<PAGE>
The High
Yield Income
Fund, Inc.
-------------------------------------------------------------------
Annual Report
August 31, 2000
<PAGE>
Letter to Shareholders
October 16, 2000
Dear Shareholder:
Performance at a Glance
The one-year reporting period ended August 31,
2000, was a challenging time for the fixed-income
markets in general, and for high-yield (also known
as junk) bonds in particular. Despite this,
however, the Prudential High Yield Income Fund,
Inc. significantly outperformed its benchmark, the
Lipper Closed-End High Current Yield Average during
the period.
For much of the period, the ongoing strength of the
U.S. economy was the culprit behind the poor
performance generated in most sectors of the bond
market. Despite repeated attempts by the Federal
Reserve Board (the Fed) to slow economic growth,
the U.S. economy continued to expand at a
surprisingly rapid pace. In response, the Fed
increased short-term rates on six separate
occasions from June 1999 through May 2000. (Four of
the hikes occurring during the period under
review). Steadily rising interest rates led to
falling prices in most fixed income sectors, as
bond prices move in the opposite direction of
interest rates.
High-yield bonds were hit particularly hard. An
increase in the default rate-a measure of the
percent of debt issuers who fail to make timely
interest and principal payments-adversely affected
the sector. The combination of rising interest
rates and increased defaults caused many investors
to shy away from high-yield bonds. This was
exemplified by the activity in the high-yield
mutual fund market, which experienced net
redemptions during the period.
Over the last three months, the Treasury market has
rallied due to signs that economic growth is
moderating. With the prospect that the Fed may
fulfill its goal of orchestrating a "soft landing"-
slower economic growth while avoiding a recession-
many market participants believe that brighter days
may be ahead.
1
<PAGE>
FUND'S PERFORMANCE
As of 8/31/00
Total Return NAV Market Price
12 months 8/31/00 8/31/00
High Yield
Income Fund1 3.18% $6.07 $5.69
Lipper Closed-End
High Current Yield Avg.2 -1.47 N/A N/A
Lipper Open-End
High Current Yield Avg.3 0.94 N/A N/A
1Source: Prudential Investments Fund Management
LLC. Total return of the Fund represents the
change in net asset value from the beginning of the
period (9/1/99) through the end (8/31/00), 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 27 funds in the Closed-End High Current
Yield category for twelve months.
3Source: Lipper Inc. These are the average
returns of 356 funds in the Open-End High Current
Yield category.
YIELD AND DIVIDEND
As of 8/31/00
Total Monthly Dividends Paid Per Share
Total Monthly Dividends
Paid Per Share Yield At Market Price
12 months
$0.66 11.60%
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 consistnet with
its primary objective. The Fund will seek to
achieve its objective 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.
Market Background
Rising interest rates hurts bond performance
The bond market fought an uphill battle throughout
much of the reporting period. With economic growth
rising sharply, the Fed remained steadfast in its
resolve to cool the economy and preempt inflation.
After raising short-term interest rates in June and
August 1999 (before our review period began), the
Fed hiked rates on four more occasions from
November 1999 through May 2000. These higher
interest rates caused the price of most fixed-
income securities to fall.
2
<PAGE>
Then in June 2000, it finally appeared that the
Fed's work was paying off. Rising interest rates,
which had caused mortgage rates to rise
substantially, took some steam out of the housing
market. Consumer spending also appeared to be
moderating, while employee productivity levels
remained strong and inflation (aside from energy
prices) was not an issue. The Fed then chose to
hold interest rates steady during its meetings in
June and August. Investors took this as a sign that
interest rate hikes would end sooner rather than
later, and bond prices rallied.
Treasury buyback continues to affect the market
While the bond market faltered during most of the
reporting period, there was one notable exception-
the performance of long-term Treasuries. As a
result of strong demand and a dwindling supply,
these issues outperformed other types of fixed-
income securities, including high-yield bonds.
Investors have aggressively purchased 30-year
securities as the U.S. Treasury Department has
moved to limit their supply. By repurchasing these
bonds with relatively high yields, the Treasury is
seeking to lower the government's borrowing costs.
The subsequent supply/demand situation helped long-
term Treasury prices to rise sharply. This scenario
also resulted in an inverted yield curve, where
interest rates for short-term securities were
higher than their longer-term counterparts.
Normally, investments with longer maturities
command higher yields due to their heightened
sensitivity to rising interest rates.
Rising defaults temper demand for high-yield bonds
An increase in defaults and concern over the future
default level if the economy stalled also weighed
heavily on the high-yield market. High-yield bond
prices in general are affected by changes in the
default rate. The increase in the default rates
caused yield spreads (the difference in yields
versus Treasuries) in the high-yield market to
widen, as investors demanded incremental yield to
compensate for the higher potential risk.
All told, the combination of rising interest rates
and an increase in defaults caused investors to
largely shun the high-yield market. This led to
ongoing poor demand for these securities.
Our Strategy
Maintaining a conservative approach
As previously mentioned, the Fund significantly
outperformed its benchmark during the period. This
was due to a variety of factors, includng our
strategy of emphasizing the best relative
performers-upper-tier high-yield bonds-while
avoiding the worst performers-lower-tier
securities. In particular, our BB-rated issues
generated relatively strong results, as investors
who were seeking securities that offered
incremental yields gravitated to these issues. In
addition, the rising default rate caused investors
to avoid more
3
<PAGE>
speculative issues. As a result, our
underweighting of CCC-rated securities enhanced
results.
Strategically shifting assets
During the period, we grew concerned over the
length and breadth of the economic expansion, and
the eventual impact that rising interest rates
could have on U.S. growth rates. As such, we
rotated out of the more cyclical sectors, such as
building products, builders, and consumer
cyclicals, in favor of areas that would be less
adversely affected by moderating growth. In
particular, we emphasized cable, energy, and
higher-quality telecommunications firms, such as
Nextel Communications and Williams Communications
Group. Despite the overall negative aspects of the
high-yield market, these areas held up fairly well
during the reporting period.
Avoiding many underperformers
To a great extent, the Fund also benefited by not
holding some of the worst performing areas and
individual securities in the market. For example,
Rite-Aid and Laidlaw both experienced significant
rating downgrades during the period, but were not
held in the Fund's portfolio. We also did not have
any exposure to movie theater chains, which
performed poorly. Overexpansion in the industry has
led to increased competition and a severe strain on
profit margins.
Unfortunately, there were some specific issues that
did not live up to our expectations. In particular,
Kitty Hawk, an airfreight firm, and Worldtex, a
textile manufacturer, both detracted from Fund
performance.
Looking ahead
Signs for optimism
As we look ahead, we believe the signs are largely
positive for the fixed-income market and the Fund.
The economy appears to be slowing, and we expect
the Fed to switch to a more neutral bias toward
interest rates in the coming months. Should an
economic "soft landing" occur, it would be a
positive for the bond market in general.
In addition, it's our view that, at current levels,
the default rate has been overpriced in the market.
As a result, we believe there are a number of very
promising opportunities in the marketplace that are
reasonably valued. While credit research will still
be paramount, we feel that brighter days could be
ahead, and that the Fund may be well positioned
going forward.
