-----------
Financial Services--0.6%
APP Int'l. Finance Co.,
Sec'd. Notes,
Ba3 500(b) 11.75%, 10/1/05......... 490,000
-----------
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
<C> <C> <S> <C>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
- ----------------------------------------------------------
Food & Beverage--4.4%
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........... $ 1,060,970
Fresh Del Monte Produce,
N.V.,
Sr. Notes,
Caa 1,500 10.00%, 5/1/03.......... 1,413,750
PSF Finance L.P.,
Sr. Disc. Notes,
Zero Coupon (until
9/15/96),
NR 1,385 12.00%, 9/15/03....... 1,080,300
-----------
3,555,020
-----------
Leisure & Tourism--5.6%
Courtyard By Marriott,
Ltd.,
Sr. Notes,
B-(i) 1,000 10.75%, 2/1/08.......... 1,010,000
HMC Acquisition
Properties, Inc.,
Sr. Notes,
Ba3 1,500 9.00%, 12/15/07......... 1,500,000
HMH Properties, Inc.,
Sr. Sec'd. Notes,
B1 1,000 9.50%, 5/15/05.......... 1,020,000
Host Marriott Travel
Plazas, Inc.,
Sr. Notes,
B1 1,000 9.50%, 5/15/05.......... 1,000,000
-----------
4,530,000
-----------
Miscellaneous Services--1.4%
United Stationers Supply
Co.,
Sr. Sub. Notes,
NR 1,000 12.75%, 5/1/05.......... 1,130,000
-----------
Paper, Packaging & Forest
Products--6.0%
Gaylord Container Corp.,
Sr. Sub. Disc. Notes,
Zero Coupon (until
5/15/96),
Caa 1,245 12.75%, 5/15/05......... 1,279,238
Ivex Packaging Corp.,
Sr. Sub. Notes,
B3 1,600(c) 12.50%, 12/15/02........ 1,700,000
Stone Consolidated
Corp.,
Sr. Sub. Notes,
10.25%, 12/15/00
Ba1 1,000(h) (Canada).............. 1,070,000
Stone Container Corp.,
Sr. Notes,
B1 $ 750(b) 12.625%, 7/15/98........ $ 791,250
-----------
4,840,488
-----------
Plastic Products--1.3%
Applied Extrusion
Technology, Inc.,
Sr. Notes, Ser. B,
B2 1,000(b) 11.50%, 4/1/02.......... 1,067,500
-----------
Printing--1.2%
Sullivan Graphics Inc.,
Sr. Sub. Notes,
B-* 1,000 12.75%, 8/1/05.......... 1,000,000
-----------
Publishing--0.9%
Big Flower Press, Inc.,
Sr. Sub. Notes,
B2 666(b) 10.75%, 8/1/03.......... 712,620
-----------
Retail--2.6%
Apparel Retailers Inc.,
Sr. Disc. Deb., Ser.
B,
Zero Coupon (until
8/15/98),
Caa 500 12.75%, 8/15/05......... 330,000
Specialty Retailers
Inc.,
Sr. Sub. Notes,
B3 750(b) 11.00%, 8/15/03......... 716,250
Thrifty Payless
Holdings, Inc.,
Sr. Notes,
Caa 1,000 11.625%, 4/15/06........ 1,030,000
-----------
2,076,250
-----------
Steel & Metals--3.5%
Kaiser Aluminum &
Chemical Corp.,
Sr. Sub. Notes,
B2 1,210(b) 12.75%, 2/1/03.......... 1,312,850
Republic Engineered
Steels, Inc.,
First Mtge. Notes,
B2 1,125 9.875%, 12/15/01........ 1,057,500
W C I Steel, Inc.,
Sr. Notes,
B1 500(b) 10.50%, 3/1/02.......... 507,500
-----------
2,877,850
-----------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
<C> <C> <S> <C>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
- ----------------------------------------------------------
Supermarkets--6.7%
Jitnay-Jungle Stores
Inc.,
Sr. Notes,
B2 $ 1,000 12.00%, 3/1/06.......... $ 1,000,000
Pathmark Stores, Inc.,
Sub. Notes,
B3 700 11.625%, 6/15/02........ 693,000
B3 500(b) 12.625%, 6/15/02........ 505,000
Penn Traffic Co.,
Sr. Notes,
Ba3 845(b) 10.375%, 10/1/04........ 836,550
Ba3 850(b) 10.65%, 11/1/04......... 858,500
Ralphs Grocery Co.,
Sr. Sub. Notes,
B3 1,500(c) 13.75%, 6/15/05......... 1,582,500
-----------
5,475,550
-----------
Technology--1.6%
Anacomp, Inc.,
