<PAGE>
The High
Yield Income
Fund, Inc.
- -------------------------------------------------------------------
Annual Report
August 31, 1999
<PAGE>
Letter to
Shareholders
October 12, 1999
Dear Shareholder:
Performance At A Glance.
Our fiscal year that ended August 31, 1999, proved to
be a challenging period for fixed-income markets, including
high-yield bonds. Many investors temporarily shunned riskier
assets, such as high-yield bonds, and favored the most
conservative government debt securities after a global
financial crisis worsened during the summer and early
autumn of 1998. This "flight-to-quality" trend reversed,
and money flowed back into high-yield bonds largely because
the Federal Reserve cut a key short-term interest rate three
times in the autumn of 1998 to reassure investors.
However, the Fed changed the course of monetary policy by
increasing this short-term rate twice in the summer of 1999
to slow U.S. economic growth and avoid rising inflation. In
anticipation of these rate hikes, investors drove bond yields
higher (and their prices lower). This trend, along with other
factors, also prompted a renewed sell-off in high-yield bonds.
But despite these volatile market conditions, the High Yield
Income Fund provided an annual return that beat the average
comparable funds as measured by Lipper, Inc. The Fund
performed better than its benchmark for the fiscal year
largely because we maintained a conservative investment
strategy that enabled the Fund to post a strong return
for the first half of our fiscal year.
<TABLE>
FUND'S PERFORMANCE
As of 8/31/99
<CAPTION>
Total Return NAV Market Price
12 months 8/31/99 8/31/99
<S> <C> <C> <C>
High Yield 6.41% $6.62 $6.81
Income Fund1
Lipper Closed-End 2.98% N/A N/A
High Current Yield Avg.2
Lipper Open-End 4.68 N/A N/A
High Current Yield Avg.3
</TABLE>
1Source: Prudential Investments Fund Management L.L.C.
Total return of the Fund represents the change in net
asset value from the beginning of the period (9/1/98)
through the end of the period (8/31/99) 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, Inc. These are the average
returns of 26 funds in the closed-end high current
yield category for six months.
3Source: Lipper, Inc. These are the average returns
of 294 funds in the open-end high current yield category.
1
<PAGE>
YIELD AND DIVIDEND
As of 8/31/99
Total Monthly Dividends Paid Per Share
Total Monthly Dividends
Paid Per Share Yield At Market Price
12 months
$0.72 10.57%
The Fund's primary investment objective is to maximize current
income to shareholders. As a secondary investment objective,
the Fund will seek capital appreciation, but only when
consistent with its primary objective. The Fund will
seek to achieve its objectives by investing primarily
in corporate bonds rated BBB or lower by independent
rating agencies. Bonds rated less than BBB are below
investment grade and are commonly known as "junk bonds".
Below-investment-grade bonds are subject to greater risk
of default and higher volatility than investment-grade
bonds. Furthermore, these bonds tend to be less liquid
than higher-quality bonds. The Fund is well-diversified,
and we carefully research companies to find those with
attractive yields and improving credit quality.
Our Strategy.
Bond markets faced a challenging year...
Two major developments roiled bond markets during our
fiscal year--a world-wide financial crisis followed by
concern that a surprisingly robust U.S. economy, a global
economic recovery, and spiraling oil prices could boost
inflationary pressures. In addition, the high-yield (junk)
bond market had to contend with a growing number of
companies that defaulted, or failed to make timely
interest and principal payments on their debt securities.
...but our conservative investment strategy benefited the Fund.
Amid these difficult market conditions, the Fund provided
an annual return that beat its closed-end benchmark Lipper
Average. The Fund outperformed its benchmark largely
because our conservative investment strategy enabled it
to post a strong return for the first half of our fiscal
year. During that time, the global financial crisis had
spread beyond Asia and fueled fears that the U.S. economy
would also suffer if struggling Asian nations purchased
fewer American-made goods and services. Many investors
reacted to this uncertainty by selling riskier assets,
such as high-yield bonds, and purchasing the safest
government securities, including U.S. Treasuries.
As part of our conservative approach, we emphasized
bonds of domestic industries, such as cable television,
that tend to be less cyclical, have stable cash flows,
and usually perform well even if economic growth slows.
We also focused on fixed-income securities of companies
in telecommunications and media, where the tendency of
stronger corporations to purchase their competitors
benefited bondholders. In addition, the Fund's exposure
to the most
2
<PAGE>
highly rated junk bonds--those in the Ba
ratings category--rose as high as 22% of its total
investments during our fiscal year.
By contrast, the Fund maintained a light exposure to
bonds of metals, autos, and paper companies because
these cyclical industries tend to suffer when the
economy slumps. We also cut back on lower-quality
junk bonds, such as those in the emerging market
sector. Bonds in the Caa ratings category remained
below 5.0% of the Fund's total investments because
they are considered to carry substantial credit risk.
The Fed repeatedly cut a key short-term interest rate.
Market sentiment had turned so bearish during the autumn
of 1998 that the Federal Reserve cut the Federal funds
rate (the rate U.S. banks charge each other for overnight
loans) by a quarter of a percentage point three times,
leaving the rate at 4.75% in November 1998. Lowering
interest rates generally promotes economic growth by
reducing borrowing costs. Therefore, the three
short-term rate cuts helped to restore faith in
the U.S. economy and calm global financial markets.
Many investors, reassured by monetary policy changes,
began to sell Treasuries and buy higher-yielding
assets, including junk bonds. Demand for high-yield
bonds also picked up as it became clear the U.S.
economy was expanding more rapidly than expected
without boosting inflation. Prices of better-quality
junk bonds, such as those in the single-B ratings category,
gained nicely. We were particularly pleased because these
bonds accounted for nearly 70% of the Fund's total
investments during the first half of its fiscal year.
Inflation fears battered bond markets in 1999.
By February 1999, however, many investors were
growing increasingly worried that the powerful
U.S. economic expansion would eventually bolster
inflation, which erodes the value of bonds' fixed
interest payments. To compensate for this risk,
they demanded higher yields, (and lower prices) on
most debt securities, including junk bonds. This
sell-off deepened in the spring of 1999 as it
became clear the Fed would hike short-term rates
to rein in economic growth and avoid higher
inflation. Finally on June 30, 1999, the Fed
increased the Federal funds rate by a quarter
of a percentage point to 5.00%. That move was
followed by a second of the same magnitude on
August 24, 1999, that left the Federal funds
rate at 5.25%. This time the Fed also raised
the discount rate (the rate it charges its
member banks that borrow at the discount
window) to 4.75% from 4.50%.
Junk bonds led other U.S. debt securities.
High-yield bonds, particularly those of a lower
quality, tend to be less affected than most other
fixed-income securities by changes in the level of
interest rates. Largely because of this characteristic,
the high-yield bond market performed better than all
other U.S. debt markets for the 12-month period ended
August 31, 1999, based on Lehman Brothers indexes.