Sincerely,
John R. Strangfeld
President
The High Yield Income Fund, Inc.
4
<PAGE>
Portfolio of Investments as
of August 31, 2000 THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--122.1%
CORPORATE BONDS--117.5%
------------------------------------------------------------------------------------------------------------------------------
Aerospace--1.1%
BE Aerospace, Inc., Sr. Sub. Notes B2 9.50% 11/01/08 $ 150 (a) $ 145,500
K & F Industries, Inc., Sr. Sub. Notes, Ser. B B3 9.25 10/15/07 300 (a) 288,750
Sequa Corp., Sr. Notes Ba2 9.00 8/01/09 250 246,250
Stellex Industries, Inc., Sr. Sub. Notes B3 9.50 11/01/07 500 (a)(b) 100,000
-----------
780,500
------------------------------------------------------------------------------------------------------------------------------
Airlines--0.6%
Continental Airlines, Inc., Sr. Notes Ba2 8.00 12/15/05 150 (a) 141,364
Delta Air Lines, Inc. Baa3 8.30 12/15/29 200 181,088
United Airlines, Inc., Baa3 9.75 8/15/21 25 25,467
US Airways, Inc., Pass-Through Cert., Ser. 89 A2 A3 9.82 1/01/13 95 (a) 85,687
-----------
433,606
------------------------------------------------------------------------------------------------------------------------------
Automotive--3.2%
Collins & Aikman Products Co.,
Sr. Sub. Notes B2 11.50 4/15/06 300 (a) 294,000
Sr. Sub. Notes B3 10.00 1/15/07 30 (a) 29,400
Federal Mogul Corp.,
Notes Ba2 7.875 7/01/10 225 164,250
Sub. Notes Ba2 7.50 1/15/09 145 105,850
Hayes Lemmerz Int'l, Inc., Sr. Sub. Notes, Ser. B B2 8.25 12/15/08 200 (a) 175,000
Lear Corp.,
Sr. Notes, Ser. B Ba1 7.96 5/15/05 200 191,000
Sr. Notes, Ser. B Ba1 8.11 5/15/09 500 (a) 477,500
Sub. Notes Ba3 8.25 2/01/02 275 269,959
MSX International, Inc., Sr. Sub. Notes B3 11.375 1/15/08 105 (a) 100,800
Standyne Automotive Corp., Sr. Sub. Notes, Ser. B Caa1 10.25 12/15/07 65 (a) 57,525
Tenneco Automotive, Inc., Sr. Sub. Notes, Ser. B B2 11.625 10/15/09 135 116,100
Venture Holdings, Sr. Notes, Ser. B B2 9.50 7/01/05 250 197,500
-----------
2,178,884
------------------------------------------------------------------------------------------------------------------------------
Banks--0.7%
Chevy Chase Savings Bank, Sub. Deb. B1 9.25 12/01/05 250 (a) 231,250
Sovereign Bancorp, Inc.,
Sr. Notes Ba3 10.25 5/15/04 85 85,672
Sr. Notes Ba3 10.50 11/15/06 165 (a) 167,888
-----------
484,810
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as
of August 31, 2000 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>
------------------------------------------------------------------------------------------------------------------------------
Beverages--0.9%
Cott Corp., Sr. Notes B1 8.50% 5/01/07 $ 700 (a) $ 647,500
------------------------------------------------------------------------------------------------------------------------------
Building Materials & Components--1.2%
Ainsworth Lumber Ltd., Sr. Notes B2 12.50 7/15/07 310 (a) 294,500
Building Materials Corp., Sr. Notes Ba3 7.75 7/15/05 10 (a) 7,700
Congoleum Corp., Sr. Notes B2 8.625 8/01/08 500 (a) 300,000
Nortek, Inc., Sr. Notes, Ser. B B1 9.25 3/15/07 250 240,000
-----------
842,200
------------------------------------------------------------------------------------------------------------------------------
Cable--12.3%
Adelphia Communications Corp.,
Sr. Notes B2 9.25 10/01/02 200 197,500
Sr. Notes B2 7.50 1/15/04 100 91,000
Sr. Notes, Payment in Kind B2 9.50 2/15/04 85 79,781
Sr. Notes, Ser. B B2 10.50 7/15/04 500 (a) 500,000
Sr. Notes, Ser. B B2 9.875 3/01/07 500 476,250
Callahan Nordrhein-Westfalen,
Sr. Disc. Note, Zero Coupon (Until 7/15/05) B3 Zero 7/15/10 500 225,000
Sr. Notes B3 14.00 7/15/10 400 403,000
Century Communications Corp., Sr. Disc. Notes, Zero
Coupon B2 Zero 3/15/03 250 186,250
Charter Communications Holdings LLC,
Sr. Notes B2 8.625 4/01/09 500 456,250
Sr. Notes B2 10.25 1/15/10 500 497,500
Classic Cable, Inc.,
Sr. Sub. Notes B3 9.375 8/01/09 130 101,400
Sr. Sub. Notes B3 10.50 3/01/10 600 (a) 501,000
Coaxial Commerce Central Ohio, Inc., Sr. Notes B3 10.00 8/15/06 250 (a) 245,000
Comcast UK Cable Corp., Sr. Disc. Deb., Zero Coupon
(until 11/15/00) (UK) B2 Zero 11/15/07 225 (d) 210,937
CSC Holdings, Inc., Sr. Sub. Deb. Ba3 10.50 5/15/16 270 288,900
Diamond Cable Co.,
Sr. Disc. Notes, Zero Coupon (until 12/15/00) (UK) B2 Zero 12/15/05 625 (a)(d) 587,500
Sr. Disc. Notes, Zero Coupon (until 2/15/02) (UK) B2 Zero 2/15/07 500 (a)(d) 385,625
International Cabletel, Inc., Sr. Disc. Notes B3 12.75 4/15/05 250 (a) 255,000
Mediacom LLC, Sr. Notes B2 7.875 2/15/11 500 (a) 437,500
Telewest Communications plc,
Sr. Disc. Deb., Zero Coupon (until 10/1/00) (UK) B1 Zero 10/01/07 300 (a)(d) 287,625
Sr. Disc. Notes, Zero Coupon (until 2/1/05) (UK) B1 Zero 2/01/10 285 (d) 159,600
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as
of August 31, 2000 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 (cont'd.)
