UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: | 811-05296 | |
Exact name of registrant as specified in charter: | The High Yield Income Fund, Inc. | |
Address of principal executive offices: | Gateway Center 3, | |
100 Mulberry Street, | ||
Newark, New Jersey 07102 | ||
Name and address of agent for service: | Deborah A. Docs | |
Gateway Center 3, | ||
100 Mulberry Street, | ||
Newark, New Jersey 07102 | ||
Registrants telephone number, including area code: | 973-367-7521 | |
Date of fiscal year end: | 8/31/2008 | |
Date of reporting period: | 8/31/2008 |
Item 1 | | Reports to Stockholders |
ANNUAL REPORT
AUGUST 31, 2008
THE HIGH YIELD INCOME FUND, INC.
This report is for stockholder information. This is not a prospectus intended for use in the purchase or sale of fund shares.
The views expressed in this report and information about the Funds holdings are for the period covered by this report and are subject to change thereafter.
Your Funds Performance
Fund objectives
The primary investment objective of The High Yield Income Fund, Inc. 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 below investment grade by independent rating agencies. Bonds rated below investment grade are commonly known as junk bonds and 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 diversified, and we carefully research companies to find those with attractive yields and improving credit quality. There can be no assurance that the Fund will achieve its investment objectives.
Performance as of 8/31/08 | |||||||||
Total Return 12 Months |
NAV 8/31/08 |
Market Price 8/31/08 | |||||||
The High Yield Income Fund1 |
1.50 | % | $ | 4.93 | $ | 4.31 | |||
Lehman Brothers U.S. Corporate High Yield 1% Issuer Capped Index2 |
0.44 | N/A | N/A | ||||||
Prior Index3 |
0.66 | N/A | N/A | ||||||
Lipper Closed-End High Current Yield Funds (Leveraged) Avg.4 |
14.03 | N/A | N/A |
Past performance does not guarantee future results and current performance may be lower or higher than the past performance data quoted. The investment return and principal value will fluctuate, and shares, when sold, may be worth more or less than the original cost. For the most recent month-end performance, call (800) 451-6788. There are no sales charges.
1Source: Prudential Investments LLC. Total return of the Fund represents the change in net asset value from the beginning of the period (9/1/07) through the end (8/31/08) and assumes the reinvestment of dividends and distributions. Shares of the Fund are traded on the New York Stock Exchange, Inc. using the symbol HYI. Past performance is not indicative of future results.
2Source: Lehman Brothers. The Lehman Brothers U.S. Corporate High Yield 1% Issuer Capped Index (1% Issuer Capped Index) covers the universe of U.S. dollar denominated, non-convertible, fixed rate, noninvestment grade debt. Issuers are capped at 1% of the Index. Index holdings must have at least one year to final maturity, at least $150 million par amount outstanding, and be publicly issued with a rating of Ba1 or lower. Index returns do not include the effect of any sales charges, mutual fund operating expenses or taxes.
3Source: Lehman Brothers. The Lehman Brothers U.S. Corporate High Yield 2% Issuer Capped Index (the Prior Index) is an unmanaged index of fixed-rate, noninvestment grade debt securities with at least one year remaining to maturity. However, the representation of any single bond issuer is restricted to a maximum of 2% of the total index.
4Source: Lipper Inc. These are the average returns of 31 funds in the Closed-End High Current Yield Funds (Leveraged) category for 12 months.
The High Yield Income Fund, Inc. | 1 |
Your Funds Performance (continued)
Investors cannot invest directly in an index.
Yield and Dividend as of 8/31/08 | ||
Total Monthly Dividends Paid per Share 12 Months |
Yield at Market Price5 | |
$0.4575 |
10.61% |
5Yield at market price is determined by dividing total monthly dividends paid per share during the 12 months ended August 31, 2008 by the market price per share as of August 31, 2008.
2 |
Strategy and Performance Overview
How did the Fund perform?
The Fund returned 1.50% for its 12-month reporting period ended August 31, 2008, outperforming the 0.44% decline of the Lehman Brothers U.S. Corporate High Yield 1% Issuer Capped Index (the Index) and significantly beating the 14.03% decline of the Lipper Closed-End High Current Yield Funds (Leveraged) Average.
What were conditions like in the U.S. high yield market?