3
<PAGE>
Although interest-rate fluctuations tend not to
have as great an impact on high-yield bonds, junk
bonds are very responsive to changes in the fortunes
of their issuers. Indeed, prices of high-yield bonds
declined in 1999 partly because the junk bond default
rate climbed. Prices of high-yield bonds also fell as
many companies rushed to issue new bonds in the summer
of 1999 to avoid any potential problems that might arise
when computers switch their internal dates to the year
2000. This flood of new debt securities created many
attractive buying opportunities. Among our purchases
were bonds of Allied Waste North America and United
Pan-Europe Communications, which owns and operates
cable television, telephone and Internet/data services
in Israel and various European countries.
Looking Ahead.
High-yield bonds may remain among top performers.
Fear that the robust U.S. economy would boost inflation helped
to ignite the sell-off in the bond markets. Nevertheless, we
believe continued solid economic growth is ultimately positive
for the earnings outlook of companies that issue high-yield
bonds. If the economic expansion remains on track and
interest rates move neither sharply higher nor lower,
we believe junk bonds could remain among the best
performing fixed-income markets in the United States.
High-yield bonds still represent a good investment
opportunity for those looking to diversify their
portfolios with securities that have a low correlation
to trends in other debt and equity markets.
One integrated and expanded team.
I would also like to take this opportunity to tell
you about some changes we've made to our Fixed Income
Group. Earlier in the year, we combined our fixed-income
areas into one integrated group that will manage money
for Prudential's investors and policyholders. This group
now manages approximately $135 billion in assets, making
it one of the three largest fixed-income money managers
in the country. To utilize these resources effectively,
we recently organized the group into teams, each
specializing in a different sector of the fixed-income
market. The High Yield Sector team, headed by Casey
Walsh, is now responsible for the day-to-day management
of the High Yield Income Fund. Many of the investment
professionals who supported the management of the Fund
in the past, including George Edwards who previously
managed the Fund, are part of this new team.
Sincerely,
John R. Strangfeld, President
The High Yield Income Fund, Inc.
4
<PAGE>
Portfolio of Investments as
of August 31, 1999 THE HIGH YIELD INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--119.0%
CORPORATE BONDS--114.6%
- ------------------------------------------------------------------------------------------------------------------------------
Aerospace--1.1%
BE Aerospace, Inc., Sr. Sub. Notes B1 9.50% 11/01/08 $ 150 (a) $ 152,250
K & F Industries, Inc., Sr. Sub. Notes, Ser. B B3 9.25 10/15/07 300 (a) 292,500
Stellex Industries, Inc., Sr. Sub. Notes B3 9.50 11/01/07 500 (a) 385,000
-----------
829,750
- ------------------------------------------------------------------------------------------------------------------------------
Airlines--0.2%
Continental Airlines, Inc., Sr. Notes Ba2 8.00 12/15/05 150 (a) 139,722
- ------------------------------------------------------------------------------------------------------------------------------
Automotive Parts--3.0%
Collins & Aikman Products Co., Sr. Sub. Notes B2 11.50 4/15/06 50 (a) 49,750
Foamex JPS Automotive LP.,
Sr. Notes B1 11.125 6/15/01 250 (a) 251,250
Sr. Sub. Notes B3 9.875 6/15/07 150 (a) 138,000
Hayes Lemmerz International, Inc., Sr. Sub. Notes, Ser.
B B2 8.25 12/15/08 200 (a) 189,500
Lear Corp.,
Sr. Notes Ba1 8.11 5/15/09 500 (a) 495,000
Sr. Notes Ba1 7.96 5/15/05 500 490,000
Paragon Corporate Holdings, Inc., Sr. Notes B3 9.625 4/01/08 250 112,500
Standyne Automotive Corp., Sr. Sub. Notes Caa1 10.25 12/15/07 350 (a) 306,250
Venture Holdings, Sr. Notes B2 9.50 7/01/05 250 233,750
-----------
2,266,000
- ------------------------------------------------------------------------------------------------------------------------------
Building & Products--2.7%
Building Materials Corp., Sr. Notes Ba3 8.00 12/01/08 250 (a) 228,750
Congoleum Corp., Sr. Notes B1 8.625 8/01/08 500 (a) 440,000
Del Webb Corp., Sr. Sub. Deb. B2 9.375 5/01/09 425 (a) 386,750
Falcon Building Products., Inc., Sr. Sub. Disc. Notes,
Zero Coupon
(until 6/15/02), Ser. B B3 10.50 6/15/07 250 171,563
Falcon Holdings Group, L.P., Sr. Disc. Notes, Zero
Coupon
(until 6/15/03) B2 9.285 4/15/10 250 177,500
Nortek, Inc.,
Sr. Notes B1 9.25 3/15/07 250 243,750
Sr. Notes B1 9.125 9/01/07 375 (a) 363,750
-----------
2,012,063
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as
of August 31, 1999 THE HIGH YIELD INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Cable--11.8%
Adelphia Communications Corp.,
Sr. Notes B1 9.25% 10/01/02 $ 225 (a) $ 226,125
Sr. Notes, Payment in Kind (cost $220,313; purchased
- 2/14/97) B1 9.50 2/15/04 85 84,873
Sr. Notes B1 10.50 7/15/04 500 (a) 517,500
Charter Communications Holdings Sr. Notes B2 8.625 4/01/09 500 470,000
Classic Cable, Inc., Sr. Sub. Notes B3 9.375 8/01/09 130 129,675
Coaxial Commerce Central Ohio, Inc., Sr. Notes B3 10.00 8/15/06 250 (a) 251,250
Comcast UK Cable Corp., Sr. Disc. Deb., Zero Coupon
(until 11/15/00) (U.K.) B2 11.20 11/15/07 250 (a)(d) 225,000
CSC Holdings, Inc.,
Sr. Notes, Ser. B Ba2 8.125 8/15/09 200 (a) 194,536
Sr. Sub. Notes B1 9.25 11/01/05 500 (a) 500,000
Sr. Sub. Notes B1 9.875 2/15/13 250 258,750
Diamond Cable Co.,
Sr. Disc. Notes, Zero Coupon (until 12/15/00) (U.K.) B3 11.75 12/15/05 625 (a)(d) 562,500
Sr. Disc. Notes, Zero Coupon (until 2/15/02) (U.K.) B3 10.75 2/15/07 500 (d) 392,500
Intermedia Capital Partners L.P., Sr. Disc. Notes B2 11.25 8/01/06 574 (a) 631,400
International Cabletel, Inc.,
Sr. Disc. Notes, Zero Coupon (until 4/15/00) B3 12.75 4/15/05 250 241,875
Sr. Notes, Ser. B, Zero Coupon (until 2/1/01) B3 11.50 2/01/06 625 (a) 560,937
Lenfest Communications, Inc., Sr. Sub. Notes B2 10.50 6/15/06 500 (a) 573,750
Rogers Cablesystems, Inc., (Canada) Sr. Notes Ba3 10.00 3/15/05 575 (a)(d) 606,625
Telewest Communications, PLC.,
Sr. Disc. Deb., Zero Coupon (until 10/1/00) (U.K.) B1 11.00 10/01/07 300 (d) 264,750
Sr. Disc. Notes, Zero Coupon (until 4/15/04) (U.K.) B1 9.25 4/15/09 200 (d) 122,000
United Int'l. Holdings, Inc., Sr. Sec'd. Disc. Notes,
Zero Coupon (until 2/15/03) B3 10.34 2/15/08 500 290,000
United Pan Europe,
Sr. Disc. Notes, Zero Coupon (until 8/1/04) (NL) B2 12.50 8/01/09 1,095 (d) 602,250
Sr. Notes (NL) B2 10.875 8/01/09 1,130 (d) 1,135,650
-----------
8,841,946
- ------------------------------------------------------------------------------------------------------------------------------
Capital Goods--0.3%
Gentek, Inc., Sr. Sub. Notes B2 11.00 8/01/09 190 193,325
- ------------------------------------------------------------------------------------------------------------------------------
Casinos--0.1%
Aztar Corp., Sr. Sub. Notes B2 13.75 10/01/04 60 (a) 64,800
- ------------------------------------------------------------------------------------------------------------------------------
Chemicals--4.0%
Equistar Chemicals. Inc., Sr. Notes Baa3 8.75 2/15/09 250 (a) 245,745
Huntsman ICI Chemicals, Inc., Sr. Sub. Notes B2 10.125 7/01/09 325 325,812
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as
of August 31, 1999 THE HIGH YIELD INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Chemicals (cont'd.)