United Int'l. Holdings, Inc., Sr. Sec'd. Disc. Notes,
Zero Coupon (until 2/15/03) B3 Zero 2/15/08 $ 500 $ 360,000
United Pan Europe,
Sr. Disc. Notes, Zero Coupon (Until 8/1/04) (NL) B2 Zero 8/01/09 1,095 (d) 520,125
Sr. Notes (NL) B2 10.875% 8/01/09 1,130 (a)(d) 988,750
-----------
8,441,493
------------------------------------------------------------------------------------------------------------------------------
Chemicals--3.3%
Avecia Group plc, Sr. Notes B2 11.00 7/01/09 230 (a) 231,725
Huntsman ICI Chemicals LLC, Sr. Sub. Notes B2 10.125 7/01/09 445 451,675
Huntsman Polymers Corp., Sr. Notes B1 11.75 12/01/04 250 254,375
Lyondell Chemical Co.,
Sr. Sec'd. Notes, Ser. A Ba3 9.625 5/01/07 75 76,031
Sr. Sec'd. Notes, Ser. B Ba3 9.875 5/01/07 515 (a) 520,150
NL Industries, Inc., Sr. Sec'd. Notes, B1 11.75 10/15/03 190 193,088
Polymer Group, Inc., Sr. Sub. Notes, Ser. B B2 9.00 7/01/07 65 52,325
Sterling Chemical Holdings, Inc.,
Sr. Sec'd. Notes B3 12.375 7/15/06 185 (a) 190,550
Sr. Sub. Notes B3 11.75 8/15/06 300 (a) 234,000
Texas Petrochemicals Corp., Sr. Sub. Notes Caa1 11.125 7/01/06 45 38,700
-----------
2,242,619
------------------------------------------------------------------------------------------------------------------------------
Computer Services--0.5%
Globix Corp., Sr. Notes N/A 12.50 2/01/10 500 370,000
------------------------------------------------------------------------------------------------------------------------------
Consumer Products--4.9%
Coinstar, Inc., Sr. Disc. Notes NR 13.00 10/01/06 250 (a) 252,500
Corning Consumer Products Co., Sr. Sub. Notes B3 9.625 5/01/08 500 (a) 200,000
French Fragrances, Inc.,
Sr. Notes, Ser. B B2 10.375 5/15/07 600 (a) 588,000
Sr. Notes, Ser. B B2 10.375 5/15/07 150 (a) 147,000
Louisiana Petite Academy, Inc., Sr. Notes, Ser. B B3 10.00 5/15/08 250 155,000
Mail Well Corp., Sr. Sub. Notes B1 8.75 12/15/08 750 (a) 656,250
Packaged Ice, Inc., Sr. Notes B3 9.75 2/01/05 400 (a) 352,000
Veritas DGC, Inc., Sr. Notes, Ser. C Ba3 9.75 10/15/03 500 (a) 506,250
Windmere Durable Holdings, Inc., Sr. Notes B3 10.00 7/31/08 500 (a) 485,000
-----------
3,342,000
------------------------------------------------------------------------------------------------------------------------------
Containers--0.6%
Owens-Illinois, Inc., Sr. Notes Ba1 7.85 5/15/04 430 (a) 406,604
Owens-Illinois, Inc., Sr. Deb. Ba1 7.50 5/15/10 45 (a) 39,147
-----------
445,751
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as
of August 31, 2000 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>
------------------------------------------------------------------------------------------------------------------------------
Education--0.7%
Kindercare Learning Center, Inc., Sr. Sub. Notes, B3 9.50% 2/15/09 $ 500 (a) $ 458,750
------------------------------------------------------------------------------------------------------------------------------
Electric Utilities--0.3%
Reliant Energy, Inc., Ser. C, Pass-Through Cert. Baa3 9.681 7/02/26 200 198,800
------------------------------------------------------------------------------------------------------------------------------
Electronic Components--0.7%
Flextronics Int'l. Ltd., Sr. Sub. Notes Ba3 9.875 7/01/10 500 (a) 512,500
------------------------------------------------------------------------------------------------------------------------------
Energy--6.5%
AES Corp.,
Sr. Notes Ba1 9.50 6/01/09 500 507,500
Sr. Sub. Notes Ba3 10.25 7/15/06 500 (a) 506,250
AES Drax Energy Ltd., Sr. Sec'd. Notes Ba2 11.50 8/30/10 225 232,875
AES Drax Holdings Ltd., Sr. Sec'd. Bonds Baa3 10.41 12/31/20 490 512,540
Calpine Corp., Sr. Notes Ba1 10.50 5/15/06 500 525,000
CMS Energy Corp., Sr. Notes Ba3 8.375 7/01/03 750 (a) 733,275
EOTT Energy Partners LP, Sr. Notes Ba2 11.00 10/01/09 395 414,750
TNP Enterprises, Inc., Sr. Sub. Notes NR 10.25 4/01/10 1,000 1,040,000
-----------
4,472,190
------------------------------------------------------------------------------------------------------------------------------
Environmental Services--2.4%
Allied Waste North America, Inc.,
Sr. Notes Ba3 7.625 1/01/06 500 (a) 457,500
Sr. Notes Ba3 7.875 1/01/09 225 (a) 201,375
Sr. Sub. Notes B2 10.00 8/01/09 150 (a) 133,500
Browning Ferris Industries, Inc. Ba3 7.40 9/15/35 230 170,200
Waste Management, Inc. Ba1 8.75 5/01/18 400 381,412
WMX Technologies, Inc., Notes Ba1 6.375 12/01/03 300 281,097
-----------
1,625,084
------------------------------------------------------------------------------------------------------------------------------
Financial Services--3.9%
CB Richards Ellis Services, Inc., Sr. Sub. Notes B1 8.875 6/01/06 400 (a) 356,000
Delta Financial Corp., Sr. Notes B3 9.50 8/01/04 160 (a) 72,000
Golden State Escrow Corp.,
Sr. Notes Ba1 6.75 8/01/01 130 127,075
Sr. Notes Ba1 7.125 8/01/05 281 257,691
Metris Companies, Inc., Sr. Notes Ba3 10.125 7/15/06 150 (a) 141,000
Midland Funding Corp., Sec. Lease Oblig. Bond, Ser. A Ba3 11.75 7/23/05 130 142,423
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as
of August 31, 2000 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>
------------------------------------------------------------------------------------------------------------------------------
Financial Services (cont'd.)