Sr. Disc. Notes,
Ca 600(d) 15.00%, 11/1/00......... 486,000
Waters Technologies
Corp.,
Sr. Sub. Notes,
B* 739 12.75%, 9/30/04......... 827,680
-----------
1,313,680
-----------
Telecommunications--15.7%
Cellnet Data Systems
Inc.,
Sr. Disc. Notes,
Zero Coupon (until
6/15/00),
NR 1,250(g) 13.00%, 6/15/05....... 862,500
Centennial Cellular
Corp.,
Sr. Notes,
B2 750(b) 10.125%, 5/15/05........ 783,750
Clearnet Communications
Inc.,
Sr. Disc. Notes,
Zero Coupon (until
12/15/00),
B3 750(g) 14.75%, 12/15/05...... 435,000
Dial Call
Communications, Inc.,
Sr. Disc. Notes,
Caa 1,000 Zero Coupon, 4/15/04.... 630,000
Dictaphone Corp.,
Sr. Notes,
B3 $ 1,000 11.75%, 8/1/05.......... $ 1,005,000
GST Telecommunications,
Inc.,
Sr. Sub. Disc. Notes,
Zero Coupon (until
12/15/00),
NR 110 13.875%, 12/15/05..... 71,500
Sr. Disc. Notes,
Zero Coupon (until
12/15/00),
NR 880 13.875%, 12/15/05..... 572,000
Intelcom Group USA Inc.,
Sr. Disc. Notes,
Zero Coupon (until
9/15/00),
NR 2,000 13.50%, 9/15/05....... 1,290,000
Intermedia
Communications, Inc.,
Sr. Notes,
B3 750(b) 13.50%, 6/1/05.......... 888,750
Metrocall Inc.,
Sr. Sub. Notes,
B2 1,000(b) 10.375%, 10/1/07........ 1,040,000
Mobilemedia
Communications, Inc.,
Sr. Sub. Notes,
B3 1,000(c) 9.375%, 11/1/07......... 1,032,500
Nextel Communications,
Inc.,
Sr. Disc. Notes,
Zero Coupon (until
9/1/99),
B3 350 11.50%, 9/1/03........ 236,250
Pagemart, Inc.,
Sr. Disc. Notes,
Zero Coupon (until
5/1/99),
NR 1,000 12.25%, 11/1/03....... 750,000
Pagemart Nationwide,
Inc.,
Zero Coupon (until
8/1/00),
NR 1,250 15.00%, 2/1/05........ 837,500
Paging Network, Inc.,
Sr. Sub. Notes,
B2 1,000(b) 10.125%, 8/1/07......... 1,085,000
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
<C> <C> <S> <C>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
- ----------------------------------------------------------
Telecommunications (cont'd)
Pricecellular Wireless
Corp.,
Sr. Disc. Notes,
Zero Coupon (until
10/1/98),
B3 $ 500 12.25%, 10/1/03....... $ 400,000
Winstar Communications
Inc.,
Sr. Notes,
Zero Coupon (until
10/15/00),
NR 950(g) 14.00%, 10/15/05...... 535,135
Sr. Sub. Disc. Notes,
Zero Coupon (until
10/15/00),
NR 475(g) 14.00%, 10/15/05...... 267,567
-----------
12,722,452
-----------
Utilities - Electric & Gas--0.5%
El Paso Electric Co.,
First Mtge. Notes,
Ser. C,
Ba3 250 8.25%, 2/1/03........... 258,125
First Mtge. Notes, Ser.
D,
Ba3 150 8.90%, 2/1/06........... 155,438
-----------
413,563
-----------
Total corporate bonds
(cost $91,908,314).... 95,851,930
-----------
Shares COMMON STOCKS(f)--0.2%
----------
Paper & Packaging--0.2%
Mail Well Holding,
12,784 Inc................... 127,840
Retail
Thrifty Payless, Inc.,
9,500 Class C............... 45,125
Telecommunications
Pagemart Nationwide,
3,500 Inc................... 32,813
-----------
Total common stocks
(cost $24,500)........ 205,778
-----------
PREFERRED STOCKS--4.1%
Broadcasting--1.3%
Chancellor Broadcasting
10,000 Co.................... 1,005,000
-----------
Cable & Pay Television Systems--1.7%
Cablevision Systems
Corp.,
8,763 Series G.............. $ 942,022
Cablevision Systems
Corp.,
4,125 Series L.............. 424,875
-----------
1,366,897
-----------
Publishing--0.9%
K-III Communications
7,500 Corp., Ser.C.......... 746,250
-----------
Utilities - Electric & Gas--0.2%
El Paso Electric Co.,
Payment in Kind, Ser.