Lyondell Chemical Co.,
Sr. Sec'd Notes, Ser. A NR 9.625% 5/01/07 $ 125 $ 125,000
Sr. Sec'd Notes, Ser. B NR 9.875 5/01/07 700 700,000
Polymer Group, Inc., Sr. Sub. Notes B2 9.00 7/01/07 1,000 (a) 950,000
Sterling Chemical Holdings, Inc.,
Sr. Sub. Notes B3 12.375 7/15/06 185 185,000
Sr. Sub. Notes B3 11.75 8/15/06 100 (a) 62,500
ZSC Specialty, Sr. Notes (U.K.) B2 11.00 7/01/09 375 (d) 375,000
-----------
2,969,057
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Products--5.8%
Americredit Corp., Sr. Notes Ba1 9.875 4/15/06 200 (a) 200,500
Corning Consumer Prod. Co., Sr. Sub. Notes B3 9.625 5/01/08 250 (a) 197,500
French Fragrances, Inc.,
Sr. Notes, Ser. B B2 10.375 5/15/07 600 (a) 582,000
Sr. Notes, Ser. B B2 10.375 5/15/07 150 (a) 145,500
Louisiana Petite Academy, Inc., Sr. Notes B3 10.00 5/15/08 250 223,125
Mail Well Corp., Sr. Notes B1 8.75 12/15/08 750 (a) 712,500
Radnor Holdings, Corp., Sr. Notes, Ser. B B2 10.00 12/01/03 500 505,000
Revlon Consumer Prod. Corp., Sr. Notes B2 9.00 11/01/06 500 465,000
Sealy Mattress Co., Sr. Sub. Disc. Notes, Zero Coupon
(until 12/15/02) B3 10.875 12/15/07 125 83,750
United Stationer Supply Co., Sr. Sub. Notes B1 12.75 5/01/05 700 (a) 179,903,625
Windmere Durable Holdings, Inc., Sr. Notes B3 10.00 7/31/08 500 (a) 487,500
-----------
4,361,000
- ------------------------------------------------------------------------------------------------------------------------------
Containers--0.8%
Consolidated Contaniner Co., LLC., Sr. Sub. Notes B2 10.125 7/15/09 90 90,900
Tekni Plex, Inc., Sr. Sub. Notes B3 9.25 3/01/08 550 (a) 530,750
-----------
621,650
- ------------------------------------------------------------------------------------------------------------------------------
Drugs & Health Care--0.6%
Fresenius Medical Care, Trust Pfd. Secs. NR 7.875 2/01/08 500 460,000
- ------------------------------------------------------------------------------------------------------------------------------
Electric Utilities--0.5%
Applied Power, Inc., Sr. Sub. Notes B1 8.75 4/01/09 125 118,125
Calpine Corp. Sr. Notes Ba2 7.75 4/15/09 250 231,250
-----------
349,375
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as
of August 31, 1999 THE HIGH YIELD INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Energy--5.5%
AES Corp.,
Sr. Notes Ba1 9.50% 6/01/09 $ 500 $ 497,500
Sr. Sub. Notes Ba3 10.25 7/15/06 500 (a) 500,000
CMS Energy Corp.,
Sr. Notes Ba3 8.375 7/01/03 750 737,498
Sr. Notes Ba3 7.50 1/15/09 350 320,250
DI Industies, Inc., Sr. Notes B1 8.875 7/01/07 250 (a) 223,125
Great Lakes Carbon Corp., Sr. Sub. Notes, Payment in
Kind
(cost $500,000; purchased - 3/19/98) B3 10.25 5/15/08 500 (a) 482,500
Gulf Canada Resources Ltd., Sr. Sub. Deb. (Canada) Ba2 9.625 7/01/05 375 (a)(d) 386,250
P & L Coal Holdings Corp., Sr. Sub. Notes B2 9.625 5/15/08 1,000 (a) 975,000
-----------
4,122,123
- ------------------------------------------------------------------------------------------------------------------------------
Financial--1.4%
CB Richards Ellis Svcs, Inc., Sr. Sub. Notes Ba3 8.875 6/01/06 400 (a) 382,000
Delta Financial Corp., Sr. Notes B3 9.50 8/01/04 550 (a) 467,500
Meditrust Ba2 7.82 9/10/26 100 89,346
Metris, Inc., Sr. Notes Ba3 10.125 7/15/06 150 142,500
-----------
1,081,346
- ------------------------------------------------------------------------------------------------------------------------------
Food & Beverage--1.6%
Pilgrim's Pride Corp., Sr. Sub. Notes B2 10.875 8/01/03 800 (a) 826,000
PSF Finance, LP., Sr. Sec'd. Notes, Payment in Kind
(cost $324,232; purchased - 3/8/94) NR 11.00 9/17/03 342 (a) 360,879
-----------
1,186,879
- ------------------------------------------------------------------------------------------------------------------------------
Foods--3.2%
Ameriserve Food Distribution, Inc., Sr. Notes B2 8.875 10/15/06 500 (a) 431,250
Borden, Inc., Sr. Notes Ba1 9.20 3/15/21 500 (a) 465,975
Carrols Corp. Sr. Sub. Notes B2 9.50 12/01/08 250 212,500
Cott Corp., Sr. Notes (CA) B1 8.50 5/01/07 500 (a)(d) 455,000
Packaged Ice, Inc., Sr. Notes B3 9.75 2/01/05 500 470,000
Purina Mills, Inc., Sr. Sub. Notes B2 9.00 3/15/10 1,000 (a) 340,000
-----------
2,374,725
- ------------------------------------------------------------------------------------------------------------------------------
Gaming--4.1%
Alliance Gaming Corp. Sr. Sub. Notes, Ser. B B3 10.00 8/01/07 540 (a) 376,650
Casino Magic Corp., Sr. Notes B1 13.00 8/15/03 250 (a) 282,500
Coast Hotels & Casinos, Inc., Sr. Sub. Notes B3 9.50 4/01/09 75 71,250
Harrahs Operating Inc., Sr. Sub. Notes Ba2 7.875 12/15/05 250 238,750
Hollywood Park, Inc., Sr. Sub. Notes, Ser. B B2 9.25 2/15/07 500 485,000
Isle Capri Casinos, Inc., Sr. Notes B3 8.75 4/15/09 250 230,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as
of August 31, 1999 THE HIGH YIELD INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Gaming (cont'd.)