Orion Power Holdings, Inc., Sr. Notes Ba3 12.00% 5/01/10 $ 1,500 $ 1,575,000
-----------
2,671,189
------------------------------------------------------------------------------------------------------------------------------
Foods--3.2%
Agrilink Foods, Inc., Sr. Sub. Notes B3 11.875 11/01/08 500 (a) 385,000
Borden, Inc. Ba1 9.20 3/15/21 500 (a) 438,575
Pilgrim's Pride Corp. B1 10.875 8/01/03 1,000 (a) 1,002,500
Premium Standard Farms, Inc., Sr. Sec'd. Notes, Payment
in Kind NR 11.00 9/17/03 361 (a) 364,488
-----------
2,190,563
------------------------------------------------------------------------------------------------------------------------------
Gaming--6.0%
Aztar Corp., Sr. Sub. Notes B2 8.875 5/15/07 150 145,500
Boyd Gaming Corp., Sr. Sub. Notes B1 9.50 7/15/07 210 201,600
Circus Circus Enterprises, Inc.,
Notes Ba3 7.625 7/15/13 200 (a) 165,000
Notes Ba2 6.70 11/15/96 130 (a) 120,472
Coast Hotels & Casinos, Inc., Sr. Sub. Notes B3 9.50 4/01/09 70 (a) 67,550
Harrahs Operating, Inc., Sr. Sub. Notes Ba2 7.875 12/15/05 380 367,175
Harveys Casino Resorts, Sr. Sub. Notes B2 10.625 6/01/06 170 174,250
Hollywood Casino Corp., Sr. Sec'd. Notes B3 11.25 5/01/07 150 154,500
Hollywood Park, Inc., Sr. Sub. Notes, Ser. B B2 9.25 2/15/07 500 (a) 507,500
Mandalay Resort Group, Sr. Notes Ba2 9.50 8/01/08 1,000 1,027,500
Mohegan Tribal Gaming Authority,
Sr. Notes Ba2 8.125 1/01/06 500 (a) 487,500
Sr. Sub. Notes Ba3 8.75 1/01/09 100 97,750
Park Place Entertainment Corp., Sr. Sub. Notes Ba2 9.375 2/15/07 150 154,125
Station Casinos B1 9.875 7/01/10 220 217,800
Trump Atlantic City Assocs., First Mtge. Notes B3 11.25 5/01/06 70 (a) 47,250
Venetian Casino Resort LLC, First Mtge. Notes Caa1 12.25 11/15/04 185 188,238
-----------
4,123,710
------------------------------------------------------------------------------------------------------------------------------
Gas Pipelines--0.5%
Leviathan Gas Pipeline Corp., Sr. Sub. Notes Ba2 10.375 6/01/09 300 (a) 315,000
------------------------------------------------------------------------------------------------------------------------------
Health Care--4.4%
Abbey Healthcare Group, Inc. B2 9.50 11/01/02 470 (a) 466,475
Bio-Rad Labs, Inc., Sr. Sub. Notes B2 11.625 2/15/07 145 152,069
Concentra Operating Corp., Sr. Sub. Notes, Ser. B B3 13.00 8/15/09 155 137,950
Fresenius Medical Care, Inc. NR 9.00 12/01/06 500 497,500
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as
of August 31, 2000 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>
------------------------------------------------------------------------------------------------------------------------------
Health Care (cont'd.)
HCA-The Healthcare Company,
Debt Ba2 8.36% 4/15/24 $ 100 $ 92,000
Notes Ba2 7.69 6/15/25 350 299,250
Notes Ba2 7.05 12/01/27 205 (a) 162,975
Notes Ba2 7.50 11/15/95 575 (a) 439,875
Notes Ba2 6.63 7/15/45 125 119,370
HEALTHSOUTH Corp., Sr. Notes Ba1 6.875 6/15/05 185 (a) 160,177
Lifepoint Hospitals Holdings, Inc., Sr. Sub. Notes B3 10.75 5/15/09 150 156,750
Tenet Healthcare Corp., Sr. Sub. Notes, Ser. B Ba3 8.125 12/01/08 50 47,562
Triad Hospitals Holdings, Inc., Sr. Sub. Notes B3 11.00 5/15/09 295 (a) 308,275
-----------
3,040,228
------------------------------------------------------------------------------------------------------------------------------
Industrials--2.6%
Eagle Picher Industries, Inc., Sr. Sub. Notes B3 9.375 3/01/08 350 (a) 290,500
Gentek, Inc., Sr. Sub. Notes B2 11.00 8/01/09 300 (a) 302,250
International Wire Group Inc., Sr. Sub. Notes B3 11.75 6/01/05 500 (a) 502,500
Motors & Gears, Inc. B3 10.75 11/15/06 500 (a) 490,000
Thermadyne Mfg. LLC, Sr. Sub. Notes B3 9.875 6/01/08 310 (a) 232,500
-----------
1,817,750
------------------------------------------------------------------------------------------------------------------------------
Leisure--1.5%
Ballys Health & Tennis Corp., Sr. Sub. Notes, Ser. C B3 9.875 10/15/07 445 (a) 422,750
Premier PKS, Inc., Sr. Notes B3 9.75 6/15/07 140 (a) 133,350
Six Flags Entertainment Corp., Sr. Notes B2 8.875 4/01/06 250 (a) 237,500
YankeeNets LLC, Sr. Notes B1 12.75 3/01/07 250 245,000
-----------
1,038,600
------------------------------------------------------------------------------------------------------------------------------
Lodging--0.6%
HMH Properties, Inc., Sr. Notes, Ser. B Ba2 7.875 8/01/08 310 289,850
ITT Corp. Ba1 7.375 11/15/15 150 132,372
-----------
422,222
------------------------------------------------------------------------------------------------------------------------------
Media--3.8%
Ackerley Group, Inc., Sr. Sub. Notes, Ser. B B2 9.00 1/15/09 250 (a) 236,250
Alliance Atlantis Commerce, Inc.,
Sr. Sub. Notes B2 13.00 12/15/09 195 (a) 200,850
Sr. Sub. Notes NR 13.00 12/15/09 200 206,000
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 10
<PAGE>
Portfolio of Investments as
of August 31, 2000 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>
------------------------------------------------------------------------------------------------------------------------------
Media (cont'd.)
American Lawyer Media Holdings, Inc., Sr. Disc. Notes,
Zero Coupon (until 12/15/02) B3 Zero 12/15/08 $ 300 (a) $ 202,500
Capstar Radio Broadcasting, Inc., Sr. Sub. Notes B1 9.25% 7/01/07 125 128,125
Fox Family Worldwide, Inc., Sr. Notes B1 9.25 11/01/07 55 52,662
Lin Holdings Corp., Sr. Disc. Notes, Zero Coupon (until
3/1/03) B3 Zero 3/01/08 845 (a) 583,050
Paxson Communications Corp., Sr. Sub. Notes B3 11.625 10/01/02 300 307,125
Susquehanna Media Co., Sr. Sub. Notes B1 8.50 5/15/09 500 485,000
XM Satellite Radio, Inc., Sr. Sec'd Notes Caa1 14.00 3/15/10 150 135,000
Ziff Davis Media, Inc., Sr. Sub. Notes B2 12.00 7/15/10 100 103,000
-----------
2,639,562
------------------------------------------------------------------------------------------------------------------------------
Metals--2.4%
Algoma Steel, Inc., First Mtge. Notes B2 12.375 7/15/05 260 228,800
Golden Northwest Aluminum, Inc., First Mtge. Notes B2 12.00 12/15/06 50 51,000
Great Lakes Carbon Corp., Sr. Sub. Notes B3 10.25 5/15/08 500 (a) 225,000
Kaiser Aluminum & Chemical Corp., Sr. Sub. Notes B3 12.75 2/01/03 310 (a) 285,200
LTV Corp., Sr. Notes Ba3 11.75 11/15/09 225 168,750
RMI USA LLC, Sr. Notes (CA) B1 10.00 6/01/09 100 (d) 96,500
Russel Metals, Inc., Sr. Notes (CA) B1 10.00 6/01/09 150 (d) 144,750
Sheffield Steel Corp., First Mtge. Notes, Ser. B Caa2 11.50 12/01/05 140 82,600
USEC, Inc., Sr. Notes Ba1 6.75 1/20/09 100 73,543
WHX Corp., Sr. Notes B3 10.50 4/15/05 345 258,750
-----------
1,614,893
------------------------------------------------------------------------------------------------------------------------------
Miscellaneous--1.3%
Iron Mountain, Inc., Sr. Sub. Notes B2 8.25 7/01/11 500 (a) 453,750
IT Group, Inc., Sr. Sub. Notes, Ser. B B3 11.25 4/01/09 190 167,200
Sun World International, Inc., First Mtge. Notes, Ser.