1,750 A..................... 183,750
-----------
Total preferred stocks
(cost $3,223,966)..... 3,301,897
-----------
Warrants WARRANTS(f)--0.3%
----------
Automotive Parts
Foamex JPS Automotive
L.P.,
1,000 expiring 7/1/99......... 5,000
-----------
Building & Related Industries
Miles Homes, Inc.,
6,000 expiring 4/1/97......... 1,500
-----------
Cable & Pay Television Systems--0.1%
American Telecasting
Inc.,
1,500 expiring 8/10/00........ 60,000
Heartland Wireless
Communication, Inc.,
3,000 expiring 12/31/00....... 28,500
United Int'l. Holdings,
Inc.,
500 expiring 11/15/99....... 14,500
-----------
103,000
-----------
Casinos
Casino America, Inc.,
3,263 expiring 11/15/96....... 33
Casino Magic Finance
Corp.,
4,500 expiring 10/14/96....... 45
Sam Houston Race Park,
Ltd.
2,000 expiring 7/15/99........ 10,000
-----------
10,078
-----------
Energy
Empire Gas Corp.,
690 expiring 7/15/04........ 1,380
-----------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
<TABLE>
- ----------------------------------------------------------
Value
Warrants Description (a) (Note 1)
<C> <C> <S> <C>
- ----------------------------------------------------------
Telecommunications--0.2%
Dial Call
Communications, Inc.,
1,000 expiring 4/25/99........ $ 10
Intelcom Group USA Inc.,
9,900 expiring 12/31/49....... 99,000
Intermedia
Communications, Inc.,
750 expiring 6/1/00......... 15,000
Pagemart, Inc.,
4,600 expiring 11/1/03........ 27,600
-----------
141,610
-----------
Total warrants
(cost $16,899)........ 262,568
-----------
Total long-term
investments
(cost $95,173,679).... 99,622,173
-----------
Total
Investments--122.7%
(cost $95,173,679; Note
3).................... 99,622,173
-----------
Liabilities in excess of
other
assets--(22.7%)....... (18,436,277)
-----------
Net Assets--100% $81,185,896
-----------
-----------
</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--$35,271,833; (Note 4).
(c) Portion of security segregated as collateral for
line of credit. Aggregate value of segregated
securities--$5,206,538; (Note 4).
(d) Issue in Default.
(e) Indicates a security restricted as to resale.
(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.
(i) Standard & Poor's Rating.
See Notes to Financial Statements.
11
<PAGE>
- ----------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Statement of Assets and Liabilities
Six Months Ended February 29, 1996
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost
$95,173,679)......................... $ 99,622,173
Receivable for investments sold........ 3,534,265
Interest receivable.................... 2,190,278
Prepaid expenses and other assets...... 7,883
------------
Total assets..................... 105,354,599
------------
Liabilities
Bank overdraft......................... 848,778
Loan payable (Note 4).................. 20,000,000
Payable for investments purchased...... 2,866,854
Accrued expenses....................... 194,098
Loan interest payable.................. 100,417
Deferred trustees' fees................ 58,677
Dividends payable...................... 50,120
Due to Manager......................... 49,759
------------
Total liabilities................ 24,168,703
------------
Net Assets............................. $ 81,185,896
------------
------------
Net assets were comprised of:
Common stock, at par................. $ 110,333
Paid-in capital in excess of par..... 99,941,425
------------
100,051,758
Distributions in excess of net
investment income.................. (547,195)
Accumulated net realized loss on
investments........................ (22,767,161)
Net unrealized appreciation on
investments........................ 4,448,494
------------
Net assets, February 29, 1996........ $ 81,185,896
------------
------------
Net asset value and redemption price
per share ($81,185,895 / 11,033,263
shares of common stock issued and
outstanding)......................... $7.36
------------
------------
</TABLE>
- ----------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Statement of Operations
Six Months Ended February 29, 1996
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<S> <C>
Net Investment Income
Income
Interest............................... $ 5,270,259
Dividends.............................. 28,141
-----------
5,298,400
-----------
Expenses
Management fee......................... 275,664
Custodian's fees and expenses.......... 60,000
Reports to shareholders................ 50,000
Audit fee and expenses................. 27,000
Transfer agent's fees and expenses..... 27,000
Trustees' fees and expenses............ 20,000
Registration fees...................... 13,000
Insurance.............................. 8,000
Legal fees and expenses................ 7,000
Miscellaneous.......................... 2,514
-----------
Total operating expenses............. 490,178
Loan interest expense (Note 4)......... 674,965
-----------
Total expenses....................... 1,165,143
-----------
Net investment income.................... 4,133,257
-----------