MGM Grand, Inc., Sr. Notes Ba1 6.875% 2/06/08 $ 250 (a) $ 218,750
Mohegan Tribal Gaming Authority,
Sr. Sub. Notes Ba2 8.125 1/01/06 500 (a) 485,000
Sr. Sub. Notes Ba3 8.75 1/01/09 125 122,812
Trump Atlantic City Assocs., First Mtge. Notes B2 11.25 5/01/06 650 (a) 552,500
-----------
3,063,212
- ------------------------------------------------------------------------------------------------------------------------------
Health Care--2.5%
Biovail Corp., Sr. Notes B2 10.875 11/15/05 500 (a) 517,500
Columbia/HCA Healthcare Corp.
Deb. Ba2 7.05 12/01/27 125 (a) 93,281
Deb. Ba2 7.50 11/15/95 75 55,292
Concentra Operating Corp., Sr. Sub. Notes, Ser. A B3 13.00 8/15/09 155 156,550
Expressw Scripts, Inc., Sr. Notes Ba2 9.625 6/15/09 200 203,000
Lifepoint Hospitals Holdings, Inc., Sr. Sub. Notes B3 10.75 5/15/09 150 (a) 75,000
Magellan Health Services, Inc., Sr. Sub. Notes B3 9.00 2/15/08 500 427,500
Triad Hospitals Holdings, Inc., Sr. Sub. Notes B3 11.00 5/15/09 300 300,750
-----------
1,903,873
- ------------------------------------------------------------------------------------------------------------------------------
Home Builder--0.3%
D.R. Horton, Inc., Sr. Notes Ba1 8.00 2/01/09 250 (a) 230,000
- ------------------------------------------------------------------------------------------------------------------------------
Industrials--4.0%
Amphenol Corp., Sr. Sub. Notes B2 9.875 5/15/07 1,000 (a) 995,000
Continental Global Group, Inc., Sr. Notes, Ser. A B2 11.00 4/01/07 250 (a) 167,500
Eagle Picher Industries, Inc., Sr. Sub. Notes B3 9.375 3/01/08 350 (a) 322,000
Motors & Gears, Inc. B3 10.75 11/15/06 500 (a) 492,500
Newcor Inc., Sr. Sub. Notes B3 9.875 3/01/08 45 (a) 40,050
Stena AB, (Sweden) Sr. Notes B1 10.625 6/01/08 165 (d) 122,100
Thermadyne Mfg., Sr. Sub. Notes B3 9.875 6/01/08 500 (a) 412,500
Viasystems, Inc., Sr. Sub. Notes B3 9.75 6/01/07 500 (a) 433,750
-----------
2,985,400
- ------------------------------------------------------------------------------------------------------------------------------
Leisure--1.7%
AMC Entertainment, Inc., Sr. Sub. Notes B3 9.50 2/01/11 260 217,100
Ballys Health & Tennis Corp., Sr. Sub. Notes, Ser. C B3 9.875 10/15/07 500 (a) 481,250
Imax Corp., Sr. Notes (CA) Ba2 7.875 12/01/05 250 234,375
Premier PKS, Inc., Sr. Notes B3 9.75 6/15/07 350 (a) 346,500
-----------
1,279,225
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as
of August 31, 1999 THE HIGH YIELD INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Lodging--2.1%
HMH Properties, Inc., Sr. Sec'd Notes Ba2 7.875% 8/01/08 $ 750 (a) $ 671,250
Host Marriott Travel Plazas, Inc., Sr. Notes Ba3 9.50 5/15/05 900 927,000
-----------
1,598,250
- ------------------------------------------------------------------------------------------------------------------------------
Media--5.3%
Ackerley Group, Inc., Sr. Sub. Notes, Ser. B B2 9.00 1/15/09 250 240,000
American Lawyer Media Holdings,
Sr. Disc. Notes Zero Coupon (until 12/15/02) B3 12.25 12/15/08 300 (a) 190,500
Sr. Sub. Notes B1 9.75 12/15/07 350 (a) 335,125
AMSC Acquisition, Inc., Sr. Notes NR 12.25 4/01/08 100 (a) 77,500
Capstar Radio Broadcasting, Inc., Sr. Sub. Notes B2 9.25 7/01/07 125 126,250
Chancellor Media Corp., Sr. Sub. Notes B1 9.00 10/01/08 500 (a) 497,500
Fox Family Worldwide, Inc., Sr. Notes B1 9.25 11/01/07 60 (a) 56,250
Garden State Sr. Sub. Notes B1 8.625 7/01/11 150 136,125
Grupo Televisa S.A., Sr. Disc. Notes (Mexico)
Zero Coupon (until 5/15/01) Ba2 13.25 5/15/08 175 (d) 145,250
Lamar Media Corp., Sr. Sub. Notes B1 9.625 12/01/06 500 (a) 507,500
Mediacom, LLC., Sr. Notes B2 7.875 2/15/11 500 440,000
Shop At Home, Inc., Sr. Sec'd Notes B1 11.00 4/01/05 25 (a) 24,625
Susquehanna Media Co., Sr. Sub. Notes B1 8.50 5/15/09 500 (a) 495,000
Transwestern Publishing, Co., LP., Sr. Sub. Notes, Ser.