B B2 11.25 4/15/04 30 (a) 28,500
United Rentals, Inc., Sr. Sub. Notes, Ser. B B1 9.25 1/15/09 225 211,500
-----------
860,950
------------------------------------------------------------------------------------------------------------------------------
Oil & Gas Exploration/Production--5.3%
Canadian Forest Oil Ltd., Sr. Sub. Notes (CA) B2 8.75 9/15/07 185 (d) 181,300
Comstock Resources Inc., Sr. Notes B2 11.25 5/01/07 120 124,200
Houston Exploring Co., Sr. Sub. Notes B2 8.625 1/01/08 85 (a) 81,600
Parker Drilling Co., Sr. Notes, Ser. D B1 9.75 11/15/06 315 (a) 307,125
Plains Resources, Inc.,
Sr. Sub. Notes, Ser. B B2 10.25 3/15/06 15 (a) 15,187
Sr. Sub. Notes, Ser. D B2 10.25 3/15/06 250 (a) 251,250
R & B Falcon Corp., Sr. Notes Ba3 12.25 3/15/06 275 324,500
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<PAGE>
Portfolio of Investments as
of August 31, 2000 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>
------------------------------------------------------------------------------------------------------------------------------
Oil & Gas Exploration/Production (cont'd.)
RBF Finance Co.,
Sr. Sec'd. Notes Ba3 11.00% 3/15/06 $ 255 (a) $ 295,800
Sr. Sec'd. Notes Ba3 11.375 3/15/09 600 (a) 684,000
Snyder Oil Corp., Sr. Sub. Notes Ba3 8.75 6/15/07 500 (a) 502,500
Swift Energy Co., Sr. Sub. Notes B2 10.25 8/01/09 235 242,638
Tesoro Petroleum Corp., Sr. Sub. Notes, Ser. B B1 9.00 7/01/08 250 244,375
Vintage Petroleum, Inc., Sr. Sub. Notes B1 9.75 6/30/09 360 369,000
-----------
3,623,475
------------------------------------------------------------------------------------------------------------------------------
Paper & Packaging--7.4%
Ball Corp., Sr. Sub. Notes B1 8.25 8/01/08 750 (a) 721,875
Consumers International, Inc., Sr. Sec'd. Notes (CA) B3 10.25 4/01/05 200 (a)(d) 88,000
Doman Industries Ltd.,
Sr. Notes (CA) Caa1 8.75 3/15/04 270 (d) 220,725
Sr. Notes, Ser. B (CA) Caa1 9.25 11/15/07 95 (a)(d) 72,081
Graham Packaging Holdings Co.,
Sr. Disc. Notes, Zero Coupon (until 1/15/03) Caa1 Zero 1/15/09 100 60,000
Sr. Sub. Notes B3 8.75 1/15/08 100 (a) 87,000
Norampac, Inc., Sr. Notes B2 9.50 2/01/08 50 50,000
Radnor Holdings Corp., Sr. Notes, Ser. B B2 10.00 12/01/03 500 (a) 445,000
Repap New Brunswick, Inc.,
Sr. Sec'd. Notes B3 11.50 6/01/04 385 427,350
Sr. Sec'd. Notes Caa1 10.625 4/15/05 240 247,200
Silgan Holdings, Inc.,
Sr. Sub. Deb. B1 13.25 7/15/06 786 (a) 841,020
Sub. Deb., Payment in Kind B1 9.00 6/01/09 800 (a) 728,000
Stone Container Corp., B1 10.75 10/01/02 55 55,825
Stone Container Corp.,
First Mtge. Note B3 12.25 4/01/02 950 (a) 957,125
Sr. Sub. Deb. B2 11.50 8/15/06 65 67,356
-----------
5,068,557
------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals--0.4%
ICN Pharmaceuticals, Inc., Sr. Notes Ba3 8.75 11/15/08 260 (a) 257,400
------------------------------------------------------------------------------------------------------------------------------
Printing--0.7%
American Color Graphics, Inc., Sr. Sub. Notes Caa1 12.75 8/01/05 500 (a) 506,250
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 12
<PAGE>
Portfolio of Investments as
of August 31, 2000 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>
------------------------------------------------------------------------------------------------------------------------------
Real Estate--0.7%
Americredit Corp., Sr. Notes, Ser. B Ba1 9.875% 4/15/06 $ 200 (a) $ 196,500
Intrawest Corp., Sr. Notes B1 10.50 2/01/10 250 (a) 260,000
-----------
456,500
------------------------------------------------------------------------------------------------------------------------------
Restaurants--0.8%
Carrols Corp., Sr. Sub. Notes B2 9.50 12/01/08 250 212,500
CKE Restaurants, Inc., Sr. Sub. Notes B3 9.125 5/01/09 300 (a) 195,000
Sbarro, Inc., Sr. Notes Ba3 11.00 9/15/09 145 151,163
-----------
558,663
------------------------------------------------------------------------------------------------------------------------------
Retail--2.7%
Big 5 Corp., Sr. Notes, Ser. B B2 10.875 11/15/07 200 (a) 182,000
Duane Reade Inc., Sr. Sub. Notes B3 9.25 2/15/08 570 (a) 505,163
K-Mart Corp. Baa3 8.25 1/01/22 750 (a) 678,052
Musicland Group, Inc., Sr. Sub. Notes B2 9.00 6/15/03 250 233,750
Phar-Mor, Inc., Sr. Notes B3 11.72 9/11/02 355 (a) 237,850
-----------
1,836,815
------------------------------------------------------------------------------------------------------------------------------
Supermarkets--1.1%
Marsh Supermarkets Inc., Sr. Sub. Notes B2 8.875 8/01/07 500 (a) 471,250
Pantry, Inc., Sr. Sub. Notes B3 10.25 10/15/07 325 (a) 318,500
-----------
789,750
------------------------------------------------------------------------------------------------------------------------------
Technology--3.4%
Details Capital Corp., Sr. Disc. Notes, Zero Coupon
(until 11/15/02) Caa1 Zero 11/15/07 40 (a) 27,800
Exodus Communications, Inc.,
Sr. Notes B2 10.75 12/15/09 195 190,125
Sr. Notes B2 11.625 7/15/10 580 582,900
Interact Operating Co., Sr. Notes, Payment in Kind NR 14.00 8/01/03 630 (a) 289,660
Intersil Corp., Sr. Notes B1 13.25 8/15/09 162 186,300
SCG Holding Corp., Series B B2 12.00 8/01/09 185 198,875
Spectrasite Holdings, Inc., Sr. Disc. Notes, Zero
Coupon
(Until 3/1/05) B3 Zero 3/15/10 475 263,625
Unisys Corp., Sr. Notes Ba1 11.75 10/15/04 300 315,750
Viasystems, Inc., Sr. Sub. Notes B3 9.75 6/01/07 285 (a) 256,500
-----------
2,311,535
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
Portfolio of Investments as