Early in the reporting period, the Federal Reserve (the Fed) tried to prevent a rising tide of delinquencies and foreclosures on subprime mortgages from engulfing the broader U.S. economy. The Fed cut its target for the federal funds rate charged on overnight loans between banks to 4.75% from 5.25% in September 2007. It hoped that lower borrowing costs would encourage companies to continue expanding their businesses and consumers to spend freely for goods and services. Initially, the rate cut buoyed financial markets, and high yield bond prices gained in September and October 2007, only to turn sharply lower as the reporting period continued.
It became increasingly clear that more aggressive, inventive measures were needed to support the economy and ease stresses in the credit markets. Wall Street investment banks and commercial banks were forced to write down billions of dollars of debt securities linked to the risky mortgages. Commercial banks grew reluctant to lend money to each other, businesses, and consumers. The U.S. economy shed thousands of jobs, housing prices continued to fall, and the inventory of houses for sale climbed.
A concerned Fed acted decisively. It repeatedly eased monetary policy, pushing down its target for the federal funds rate to 2.00%. In addition, the Fed allowed Wall Street investment banks to borrow money from its discount window on much the same terms as commercial banks. It also helped facilitate JP Morgan Chase & Co.s hurried acquisition of Bear Stearns Cos. at a deep discount before the latter slid into bankruptcy. The Feds decision to help initially cheered financial markets, helping high yield bond prices soar in April 2008. But the downturn in the high yield market soon resumed.
As the credit crisis worsened, investors grew more risk averse. Many continued to seek safe haven in U.S. Treasury securities, which are rated AAA because the federal government backs their interest and principal. Meanwhile, prices of riskier assets, including high yield bonds, repeatedly came under pressure, causing their yields to climb, as yields rise when bond prices fall. Consequently, the difference between yields on high yield bonds and 10-year U.S. Treasury notes ballooned, indicating that investors required significantly more compensation to invest in bonds rated below investment grade. Defaults on high yield bonds also edged higher as more companies failed to pay interest and/or principal on their debt securities.
The High Yield Income Fund, Inc. | 3 |
Strategy and Performance Overview (continued)
Within the high yield market, the performance was mixed for the 12-month reporting period. The positive total return posted by bonds in the Ba rating category was wiped out by the sharp declines posted by bonds in the lower rating categories. Some market sectors such as healthcare, pharmaceuticals, telecommunications, and aerospace/defense finished in positive territory. In contrast, the airlines and automotive sectors, hard hit by soaring energy prices, as well as the building materials and financial institutions sectors, which were deeply affected by the credit crisis, ended the period with double-digit losses.
How was the Fund positioned during the reporting period?
Under the difficult market conditions, the Fund continued to favor shorter-term investments, whether high yield bonds or leveraged bank loans. The latter are loans made to below-investment-grade companies that have borrowed heavily to finance their businesses. Of the two, leveraged bank loans are the more conservative because, in most cases, they get paid off before high yield bonds when a company declares bankruptcy.
Commercial banks sell leveraged loans to mutual funds and other institutional investors to remove them from their balance sheets, thereby reducing the risk associated with lending. Wall Street firms also set up legal entities that purchase groups of loans and package them as collateralized loan obligations (CLOs) that are sold to institutional investors. Because there was a large amount of bank loans available and few newly issued CLOs, the Fund was able to increase its holdings of leveraged bank loans on very attractive terms.
The Fund also benefited from Prudential Fixed Income Managements sector allocation strategy that favored so-called defensive industries, that is those that tend to hold up well even when the broader economy weakens in the United States. Most notably, the Fund had a substantially larger exposure than the Index to the healthcare sector, which performed well. At the same time, the Fund had significantly smaller positions than the Index in the troubled automotive, building materials, and financial institutions sectors. Thus, the sector allocation strategy helped the Fund outperform the Index for the reporting period.
What were some of the key holdings that aided the Funds return?
Two of the Funds positions in the healthcare sectorAccellent, Inc. and HCA, Inc.made the largest positive contribution to its return. Accellent provides design, engineering, and manufacturing services to companies that produce medical devices. HCA, a provider of healthcare services in the United States and England, owns more than 160 hospitals and more than 100 outpatient centers.
4 |
In the difficult investment environment, avoiding companies that defaulted on their bonds was just as important as selecting bonds of companies that performed well. For example, the Fund did not own bonds of SemGroup LP, an oil company included in the Index. SemGroup filed to reorganize under Chapter 11 of the U.S. Bankruptcy Code and defaulted on its bonds. Avoiding these debt securities helped the Fund outperform the Index.
What were some of the key holdings that hurt the Funds return?