D B2 9.625 11/15/07 250 242,500
World Color Press, Inc.,
Sr. Sub. Notes Caa1 8.375 11/15/08 125 121,406
Sr. Sub. Notes Baa3 7.75 2/15/09 375 363,750
-----------
3,999,281
- ------------------------------------------------------------------------------------------------------------------------------
Metals--3.9%
AEI Resources, Inc, Sr. Sub. Notes Caa1 11.50 12/15/06 100 85,000
AK Steel Corp., Sr. Notes Ba2 9.125 12/15/06 500 (a) 506,250
Allied Waste North America, Inc.,
Sr. Notes Ba3 7.625 1/01/06 500 (a) 455,000
Sr. Notes Ba3 7.875 1/01/09 250 (a) 225,000
Sr. Sub. Notes B2 10.00 8/01/09 900 (a) 866,250
RMI USA, LLC., Sr. Notes (CA) B1 10.00 6/01/09 100 (d) 96,000
Russel Metals, Inc., Sr. Notes (CA) B1 10.00 6/01/09 150 (d) 144,000
UCAR Global Enterprises, Inc., Sr. Sub. Notes B2 12.00 1/15/05 250 (a) 263,750
WHX Corp., Sr. Notes B3 10.50 4/15/05 250 238,750
-----------
2,880,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 10
<PAGE>
Portfolio of Investments as
of August 31, 1999 THE HIGH YIELD INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Miscellaneous--0.9%
Iron Medium, Inc., Sr. Sub. Notes B2 8.25% 7/01/11 $ 500 $ 457,500
Six Flags Entertainment Corp., Sr. Notes B3 8.875 4/01/06 250 241,250
-----------
698,750
- ------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Services--0.4%
Coinstar, Inc., Sr. Sub. Disc. Notes, Zero Coupon
(until 10/1/99) NR 13.00 10/01/06 250 (a) 263,750
- ------------------------------------------------------------------------------------------------------------------------------
Oil & Gas Exploration/Production--4.7%
Chesapeake Energy Corp., Sr. Notes B3 9.625 5/01/05 335 (a) 314,900
Leviathan Finance Corp. Sr. Sub. Notes B2 10.375 6/01/09 300 304,500
Nuevo Energy Co., Sr. Sub. Notes B1 9.50 6/01/08 250 248,750
Plains Resources, Inc., Sr. Sub. Notes B2 10.25 3/15/06 250 (a) 251,875
R & B Falcon Corp., Sr. Notes Ba3 12.25 3/15/06 275 290,125
RBF Finance Co.,
Sr. Sec'd Notes Ba3 11.375 3/15/09 600 636,000
Sr. Sec'd. Notes Ba3 11.00 3/15/06 255 268,387
Snyder Oil Corp., Sr. Sub. Notes Ba3 8.75 6/15/07 500 (a) 493,750
Swift Energy Co., Sr. Sub. Notes B2 10.25 8/01/09 190 190,000
Veritas DGC, Inc., Sr. Notes, Ser. C Ba3 9.75 10/15/03 500 (a) 510,000
-----------
3,508,287
- ------------------------------------------------------------------------------------------------------------------------------
Paper & Packaging--5.8%
Ball Corp., Sr. Sub. Notes B1 8.25 8/01/08 750 (a) 729,375
Consumers Int'l., Inc., Sr. Sec'd Notes (CA) Ba3 10.25 4/01/05 250 (a)(d) 250,000
Graham Packaging Holdings Co.,
Sr. Disc. Notes, Zero Coupon (until 1/15/03) Caa1 10.75 1/15/09 100 63,500
Sr. Sub. Notes B3 8.75 1/15/08 100 (a) 93,500
Maxxam Group Holdings Inc., Sr. Sec'd Notes B3 12.00 8/01/03 500 (a) 510,000
Millar Western Prod. Ltd., Sr. Notes (CA) B3 9.875 5/15/08 250 (d) 238,125
Packaging Corp., Sr. Notes B3 9.625 4/01/09 170 (a) 170,850
Silgan Holdings Inc.,
Sub. Deb., Payment in Kind (cost $700,000; purchased
- 6/13/97) B 13.25 7/15/06 786 (a) 860,670
Sr. Sub. Deb. B1 9.00 6/01/09 500 (a) 475,000
Stone Container Corp., Sr. Sub. Deb. B3 12.25 4/01/02 950 (a) 952,375
-----------
4,343,395
- ------------------------------------------------------------------------------------------------------------------------------
Pharmacenticals--0.6%
ICN Pharmaceuticals Inc., Sr. Notes Ba3 8.75 11/15/08 500 465,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<PAGE>
Portfolio of Investments as
of August 31, 1999 THE HIGH YIELD INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Printing--0.7%
Sullivan Graphics Inc., Sr. Sub. Notes Caa 12.75% 8/01/05 $ 500 (a) $ 513,750
- ------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trust--0.1%
Louisiana Quinta Inns, Inc., Sr. Notes Ba1 7.40 9/15/05 100 81,150
- ------------------------------------------------------------------------------------------------------------------------------
Refinery--0.3%
Tesoro Petroleum Corp., Sr. Sub. Notes B1 9.00 7/01/08 250 243,750
- ------------------------------------------------------------------------------------------------------------------------------
Restaurants--0.3%
CKE Restaurants, Inc., Sr. Sub. Notes B1 9.125 5/01/09 250 217,500
- ------------------------------------------------------------------------------------------------------------------------------
Retail--5.1%
Big 5 Corp., Sr. Notes, Series B B2 10.875 11/15/07 200 (a) 200,000
Duane Reade Inc., Sr. Sub. Notes B3 9.25 2/15/08 570 (a) 574,275
Franks Nursery & Crafts, Inc., Sr. Sub. Notes B3 10.25 3/01/08 400 (a) 380,000
K-Mart Corp. Ba2 8.25 1/01/22 750 (a) 733,125
Phar-Mor, Inc., Sr. Notes B3 11.72 9/11/02 1,250 (a) 1,250,000
Phillips Van Heusen Corp., Sr. Sub. Notes B1 9.50 5/01/08 250 236,250
Worldtex, Inc., Sr. Notes, Ser. B B1 9.625 12/15/07 500 455,000
-----------
3,828,650
- ------------------------------------------------------------------------------------------------------------------------------
Shipping--0.5%
American Commercial Lines, LLC., Sr. Notes B1 10.25 6/30/08 275 270,188
Holt Group, Inc., Sr. Notes Caa1 9.75 1/15/06 150 (a) 97,500
-----------
367,688
- ------------------------------------------------------------------------------------------------------------------------------
Steel--0.5%
National Steel Corp., Mrtge. Notes, Ser. D Ba3 9.875 3/01/09 250 251,250
Sheffield Steel Corp., Mrtge. Notes, Ser. B Caa2 11.50 12/01/05 140 (a) 115,500
-----------
366,750
- ------------------------------------------------------------------------------------------------------------------------------
Steel & Metals--0.4%
Kaiser Aluminum & Chemical Corp., Sr. Sub. Notes B3 12.75 2/01/03 310,000 (a) 314,650
- ------------------------------------------------------------------------------------------------------------------------------
Supermarkets--2.4%
Marsh Supermarkets Inc., Sr. Sub. Notes B2 8.875 8/01/07 500 (a) 490,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 12
<PAGE>
Portfolio of Investments as
of August 31, 1999 THE HIGH YIELD INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Supermarkets (cont.d)
Pantry, Inc., Sr. Sub. Notes B3 10.25% 10/15/07 $ 750 (a) $ 746,250
Stater Brothers Holdings, Inc., Sr. Notes B2 10.75 8/15/06 570 581,400
-----------
1,817,650
- ------------------------------------------------------------------------------------------------------------------------------
Technology--2.7%
Amkor Technology, Inc., Sr. Notes Ba3 9.25 5/01/06 250 242,500
Details Holding Corp., Sr. Disc. Notes, Zero Coupon
(until 11/15/02) NR 12.50 11/15/07 210 (a) 111,300
DII Group, Inc., Sr. Sub. Notes B1 8.50 9/15/07 500 (a) 475,000
Interact Systems, Inc., Sr. Disc. Notes Zero Coupon
(until 8/1/99) NR 14.00 8/01/03 1,100 (a) 484,000
Intersil Corp., Sr. Sub. Notes B3 13.25 8/15/09 145 148,625
IPC Information Systems, Inc., Sr. Disc. Notes B3 10.875 5/01/08 500 380,000
Repubic Tech RTI Capital, Sr. Sec'd Notes B 13.75 7/15/09 60 59,100
South Carolina G Holding Corp., Sr. Notes B2 12.00 8/01/09 115 117,875
-----------
2,018,400
- ------------------------------------------------------------------------------------------------------------------------------
Telecommunications--20.6%
Allegiance Telecommunications, Inc., Sr. Notes NR 12.875 5/15/08 750 (a) 804,375
CCPR Services, Inc., Sr. Sub. Notes B2 10.00 2/01/07 500 (a) 530,000
Echostar DBS Corp., Sr. Notes B2 9.375 2/01/09 150 (a) 147,750
Firstworld Communications, Inc., Sr. Notes,
Zero Coupon (until 4/15/03) NR 13.00 4/15/08 250 175,000
Global Crossings Holdings Limited Sr. Notes B1 9.625 5/15/08 500 (a) 500,000
GST Telecommunications, Inc.,
Sr. Disc. Conv. Notes, Zero Coupon (until 12/15/00) NR 13.875 12/15/05 110 146,300
Sr. Sub. Notes NR 12.75 11/15/07 100 (a) 106,000
GST USA, Inc., Sr. Disc. Notes, Zero Coupon (until
12/15/00) NR 13.875 12/15/05 1,130 (a) 963,325
Hyperion Telecommunications, Inc., Sr. Sec. Notes, Ser.