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on investment
transactions........................... (2,133,903)
Net change in unrealized
appreciation/depreciation on
investments............................ 5,227,841
-----------
Net gain on investments.................. 3,093,938
-----------
Net Increase in Net Assets
Resulting from Operations................ $ 7,227,195
-----------
-----------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
12
<PAGE>
- ----------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Statement of Cash Flows
Six Months Ended February 29, 1996
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<S> <C>
Increase (Decrease) in Cash
Cash flows provided from operating
activities:
Interest and dividends received
(excluding
discount amortization of
$990,776).......................... $ 4,351,155
Operating expenses paid.............. (450,113)
Loan interest paid................... (691,145)
Maturities of short-term portfolio
investments, net................... 1,436,000
Purchases of long-term portfolio
investments........................ (50,884,542)
Proceeds from disposition of
long-term
portfolio investments.............. 49,683,014
Deferred expenses.................... 7,680
----------------
Net cash provided from operating
activities......................... 3,452,049
----------------
Cash flows used for financing
activities:
Cash dividends paid (excluding
reinvestment of dividends of
$329,118).......................... (4,301,214)
----------------
Net decrease in cash................... (849,165)
Cash at beginning of period............ 387
----------------
Cash at end of period.................. $ (848,778)
----------------
----------------
Reconciliation of Net Increase in Net Assets
to Net Cash Provided from Operating Activities
Net increase in net assets resulting
from operations...................... $ 7,227,195
----------------
Increase in investments................ (788,848)
Net realized loss on investment
transactions......................... 2,133,903
Net change in net unrealized
appreciation/depreciation on
investments.......................... (5,227,841)
Increase in receivable for investments
sold................................. (2,557,737)
Decrease in interest receivable........ 43,531
Decrease in deferred expenses and other
assets............................... 7,680
Increase in payable for investments
purchased............................ 2,590,281
Increase in accrued expenses and other
liabilities.......................... 23,885
----------------
Total adjustments.................... (3,775,146)
----------------
Net cash provided from operating
activities....................... $ 3,452,049
----------------
----------------
</TABLE>
- ----------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Statement of Changes
in Net Assets
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
February 29, August 31,
1996 1995
----------------- ---------------
<S> <C> <C>
Increase (Decrease) in Net
Assets
Operations
Net investment income..... $ 4,133,257 $ 9,435,459
Net realized (loss) on
investment
transactions............ (2,133,903) (4,726,600)
Net change in unrealized
appreciation/depreciation
of investments.......... 5,227,841 3,885,185
----------------- ---------------
Net increase in net assets
resulting from
operations.............. 7,227,195 8,594,044
Dividends paid to
shareholders from net
investment income......... (4,133,257) (9,435,459)
Dividends paid to
shareholders in excess of
net investment income..... (491,772) (88,374)
Net asset value of shares
issued to shareholders in
reinvestment of
dividends................. 329,118 659,121
----------------- ---------------
Total increase (decrease)... 2,931,284 (270,668)
Net Assets
Beginning of period......... 78,254,612 78,525,280
----------------- ---------------
End of period............... $81,185,896 $ 78,254,612
----------------- ---------------
----------------- ---------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
13
<PAGE>
- ----------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Notes to Financial Statements
(Unaudited)
- ----------------------------------------------------------
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.
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
14
<PAGE>
<PAGE>
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
ment securities, other than Securities
short-term investments, for the six months ended
February 29, 1996 aggregated $53,474,822 and $52,272,756, respectively.
The cost basis of investments for federal income tax purposes at February 29,
1996 was $95,178,679 and net unrealized appreciation including short-term
investments, for federal income tax purposes was $4,443,494 (gross unrealized
appreciation-$5,658,223; gross unrealized depreciation-$1,214,729).
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.
Note 4. 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 six months ended February 29,
1996 was $20,000,000 at a weighted average interest rate of 6.7%.