The Fund had a limited exposure to bonds that were pressured most by the malaise in the housing market. Yet it continued to have a larger exposure than the Index to debt securities of Realogy Corp., a real estate management and services firm based in New Jersey. Realogy bonds were one of the largest detractors from the Funds return, but the Fund continues to hold them because Prudential Fixed Income Management still believes Realogy will gain market share as weaker competitors go out of business.
The Fund also owned bonds of Hawaiian Telecom Communications that tumbled in value, detracting from its return. The company suffered lingering systems problems that have weakened its competitive potential in the longer term.
How did Prudential Fixed Income Management employ leverage in the Fund?
Leverage refers to the practice of taking out a loan against a percentage of a portfolios assets and investing the money back into the high yield market. It can materially enhance a portfolios return when the underlying bonds gain in value, or it can detract from a portfolios return when the underlying bonds decline in value.
Shortly before the reporting period began, Prudential Fixed Income Management reduced the amount of leverage employed by the Fund because it believed valuations of high yield bonds did not accurately reflect the degree of risk in the market. However, the Fund increased borrowing during the reporting period to selectively take advantage of attractive investment opportunities created by the sell-off in the high yield market.
What is Prudential Fixed Income Managements outlook for the market?
Prudential Fixed Income Management maintains its cautious outlook for the U.S. high yield bond and leveraged bank loan markets, given that weak economic conditions are having a negative impact on companies that borrow heavily to finance their businesses. As previously mentioned, defaults on high yield bonds have already begun to edge higher. Prudential Fixed Income Management expects the default rate to rise by the end of 2008 to nearly 4.00%, its long-term average.
The High Yield Income Fund, Inc. | 5 |
Strategy and Performance Overview (continued)
The high yield market is also expected to remain volatile well into 2009. That said, Prudential Fixed Income Management believes the downturn in the high yield market continues to create attractive investment opportunities. Even relatively minor disappointments in earnings have caused sharp sell-offs in the high yield bonds and bank loans of some generally solid companies. The Funds portfolio managers and credit research analysts are working diligently to identify high yield bonds and bank loans that have become oversold and therefore represent good value.
6 |
Portfolio of Investments
as of August 31, 2008
Moodys Rating |
Interest Rate |
Maturity Date |
Principal Amount (000) |
Value (Note 1) | |||||||||
LONG-TERM INVESTMENTS 133.5% |
|||||||||||||
BANK LOANS 12.4% |
|||||||||||||
Cable 3.2% |
|||||||||||||
CSC Holdings, Bank Loan |
Ba1 | 3.464%(h) | 2/24/12 | $ | 1,922 | (f) | $ | 1,827,896 | |||||
Electric 1.6% |
|||||||||||||
Texas Competitive Electric Holdings Co. LLC, |
|||||||||||||
Bank Loan |
Ba3 | 6.22(h) | 10/10/14 | 224 | (f) | 208,884 | |||||||
Bank Loan |
Ba3 | 6.269(h) | 10/10/14 | 746 | (f) | 694,004 | |||||||
902,888 | |||||||||||||
Health Care & Pharmaceutical 1.9% |
|||||||||||||
HCA, Inc., Bank Loan |
Ba3 | 5.306(h) | 11/17/12 | 734 | (f) | 685,871 | |||||||
Royalty Pharma Financial Trust, Bank Loan |
Baa3 | 7.75 | 5/15/15 | 400 | (f) | 397,500 | |||||||
1,083,371 | |||||||||||||
Media & Entertainment 0.9% |
|||||||||||||
Idearc, Inc., Bank Loan |
Ba3 | 4.786(h) | 11/17/14 | 746 | (f) | 522,348 | |||||||
Paper 1.2% |
|||||||||||||
Georgia-Pacific LLC, Bank Loan |
Ba2 | 4.466(h) | 12/29/12 | 717 | (f) | 677,003 | |||||||
Technology 2.7% |
|||||||||||||
Flextronics Intl., Bank Loan |
Ba1 | 5.041(h) | 10/01/12 | 995 | (f) | 910,725 | |||||||
Sensata Technologies, Bank Loan |
B1 | 4.543(h) | 4/27/13 | 746 | (f) | 655,251 | |||||||
1,565,976 | |||||||||||||
Telecommunications 0.9% |
|||||||||||||
Alltel Communications, Inc., Bank Loan |
Ba3 | 5.314(h) | 5/15/15 | 497 | (f) | 491,648 | |||||||
Total bank loans |
7,071,130 | ||||||||||||
CORPORATE BONDS 121.1% |
|||||||||||||
Aerospace/Defense 4.5% |
|||||||||||||
BE Aerospace, Inc., Sr. Unsecd Notes |
Ba3 | 8.50 | 7/01/18 | 300 | 312,750 |
See Notes to Financial Statements.