B B3 12.25 9/01/04 200 208,000
ICG Holdings, Sr. Disc. Notes, Zero Coupon (until
9/15/00) B3 13.50 9/15/05 235 (a) 208,563
Impsat Corp.,
Sr. Notes B1 12.125 7/15/03 700 (a) 588,000
Sr. Notes B2 12.375 6/15/08 250 187,500
Intermedia Communications, Inc.,
Sr. Disc. Notes, Zero Coupon (until 5/15/01) B2 12.50 5/15/06 500 (a) 411,250
Sr. Disc. Notes, Zero Coupon (until 7/15/02) B2 11.25 7/15/07 825 (a) 577,500
ITC Deltacom, Inc., Sr. Notes B2 9.75 11/15/08 1,000 (a) 1,000,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
Portfolio of Investments as
of August 31, 1999 THE HIGH YIELD INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Telecommunications (cont'd.)
Level 3 Communications, Inc., Sr. Disc. Notes, Zero
Coupon
(until 12/1/03) B3 10.50% 12/01/08 $ 175 $ 99,750
Mastec, Inc., Sr. Sub. Notes Ba3 7.75 2/01/08 250 (a) 235,000
McLeod USA Inc.,
Sr. Disc. Notes, Zero Coupon (until 3/1/02) B2 10.50 3/01/07 250 (a) 190,000
Sr. Notes B2 9.25 7/15/07 400 (a) 394,000
Sr. Notes B2 8.125 2/15/09 580 (a) 533,600
Nextlink Communications, Inc.,
Sr. Notes B3 9.625 10/01/07 400 (a) 388,000
Sr. Disc. Notes, Zero Coupon (until 10/31/02) B2 9.75 10/31/07 800 (a) 560,000
Sr. Notes B3 10.75 6/01/09 300 303,000
Omnipoint Corp., Sr. Notes, Series A B2 11.625 8/15/06 750 (a) 780,000
Pagemart Nationwide, Inc., Sr. Disc. Notes, Zero Coupon
(until 2/1/00) B3 15.00 2/01/05 1,250 (a) 1,175,000
Price Communications Wireless,
Sr. Sub. Notes B3 11.75 7/15/07 650 (a) 708,500
Sr. Sec'd Notes, Ser. B Ba3 9.125 12/15/06 150 (a) 151,500
PSINET, Inc.,
Sr. Notes B3 11.00 8/01/09 800 (a) 790,000
Sr. Notes B3 10.00 2/15/05 500 (a) 478,750
RSL Communications, PLC., Sr. Notes B2 12.00 11/01/08 250 (a)(d) 241,250
Telegroup Inc., Sr. Disc. Notes, Zero Coupon (until
11/1/00) NR 10.50 11/01/04 500 (a) 185,000
Time Warner Telecom, LLC., Sr. Notes B2 9.75 7/15/08 1,000 (a) 1,015,000
Tritel PCS, Inc., Sr. Sub. Disc. Notes, Zero Coupon
(until 5/15/04) B3 12.75 5/15/09 350 197,750
Worldwide Fiber, Inc., Sr. Notes B3 12.00 8/01/09 425 (d) 419,687
-----------
15,399,350
- ------------------------------------------------------------------------------------------------------------------------------
Transportation--2.1%
Kitty Hawk, Inc., Sr. Sec'd Notes B1 9.95 11/15/04 500 (a) 487,500
USAir, Inc., Pass Through Trust
Pass Through Trust Ser. 1989-A2 A3 9.82 1/01/13 500 (a) 522,050
Pass Through Trust Ba2 10.375 3/01/13 500 (a) 533,485
-----------
1,543,035
-----------
Total corporate bonds (cost $89,889,403) 85,804,507
-----------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 14
<PAGE>
Portfolio of Investments as
of August 31, 1999 THE HIGH YIELD INCOME FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 1)
<S> <C> <C>
- ------------------------------------------------------------
COMMON STOCKS(c)--0.3%
Intermedia Communications Inc. 780 $ 20,280
Nextel Communications, Inc. 2,361 136,495
Pagemart Nationwide, Inc. 3,500 (b) 17,500
Star Gas Partners, L.P. 308 5,012
United Int'l. Holdings, Inc., 1
Class A 73
--------------
Total common stocks (cost
$100,941) 179,360
--------------
COMMON TRUST UNIT(c)--0.4% Units
PSF Finance, LP (cost $462,534;
purchased - 3/8/94) 27,924 (e) 307,164
--------------
PREFERRED STOCKS--3.4% Shares
Clark USA Inc., Payment in Kind 118 73,293
CSC Holdings, Inc.,
11.125%, Payment in Kind 1,625 173,869
11.125%, Payment in Kind 42 449,400
Intermedia Communications, Inc. 10,000 (a) 200,000
Intermedia Communications, Inc.,
Series B, 13.50%, Payment in
Kind 336 315,872
Nextel Communications, Inc., 174
11.25% Payment in Kind 170,724
Packaging Corp. 1,500 163,500
Primedia, Inc. 3,000 299,250
R & B Falcon Corp. 77 72,380
Sinclair Broadcast Group. Inc. 5,000 (a) 512,500
Viasystems Group, Inc. 11,487 126,355
--------------
Total preferred stocks
(cost $2,462,406) 2,557,143
--------------
<CAPTION>
Value
Description Warrants (Note 1)
<S> <C> <C>
- ------------------------------------------------------------
WARRANTS(c)--0.3%
American Mobile Satellite Corp.,
expiring 4/1/08 100 $ 3,500
Cellnet Data Systems, Inc.,
expiring 9/15/07 2,029 10,145
Clearnet Communications, Inc.