of August 31, 2000 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--24.1%
Allegiance Telecommunications, Inc., Sr. Notes B1 12.875% 5/15/08 $ 750 (a) $ 793,125
Clearnet Communications Inc., Sr. Disc. Notes, Zero
Coupon (until 5/1/04) (CA) B3 Zero 5/01/09 60 (d) 45,600
Fairpoint Communications, Sr. Sub. Notes B3 12.50 5/01/10 245 242,550
Focal Communications Corp., Sr. Notes, Ser. B B3 11.875 1/15/10 325 302,250
Global Crossing Holdings Ltd., Sr. Notes Ba2 9.50 11/15/09 1,180 1,180,000
GST Telecommunications, Inc.,
Sr. Disc. Conv. Notes, Zero Coupon (until 12/15/00) NR Zero 12/15/05 110 (b) 27,500
Sr. Sub. Notes NR 12.75 11/15/07 100 (a)(b) 15,000
Hyperion Telecommunications, Inc.,
Sr. Disc. Notes, Ser. B Zero Coupon (until 4/15/01) B3 Zero 4/15/03 70 59,500
Sr. Sec'd. Notes, Ser. B B3 12.25 9/01/04 130 (a) 125,450
Impsat Corp.,
Sr. Notes B2 12.125 7/15/03 245 225,400
Sr. Notes B3 12.375 6/15/08 250 195,000
Intermedia Communications, Inc.,
Sr. Disc. Notes, Zero Coupon (until 5/15/01) B2 Zero 5/15/06 500 (a) 440,000
Sr. Disc. Notes, Ser. B, Zero Coupon (until 7/15/02) B2 Zero 7/15/07 255 (a) 174,675
ITC Deltacom, Inc., Sr. Notes B2 9.75 11/15/08 1,000 (a) 830,000
Level 3 Communications, Inc.,
Sr. Disc. Notes Zero Coupon (until 3/1/05) B3 Zero 3/15/10 2,000 1,100,000
Sr. Disc. Notes, Zero Coupon (until 12/1/03) B3 Zero 12/02/08 280 168,000
Sr. Notes B3 11.00 3/15/08 215 212,312
McLeod USA, Inc.,
Sr. Disc. Notes, Zero Coupon (until 3/1/02) B1 Zero 3/01/07 250 (a) 210,000
Sr. Notes B1 9.25 7/15/07 400 (a) 386,000
Sr. Notes B1 8.125 2/15/09 580 (a) 522,000
Metromedia Fiber Network, Inc., Sr. Notes B2 10.00 12/15/09 190 (a) 186,675
Microcell Telecommunications, Sr. Disc. Notes Zero
Coupon
(until 6/1/04) B3 Zero 6/01/09 500 (a) 365,000
Millicom International Cellular, Inc., Sr. Disc. Notes,
Zero Coupon (until 12/1/01) B3 Zero 6/01/06 255 (a) 225,675
Netia Holdings BV, Sr. Disc. Notes, Ser. B Zero Coupon
(until 11/1/01) (Poland) B2 Zero 11/01/07 500 (d) 352,500
Nextel Communications, Inc.,
Sr. Disc. Notes, Zero Coupon (until 9/15/02) B1 Zero 9/15/07 1,030 834,300
Sr. Notes B1 9.375 11/15/09 565 (a) 549,462
Nextlink Communications, Inc.,
Sr. Disc. Notes B2 Zero 12/01/09 445 244,750
Sr. Notes B2 9.625 10/01/07 400 (a) 368,000
Sr. Notes B2 10.75 6/01/09 470 (a) 458,250
Sr. Notes B2 10.50 12/01/09 50 47,500
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 14
<PAGE>
Portfolio of Investments as
of August 31, 2000 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.)
NTL Communications Corp., Sr. Notes, Ser. B, Zero
Coupon
(until 10/1/03) B2 Zero 10/01/08 $ 1,500 (a) $ 960,000
Pagemart Nationwide, Inc., Sr. Disc. Notes B3 15.00% 2/01/05 225 (a) 213,750
Price Communications Wireless, Sr. Sub. Notes B2 11.75 7/15/07 250 268,750
Primus Telecommunications, Inc., Sr. Notes B3 12.75 10/15/09 225 (a) 144,000
PSINet, Inc., Sr. Notes B3 11.00 8/01/09 440 (a) 376,200
RCN Corp., Sr. Notes B3 10.125 1/15/10 115 92,575
Telegroup, Inc., Sr. Disc. Notes, Zero Coupon (until
11/1/00) NR Zero 11/01/04 500 (a)(b) 30,000
Tritel PCS, Inc., Sr. Disc. Notes, Zero Coupon (until
5/15/04) B3 Zero 5/15/09 350 242,375
Verio Inc.,
Sr. Notes B3 11.25% 12/01/08 25 29,250
Sr. Notes B3 10.625 11/15/09 365 432,270
Voicestream Wireless Corp.,
Sr. Disc. Notes, Zero Coupon (Until 11/15/04) B2 Zero 11/15/09 715 504,075
Sr. Notes B2 10.375 11/15/09 485 523,800
Williams Communications Group,
Sr. Notes B2 10.70 10/01/07 100 96,750
Sr. Notes B2 10.875 10/01/09 655 (a) 632,075
Sr. Notes B2 11.875 8/01/10 1,000 990,000
Worldwide Fiber, Inc., Sr. Notes B3 12.00 8/01/09 105 96,600
-----------
16,518,944
------------------------------------------------------------------------------------------------------------------------------
Textiles--0.3%
Phillips Van Heusen Corp., Sr. Sub. Notes B1 9.50 5/01/08 250 232,500
------------------------------------------------------------------------------------------------------------------------------
Transportation--0.4%
American Commercial Lines LLC, Sr. Notes B1 10.25 6/30/08 275 (a) 233,750
Holt Group, Inc., Sr. Notes Caa1 9.75 1/15/06 150 (a) 21,000
-----------
254,750
------------------------------------------------------------------------------------------------------------------------------
Wholesale--0.1%
Core-Mark International, Inc., Sr. Sub. Notes B3 11.375 9/15/03 45 42,300
-----------
Total corporate bonds (cost $85,410,252) 80,668,793
-----------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 15
<PAGE>
Portfolio of Investments as
of August 31, 2000 THE HIGH YIELD INCOME FUND, INC.
------------------------------------------------------------
------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 1) Description Warrants
<S> <C> <C> <C> <C>
------------------------------------------------------------ --------------------------------------------
<CAPTION>
Value
Description (Note 1)
<S> <C>
------------------------------------------------------------
</TABLE>
COMMON STOCKS(c)--0.8%
Intermedia Communications, Inc., 2,780 $ 57,685
Purina Mills, Inc. 20,939 225,099
PSF Group Holdings, Inc., Class A 279 307,164
Star Gas Partners LP 308 5,282
UnitedGlobalCom, Inc., Class A 2 77
--------------
Total common stocks
(cost $1,460,049) 595,307
--------------
PREFERRED STOCKS--3.4%
CSC Holdings, Inc.,
11.125%, Payment in Kind 2,298 244,785
11.125%, Payment in Kind 42 451,500
InterAct Systems, Inc., Ser. B, 1,100
14.00% 231,000
Intermedia Communications, Inc.,
Ser. B, 13.50%, Payment in Kind 1 938
Nextel Communications, Inc., Ser.