Note 5. Capital There are 200 million shares
of $.01 par value common stock authorized.
Prudential owned 11,000 shares of common stock as of February 29, 1996.
During the six months ended February 29, 1996 and the fiscal year ended
August 31, 1995 the Fund issued 43,867 and 92,070 shares, respectively, in
connection with the reinvestment of dividends.
Note 6. Dividends On March 1 and April 1, 1996
the Board of Directors of the and Distributions
Fund declared dividends of $.0650 per share
payable on March 29 and April 30, respectively, to shareholders of record on
March 15 and April 12, 1996, respectively.
15
<PAGE>
- --------------------------------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
Financial Highlights
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended August 31,
February 29,
- -------------------------------------------------------
1996 1995
1994 1993 1992 1991
<S> <C> <C>
<C> <C> <C> <C>
------------ -------
------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period(a)........ $ 7.12 $ 7.21
$ 7.75 $ 7.46 $ 6.84 $ 6.79
------------ -------
------- ------- ------- -------
Net investment income.......................... .38 .86
.87 1.01 .90 .90
Net realized and unrealized gain (loss) on
investments.................................. .28 (.08)
(.46) .18 .62 .08
------------ -------
------- ------- ------- -------
Total from investment operations............. .66 .78
.41 1.19 1.52 .98
------------ -------
------- ------- ------- -------
Dividends paid to shareholders from net
investment income............................ (.42) (.87)
(.91) (.90) (.90) (.90)
Distributions to shareholders in excess of net
investment income............................ -- --
(.04) -- -- --
Return of capital distributions................ -- --
-- -- -- (.03)
------------ -------
------- ------- ------- -------
Total dividends and distributions............ (.42) (.87)
(.95) (.90) (.90) (.93)
------------ -------
------- ------- ------- -------
Net asset value, end of period(a).............. $ 7.36 $ 7.12
$ 7.21 $ 7.75 $ 7.46 $ 6.84
------------ -------
------- ------- ------- -------
------------ -------
------- ------- ------- -------
Market price per share, end of period(a)....... $ 7.75 $ 8.00
$ 8.00 $ 8.75 $ 7.75 $ 6.63
------------ -------
------- ------- ------- -------
------------ -------
------- ------- ------- -------
TOTAL INVESTMENT RETURN(b)..................... 2.45% 12.84%
3.21% 26.80% 31.79% 34.15%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................ $ 81,186 $78,255
$78,525 $83,789 $80,007 $73,080
Average net assets (000)....................... $ 78,786 $76,345
$83,241 $80,747 $77,579 $67,388
Ratio of expenses to average net assets........ 2.97%(c) 3.03%
2.29% 2.20% 1.55% 1.39%
Ratio of net investment income to average net
assets....................................... 10.55%(c) 12.36%
11.49% 13.47% 12.35% 14.23%
Portfolio turnover rate........................ 54% 106%
79% 83% 74% 72%
Asset coverage................................. 506% 491%
493% 519% 500% --
Total debt outstanding at period end (000)..... $ 20,000 $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.
(c) Annualized.
See Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
At an annual shareholder meeting held on December 7, 1995, shareholders
elected Eugene C. Dorsey and Robin B. Smith as Class I directors of the Fund and
also approved the selection of Price Waterhouse LLP as the independent certified
public accountants for the Fund for the fiscal year ending August 31, 1996.
Messers. Stanley E. Shirk, Donald D. Lennox and Richard A. Redeker were not up
for election and their terms, accordingly, continued after the date of such
meeting. The results of the matters voted upon were as follows:
<TABLE>
<CAPTION>
Number of Shares
- -------------------------------------------------
<S> <C> <C> <C> <C>
Withheld
For Authority Against
Abstain
---------- ---------- --------
- --------
Election of Eugene C. Dorsey1 9,346,650 155,559
Election of Robin B. Smith1 9,346,650 155,559
Selection of Price Waterhouse
LLP1 9,354,999 62,205
85,005
</TABLE>
1The number of common shares issued outstanding and eligible to vote were
11,004,087. Quorum was 9,502,209 or 86.35% of eligible voting shares.
17
<PAGE>
- -------------------------------------------------------------------
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
The accompanying financial statements as of February 29, 1996,
were not audited and, accordingly, no opinion is expressed on them.
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
The views expressed in this report and information about the fund
holdings are for the period covered in this report and are subject
to change thereafter.
429904105