expiring 9/15/05 (Canada) 2,475 (d) 14,850
Firstworld Communications, Inc.,
expiring 4/15/08 250 17,500
Intelcom Group, Inc., expiring 9,900
9/15/05 99,000
Interact Systems, Inc., expiring 1,100
8/1/03 11
Intermedia Communications, Inc.,
expiring 6/1/00 750 67,500
Intersil Corp. 145 0
MGC Communications, Inc.,
expiring 1/1/49 200 1,790
Pagemart Nationwide, Inc.,
expiring 12/31/03 4,600 11,500
R & B Falcon Corp., expiring 75
5/1/09 10,500
Republic Tech RTI Capital, 60
expiring 0
Sterling Chemical Holdings, Inc.,
expiring 8/15/08 140 2,100
--------------
Total warrants (cost $0) 238,396
--------------
Total long-term investments
(cost $92,915,284) 89,086,570
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15
<PAGE>
Portfolio of Investments as
of August 31, 1999 THE HIGH YIELD INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Interest Maturity Amount Value
Description Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--5.6%
Joint Repurchase Agreement Account (cost $4,194,000,
Note 4) 5.446% 9/01/99 $ 4,194 $ 4,194,000
------------
Total Investments--124.6%
(cost $97,109,284; Note 3) 93,280,570
Other assets in excess of liabilities--(24.6)% (18,420,049)
------------
Net Assets--100% $ 74,860,521
------------
------------
</TABLE>
- ---------------
(a) Total or partial principal amount segregated as collateral for line of
credit. Aggregate value of segregated securities--$58,004,833; (Note 5).
(b) Indicates a security is restricted as to resale; the aggregate cost of such
securities is $24,500. The aggregate value $17,500 is approximately .02% of
net assets.
(c) Non-income producing securities.
(d) US $ Denominated Bonds-Foreign Issuers.
(e) Portion of units represent ownership in PSF Holdings, Inc.
NR--Not rated by Moody's or Standard & Poor's.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 16
<PAGE>
THE HIGH YIELD INCOME FUND, INC.
Statement of Assets and Liabilities
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 31, 1999
<S> <C>
Investments, at value (cost $97,109,284)...... $ 93,280,570
Cash.......................................... 751
Receivable for investments sold............... 155,613
Interest receivable........................... 1,827,421
Prepaid expenses and other assets............. 1,888
---------------
Total assets............................... 95,266,243
---------------
Liabilities
Loan payable (Note 5)......................... 20,000,000
Accrued expenses.............................. 147,171
Loan interest payable......................... 105,243
Deferred directors' fees...................... 57,248
Dividends payable............................. 55,610
Due to Manager................................ 40,450
---------------
Total liabilities.......................... 20,405,722
---------------
Net Assets.................................... $ 74,860,521
---------------
---------------
Net assets were comprised of:
Common stock, at par....................... $ 113,025
Paid-in capital in excess of par........... 97,806,144
---------------
97,919,169
Undistributed net investment income........ 37,490
Accumulated net realized loss on
investments............................. (19,267,424)
Net unrealized depreciation on
investments............................. (3,828,714)
---------------
Net assets, August 31, 1999................... $ 74,860,521
---------------
---------------
Net asset value and redemption price per share
($74,860,521 / 11,302,445 shares of common
stock issued and outstanding).............. $6.62
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1999
<S> <C>
Income
Interest................................... $ 9,967,265
Dividends.................................. 129,688
---------------
10,096,953
---------------
Expenses
Management fee............................. 543,095
Custodian's fees and expenses.............. 156,000
Transfer agent's fees and expenses......... 42,000
Reports to shareholders.................... 40,000
Audit fee and expenses..................... 30,000
Registration fees.......................... 26,000
Directors' fees and expenses............... 14,000
Legal fees and expenses.................... 6,000
Miscellaneous.............................. 10,158
---------------
Total operating expenses................ 867,253
Loan interest expense (Note 5)............. 1,212,604
---------------
Total expenses.......................... 2,079,857
---------------
Net investment income......................... 8,017,096
---------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on investment
transactions............................... (4,543,476)
Net change in unrealized depreciation on
investments................................ 1,432,237
---------------
Net loss on investments....................... (3,111,239)
---------------
Net Increase in Net Assets
Resulting from Operations..................... $ 4,905,857
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 17
<PAGE>
THE HIGH YIELD INCOME FUND, INC.
Statement of Cash Flows
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
August 31,
Increase (Decrease) in Cash 1999
<S> <C>
Cash flows provided from (used in) operating
activities:
Interest and dividends received (excluding
discount amortization of $1,530,870)..... $ 8,711,856
Operating expenses paid..................... (892,663)
Loan interest paid.......................... (1,220,660)
Maturities of short-term portfolio
investments, net......................... (430,000)
Purchases of long-term portfolio
investments.............................. (80,080,285)
Proceeds from disposition of long-term
portfolio investments.................... 81,586,766
Prepaid expenses............................ 189
------------
Net cash provided from operating
activities............................... 7,675,203
------------
Cash flows used for financing activities:
Cash dividends paid (excluding reinvestment
of dividends of $435,530)................ (7,674,889)
------------
Net increase in cash........................... 314
Cash at beginning of year...................... 437
------------
Cash at end of year............................ $ 751
------------
------------
Reconciliation of Net Increase in Net Assets to
Net Cash Provided from (used in) Operating
Activities
Net increase in net assets resulting from
operations.................................. $ 4,905,857
------------
Increase in investments........................ (322,609)
Net realized loss on investment transactions... 4,543,476
Net change in net unrealized depreciation on
investments................................. (1,432,237)
Increase in receivable for investment sold..... (155,613)
Decrease in interest receivable................ 169,605
Decrease in prepaid expenses and other
assets...................................... 190
Decrease in accrued expenses and other
liabilities................................. (33,466)
------------
Total adjustments........................... 2,769,346
------------
Net cash provided from operating activities.... $ 7,675,203
------------
------------
</TABLE>
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income........... $ 8,017,096 $ 8,246,323
Net realized gain (loss) on
investment transactions...... (4,543,476) 2,347,417
Net change in unrealized
appreciation/depreciation of
investments.................. 1,432,237 (10,100,678)
----------- ------------
Net increase in net assets
resulting from operations.... 4,905,857 493,062
Dividends paid to shareholders
from net investment income...... (8,112,556) (8,064,957)
Net asset value of shares issued to
shareholders in reinvestment of
dividends....................... 435,530 623,068
----------- ------------
Total decrease..................... (2,771,169) (6,948,827)
Net Assets
Beginning of year.................. 77,631,690 84,580,517
----------- ------------
End of year........................ $74,860,521 $ 77,631,690
----------- ------------
----------- ------------
Undistributed net investment
income.......................... 37,490 132,577
----------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 18
<PAGE>
Notes to Financial Statements THE HIGH YIELD INCOME FUND, INC.