E, 11.25%, Payment in Kind 196 191,100
Premcor USA, Inc., 11.50% 132 29,084
Primedia, Inc.,
Ser. D, 10.00% 1,485 138,105
Ser. H, 8.625% 3,000 256,500
R & B Falcon Corp., 13.875%,
Payment in Kind 91 112,801
Sinclair Broadcast Group. Inc.,
11.625%, Payment in Kind 5,000 445,000
Viasystems Group, Inc., Ser. B, 12,434
8.00% 223,807
--------------
Total preferred stocks
(cost $2,462,411) 2,324,620
--------------
WARRANTS(c)--0.4%
Cellnet Data Systems, Inc.,
expiring 9/15/07 2,029 $ 20
Clearnet Communications, Inc.,
expiring 9/15/05 (CA) 2,475 69,300
Intelcom Group, Inc., expiring 9,900
9/15/05 29,700
InterAct Electronic Marketing,
Inc., expiring 12/15/09 1,100 5,500
InterAct Systems, Inc., expiring 1,100
8/1/03 11
MGC Communications, Inc.,
expiring 1/1/49 200 60,000
Pagemart Nationwide, Inc.,
expiring 12/31/03 4,600 27,600
R & B Falcon Corp., expiring 75
5/1/09 48,750
Sterling Chemical Holdings, Inc.,
expiring 8/15/08 140 1,260
XM Satellite Radio, Inc.,
expiring 3/31/10 150 0
--------------
Total warrants (cost $41,839) 242,141
--------------
Total long-term investments
(cost $89,374,551) 83,830,861
--------------
--------------------------------------------------------------------------------
See Notes to Financial Statements. 16
<PAGE>
Portfolio of Investments as of August 31, 2000 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--6.3%
Joint Repurchase Agreement Account (cost $4,316,000;
Note 4) 6.59% 9/01/00 $ 4,316 $ 4,316,000
------------
Total Investments--128.4%
(cost $93,690,551; Note 4) 88,146,861
Other liabilities in excess of assets--(28.4)% (19,487,119)
------------
Net Assets--100% $ 68,659,742
------------
------------
</TABLE>
---------------
(a) Total or partial principal amount segregated as collateral for line of
credit. Aggregate value of segregated securities--$43,852,481; (Note 5).
(b) Issuer in default on interest payment, non-income producing security.
(c) Non-income producing securities.
(d) US $ Denominated Bonds-Foreign Issuers.
NR--Not rated by Moody's or Standard & Poor's.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 17
<PAGE>
THE HIGH YIELD INCOME FUND, INC.
Statement of Assets and Liabilities
------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 31, 2000
<S> <C>
Investments, at value (cost $93,690,551)...... $ 88,146,861
Cash.......................................... 978
Interest and dividend receivable.............. 1,858,722
Receivable for investments sold............... 1,090,111
Prepaid expenses and other assets............. 1,580
---------------
Total assets............................... 91,098,252
---------------
Liabilities
Loan payable (Note 5)......................... 21,000,000
Payable for investments purchased............. 997,500
Accrued expenses.............................. 155,652
Loan interest payable......................... 139,787
Deferred directors' fees...................... 62,946
Dividends payable............................. 41,885
Management fee payable........................ 40,740
---------------
Total liabilities.......................... 22,438,510
---------------
Net Assets.................................... $ 68,659,742
---------------
---------------
Net assets were comprised of:
Common stock, at par....................... $ 113,191
Paid-in capital in excess of par........... 88,768,571
---------------
88,881,762
Distribution in excess of net investment
income.................................. (41,885)
Accumulated net realized loss on
investments............................. (14,636,445)
Net unrealized depreciation on
investments............................. (5,543,690)
---------------
Net assets, August 31, 2000................... $ 68,659,742
---------------
---------------
Net asset value and redemption price per share
($68,659,742 / 11,319,116 shares of common
stock issued and outstanding).............. $6.07
---------------
---------------
</TABLE>
THE HIGH YIELD INCOME FUND, INC.
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 2000
<S> <C>
Income
Interest................................... $ 9,101,920
Dividends.................................. 133,889
---------------
9,235,809
---------------
Expenses
Management fee............................. 501,429
Custodian's fees and expenses.............. 169,000
Reports to shareholders.................... 40,000
Transfer agent's fees and expenses......... 33,000
Audit fee.................................. 30,000
Registration fees.......................... 26,000
Directors' fees and expenses............... 14,000
Legal fees and expenses.................... 6,000
Miscellaneous.............................. 6,516
---------------
Total operating expenses................ 825,945
Loan interest expense (Note 5)............. 1,275,610
---------------
Total expenses.......................... 2,101,555
---------------
Net investment income......................... 7,134,254
---------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on investment
transactions............................... (4,260,456)
Net change in unrealized depreciation on
investments................................ (1,714,976)
---------------
Net loss on investments....................... (5,975,432)
---------------
Net Increase in Net Assets
Resulting from Operations..................... $ 1,158,822
---------------
---------------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 18
<PAGE>
THE HIGH YIELD INCOME FUND, INC.
Statement of Cash Flows
------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
August 31,
Increase (Decrease) in Cash 2000
<S> <C>
Cash flows provided from (used in) operating
activities:
Interest and dividends received (excluding
discount amortization of $1,151,453)..... $ 8,011,915
Operating expenses paid..................... (811,476)
Loan interest paid.......................... (1,241,066)
Maturities of short-term portfolio
investments, net......................... (122,000)
Purchases of long-term portfolio
investments.............................. (73,807,604)
Proceeds from disposition of long-term
portfolio investments.................... 74,343,475
Prepaid expenses............................ 308
------------
Net cash provided from operating
activities............................... 6,373,552
------------
Cash flows used for financing activities:
Cash dividends paid (excluding reinvestment
of dividends of $109,445)................ (7,373,325)
Loan increase............................... 1,000,000
------------
Net increase in cash........................... 227
Cash at beginning of year...................... 751
------------
Cash at end of year............................ $ 978
------------
------------
Reconciliation of Net Increase in Net Assets to
Net Cash Provided from (used in) Operating
Activities
Net increase in net assets resulting from
operations.................................. $ 1,158,822
------------
Increase in investments........................ (841,723)
Net realized loss on investment transactions... 4,260,456
Net change in net unrealized depreciation on
investments................................. 1,714,976
Decrease in interest receivable................ (31,301)
Decrease in receivable for investment sold..... (934,498)
Increase in prepaid expenses and other
assets...................................... 308
Increase in payable for investments
purchased................................... 997,500
Increase in accrued expenses and other
liabilities................................. 49,012
------------
Total adjustments........................... 5,214,730
------------
Net cash provided from operating activities.... $ 6,373,552
------------
------------
</TABLE>
THE HIGH YIELD INCOME FUND, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
in Net Assets 2000 1999
<S> <C> <C>
Operations
Net investment income........... $ 7,134,254 $ 8,017,096
Net realized loss on investment
transactions................. (4,260,456) (4,543,476)
Net change in unrealized
depreciation of
investments.................. (1,714,976) 1,432,237
----------- ------------
Net increase in net assets
resulting from operations.... 1,158,822 4,905,857
Dividends paid to shareholders
from net investment income...... (7,171,744) (8,112,556)
Distributions to shareholders in
excess of net investment
income.......................... (41,885) --
Return of capital distributions.... (255,417) --
Net asset value of shares issued to
shareholders in reinvestment of
dividends....................... 109,445 435,530
----------- ------------
Total decrease..................... (6,200,779) (2,771,169)
Net Assets
Beginning of year.................. 74,860,521 77,631,690
----------- ------------
End of year........................ $68,659,742 $ 74,860,521
----------- ------------
----------- ------------
Undistributed Net Investment
Income.......................... -- 37,490
----------- ------------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 19
<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 decrease accumulated net realized loss and decrease
paid-in capital in excess of par by $8,891,435. This was primarily due to the
expiration of a portion of the capital loss
--------------------------------------------------------------------------------
20
<PAGE>
Notes to Financial Statements THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
carryforward for the year ended August 31, 2000. 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 services of PIC,
the compensation of officers of the Fund 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 average weekly net assets of the Fund.
Effective January 1, 2000, the subadvisory fee paid to PIC by PIFM is computed
daily and payable monthly at an annual rate of .350 of 1% of the average daily
net assets of the Fund. Prior to January 1, 2000, PIC was reimbursed by PIFM for
reasonable costs and expenses incurred in furnishing investment advisory
services. The change in the subadvisory fee structure has no impact on the
management fee charged to the Fund or its shareholders.
PIFM and PIC are 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, 2000 aggregated $74,795,367 and $74,963,859,
respectively.
The cost basis of investments for federal income tax purposes at August 31, 2000
was $93,723,301 and net unrealized depreciation for federal income tax purposes
was $5,576,440 (gross unrealized appreciation--$1,892,754; gross unrealized
depreciation--$7,469,194).
For federal income tax purposes, the Fund has a capital loss carryforward as of
August 31, 2000 of approximately $10,530,600 of which $263,000 expires in 2003,
$5,569,500 expires in 2004, $1,361,400 in 2007 and $3,336,700 in 2008.
Approximately $8,891,400 of the Fund's capital loss carryforward expired as of
August 31, 2000. In addition, the Fund will elect to treat net capital losses of
approximately $4,073,100 incurred in the ten month period ended August 31, 2000
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,
2000, the Fund had a 0.64% undivided interest in the repurchase agreements in
the joint account. The undivided interest for the Fund represented $4,316,000 in
principal amount. As of such date, each repurchase agreement in the joint
account and the collateral therefor was as follows:
ABN AMRO Inc., 6.61%, in the principal amount of $180,000,000, repurchase price
$180,033,050, due 9/1/00. The value of the collateral including accrued interest
was $183,600,295.
Bear, Stearns & Co. Inc., 6.62%, in the principal amount of $100,000,000,
repurchase price $100,018,389, due 9/1/00. The value of the collateral including
accrued interest was $102,294,995.
Salomon Smith Barney Inc., 6.62%, in the principal amount of $190,000,000,
repurchase price $190,034,939, due 9/1/00. The value of the collateral including
accrued interest was $193,916,346.
UBS Warburg, 6.61%, in the principal amount of $100,000,000, repurchase price
$100,018,361, due 9/1/00. The value of the collateral including accrued interest
was $102,002,880.
UBS Warburg, 6.45%, in the principal amount of $101,386,000, repurchase price
$101,404,165, due 9/1/00. The value of the collateral including accrued interest
was $103,414,456.
------------------------------------------------------------
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, 2000 was $18,060,109
at a weighted average interest rate of 6.95%.
--------------------------------------------------------------------------------
21
<PAGE>
Notes to Financial Statements THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
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, 2000.
During the fiscal years ended August 31, 2000 and 1999 the Fund issued 16,671
and 63,171 shares, respectively, in connection with the reinvestment of
dividends.
------------------------------------------------------------
Note 7. Dividends and Distributions
On September 1 and October 2, 2000 the Board of Directors of the Fund declared
dividends of $.050 per share payable on September 29 and October 31,
respectively, to shareholders of record on September 15 and October 16, 2000,
respectively.
--------------------------------------------------------------------------------
22
<PAGE>
Financial Highlights THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
-------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year(a)..................... $ 6.62 $ 6.91 $ 7.58 $ 7.24 $ 7.12
------- ------- ------- ------- -------
Net investment income..................................... .63 .71 .74 .74 .77
Net realized and unrealized gain (loss) on investments.... (.52) (.28) (.69) .35 .16
------- ------- ------- ------- -------
Total from investment operations....................... .11 .43 .05 1.09 .93
------- ------- ------- ------- -------
Dividends paid to shareholders from net investment
income................................................. (.64) (.72) (.72) (.74) (.77)
Distributions to shareholders in excess of net investment
income................................................. --(c) -- -- (.01) --
Return of capital distributions........................... (.02) -- -- -- (.04)
------- ------- ------- ------- -------
Total dividends and distributions...................... (.66) (.72) (.72) (.75) (.81)
------- ------- ------- ------- -------
Net asset value, end of year(a)........................... $ 6.07 $ 6.62 $ 6.91 $ 7.58 $ 7.24
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Market price per share, end of year(a).................... $ 5.69 $ 6.81 $ 6.38 $ 7.81 $ 7.75
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN(b)................................ (5.98)% 18.55% (10.19)% 11.47% 8.05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............................. $68,660 $74,861 $77,632 $84,581 $80,174
Average net assets (000).................................. $71,239 $77,389 $85,511 $81,788 $79,408
Ratio of expenses to average net assets................... 2.95% 2.69% 2.64% 2.79% 2.89%
Ratio of net investment income to average net assets...... 10.01% 10.36% 9.64% 10.04% 10.62%
Portfolio turnover rate................................... 88% 85% 73% 82% 97%
Asset coverage............................................ 427% 474% 488% 526% 501%
Total debt outstanding at year-end (000).................. $21,000 $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.
(c) Less than $.005 per share.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 23
<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, 2000, 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 accounting principles
generally accepted in the United States of America. 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 auditing standards
generally accepted in the United States of America, 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, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
October 25, 2000
--------------------------------------------------------------------------------
24
<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.
--------------------------------------------------------------------------------
25
<PAGE>
<PAGE>
Directors
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Thomas T. Mooney
Stephen P. Munn
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
David R. Odenath, Jr. Vice President
Grace Torres, Treasurer
Deborah A. Docs, Secretary
William V. Healey, 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
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
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
For Information call
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