- --------------------------------------------------------------------------------
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 nonrated 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 Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Security Valuation: Portfolio securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued at prices provided by
principal market makers and pricing agents. Any security for which the primary
market is on an exchange is valued at the last sales price on such exchange on
the day of valuation or, if there was no sale on such day, the last bid price
quoted on such day. Securities issued in private placements are valued at the
bid price or the mean between the bid and asked prices, if available, provided
by principal market makers. Any security for which a reliable market quotation
is unavailable is valued at fair value as determined in good faith by or under
the direction of the Fund's Board of Directors.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
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's
custodian will maintain, in a segregated account of the Fund, cash, U.S.
Government securities, equity securities or other liquid, unencumbered assets
marked to market daily, having a value equal to or greater than the Fund's
purchase commitments with respect to certain investments.
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. Expenses are recorded on the accrual basis which may
require the use of certain estimates by management.
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. The effect of applying
this statement was to increase undistributed net investment income by $373,
decrease accumulated net realized loss by $3,463,625 and decrease paid-in
capital in excess of par by $3,463,998.
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19
<PAGE>
Notes to Financial Statements THE HIGH YIELD INCOME FUND, INC.
- --------------------------------------------------------------------------------
This was primarily due to the expiration of a portion of the capital loss
carryforward for the year ended August 31, 1999 and distribution paid from net
investment income to satisfy excise tax requirements which was subsequently
offset by certain expenses not deductible for tax purposes. Net investment
income, net realized gains and net assets were not affected by this change.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ('PIC'). PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers and employees of the Fund,
occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears
all other costs and expenses.
The management fee paid PIFM is computed weekly and payable monthly, at an
annual rate of .70 of 1% of the Fund's average weekly net assets.
PIFM and PIC are indirect, wholly owned subsidiaries of The Prudential Insurance
Company of America.
- ------------------------------------------------------------
Note 3. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended August 31, 1999 aggregated $80,112,784 and $81,742,379,
respectively.
The cost basis of investments for federal income tax purposes at August 31, 1999
was $97,127,400 and net unrealized depreciation for federal income tax purposes
was $3,846,830 (gross unrealized appreciation--$1,701,386; gross unrealized
depreciation--$5,548,216).
For federal income tax purposes, the Fund has a capital loss carryforward as of
August 31, 1999 of approximately $16,085,300 of which $8,891,400 expires in
2000, $263,000 expires in 2003, $5,569,500 expires in 2004 and $1,361,400 in
2007. Approximately $3,463,600 of the Fund's capital loss carryforward expired
as of August 31, 1999. In addition, the Fund will elect to treat net capital
losses of approximately $3,163,400 incurred in the ten month period ended August
31, 1999 as having been incurred in the following fiscal year. Accordingly, no
capital gains distribution is expected to be paid to shareholders until net
realized gains have been realized in excess of such amounts.
- ------------------------------------------------------------
Note 4. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements
collaterialized by U.S. Treasury or federal agency obligations. As of August 31,
1999, the Fund had a 0.60% undivided interest in the repurchase agreements in
the joint account. The undivided interest for the Fund represented $4,194,000 in
principal amount. As of such date, each repurchase agreement in the joint
account and the collateral therefor was as follows:
Bear, Stearns & Co., 5.43%, in the principal amount of $190,000,000, repurchase
price $190,028,658, due 9/1/99. The value of the collateral including accrued
interest was $196,788,426.
Deutsche Bank Securities, Inc., 5.43%, in the principal amount of $190,000,000,
repurchase price $190,028,658, due 9/1/99. The value of the collateral including
accrued interest was $193,800,014.
Salomon Smith Barney Inc., 5.43%, in the principal amount of $190,000,000,
repurchase price $190,028,658, due 9/1/99. The value of the collateral including
accrued interest was $193,887,675.
Warburg Dillon Read LLC, 5.52%, in the principal amount of $125,089,000,
repurchase price $125,108,180, due 9/1/99. The value of the collateral including
accrued interest was $127,594,690.
- ------------------------------------------------------------
Note 5. Borrowings
The Fund has approved a $25,000,000 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, 1999 was $20,000,000
at a weighted average interest rate of 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, 1999.
During the fiscal years ended August 31, 1999 and 1998 the Fund issued 63,171
and 81,512 shares, respectively, in connection with the reinvestment of
dividends.
- ------------------------------------------------------------
Note 7. Dividends and Distributions
On September 1 and October 1, 1999 the Board of Directors of the Fund declared
dividends of $.060 per share payable on September 30 and October 29,
respectively, to shareholders of record on September 15 and October 15, 1999,
respectively.
- --------------------------------------------------------------------------------
20
<PAGE>
Financial Highlights THE HIGH YIELD INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year(a)..................... $ 6.91 $ 7.58 $ 7.24 $ 7.12 $ 7.21
------- ------- ------- ------- -------
Net investment income..................................... .71 .74 .74 .77 .86
Net realized and unrealized gain (loss) on investments.... (.28) (.69) .35 .16 (.08)
------- ------- ------- ------- -------
Total from investment operations....................... .43 .05 1.09 .93 .78
------- ------- ------- ------- -------
Dividends paid to shareholders from net investment
income................................................. (.72) (.72) (.74) (.77) (.87)
Distributions to shareholders in excess of net investment
income................................................. -- -- (.01) -- --
Return of capital distributions........................... -- -- -- (.04) --
------- ------- ------- ------- -------
Total dividends and distributions...................... (.72) (.72) (.75) (.81) (.87)
------- ------- ------- ------- -------
Net asset value, end of year(a)........................... $ 6.62 $ 6.91 $ 7.58 $ 7.24 $ 7.12
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Market price per share, end of year(a).................... $ 6.81 $ 6.38 $ 7.81 $ 7.75 $ 8.00
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN(b)................................ 18.55% (10.19)% 11.47% 8.05% 12.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............................. $74,861 $77,632 $84,581 $80,174 $78,255
Average net assets (000).................................. $77,389 $85,511 $81,788 $79,408 $76,345
Ratio of expenses to average net assets................... 2.69% 2.64% 2.79% 2.89% 3.03%
Ratio of net investment income to average net assets...... 10.36% 9.64% 10.04% 10.62% 12.36%
Portfolio turnover rate................................... 85% 73% 82% 97% 106%
Asset coverage............................................ 474% 488% 526% 501% 491%
Total debt outstanding at year-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 reinvestment plan. This amount does not reflect
brokerage commissions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 21
<PAGE>
Report of Independent Accountants THE HIGH YIELD INCOME FUND, INC.
- --------------------------------------------------------------------------------
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, 1999, 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, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
October 15, 1999
- --------------------------------------------------------------------------------
22
<PAGE>
Other Information (Unaudited) THE HIGH YIELD INCOME FUND, INC.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
23
<PAGE>
- -------------------------------------------------------------------
Directors
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Thomas T. Mooney
Stephen P. Munn
Thomas H. O'Brien
David R. Odenath, Jr.
Richard A. Redeker
John R. Strangfeld
Nancy H. Teeters
Louis A. Weil, III
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Custodian and Transfer Agent
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, NY 10022
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.
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Toll free (800) 451-6788
The views expressed in this report and information about the
fund's holdings are for the period covered by this report and are
subject to change thereafter.
The Prudential Insurance Company of America
751 Broad Street
Newark, NJ 07102
429904105