The High Yield Income Fund, Inc. | 7 |
Portfolio of Investments
as of August 31, 2008 continued
Moodys Rating |
Interest Rate |
Maturity Date |
Principal Amount (000) |
Value (Note 1) | |||||||||
CORPORATE BONDS (Continued) |
|||||||||||||
Aerospace/Defense (contd) |
|||||||||||||
DRS Technologies, Inc., |
|||||||||||||
Gtd. Notes |
B1 | 6.625% | 2/01/16 | $ | 200 | $ | 206,000 | ||||||
Gtd. Notes |
B3 | 7.625 | 2/01/18 | 400 | 421,000 | ||||||||
Esterline Technologies Corp., |
B1 | 7.75 | 6/15/13 | 300 | 300,000 | ||||||||
L-3 Communications Corp., |
|||||||||||||
Gtd. Notes |
Ba3 | 7.625 | 6/15/12 | 400 | 407,000 | ||||||||
Gtd. Notes, Ser. B |
Ba3 | 6.375 | 10/15/15 | 300 | 287,250 | ||||||||
Moog, Inc., |
|||||||||||||
Sr. Sub. Notes |
Ba3 | 6.25 | 1/15/15 | 300 | 283,500 | ||||||||
Sr. Sub. Notes, 144A |
Ba3 | 7.25 | 6/15/18 | 200 | 196,000 | ||||||||
TransDigm, Inc., Gtd. Notes |
B3 | 7.75 | 7/15/14 | 150 | 145,875 | ||||||||
2,559,375 | |||||||||||||
Airlines 0.2% |
|||||||||||||
AMR Corp., M.T.N., Notes, Ser. B |
CCC+(d) | 10.40 | 3/10/11 | 100 | 72,000 | ||||||||
Continental Airlines, Inc., Pass-Thru Certs., Ser. 1998-1, Class B (Sinkable, expected maturity 3/15/17) |
Ba2 | 6.748 | 3/15/17 | 55 | 44,484 | ||||||||
116,484 | |||||||||||||
Automotive 2.4% |
|||||||||||||
Ford Motor Credit Co., |
|||||||||||||
Notes |
B1 | 7.875 | 6/15/10 | 430 | 370,672 | ||||||||
Sr. Unsecd Notes |
B1 | 7.25 | 10/25/11 | 350 | 268,114 | ||||||||
General Motors Corp., |
|||||||||||||
Notes |
Caa2 | 7.20 | 1/15/11 | 415 | 266,638 | ||||||||
Sr. Notes |
Caa2 | 7.125 | 7/15/13 | 50 | 27,000 | ||||||||
Lear Corp., Gtd. Notes, Ser. B |
B3 | 8.75 | 12/01/16 | 125 | 94,063 | ||||||||
TRW Automotive, Inc., Gtd. Notes, 144A |
Ba3 | 7.25 | 3/15/17 | 300 | 258,000 | ||||||||
Visteon Corp., Sr. Notes |
Caa2 | 7.00 | 3/10/14 | 135 | 66,825 | ||||||||
1,351,312 | |||||||||||||
Banking 0.7% |
|||||||||||||
Halyk Savings Bank of Kazakhstan (Kazakhstan), |
|||||||||||||
Notes, 144A |
Baa3 | 8.125 | 10/07/09 | 100 | (c) | 101,000 |
See Notes to Financial Statements.
8 |
Moodys Rating |
Interest Rate |
Maturity Date |
Principal Amount (000) |
Value (Note 1) | |||||||||
CORPORATE BONDS (Continued) |
|||||||||||||
Banking (contd) |
|||||||||||||
Kazkommerts International BV (Netherlands), |
|||||||||||||
Gtd. Notes, 144A |
Ba1 | 7.00% | 11/03/09 | $ | 105 | (c) | $ | 99,750 | |||||
Gtd. Notes 144A |
Ba1 | 8.50 | 4/16/13 | 205 | (c) | 172,200 | |||||||
372,950 | |||||||||||||
Building Materials & Construction 1.8% |
|||||||||||||
Beazer Homes USA, Inc., Gtd. Notes |
B2 | 8.625 | 5/15/11 | 110 | 86,900 | ||||||||
D.R. Horton, Inc., Gtd. Notes |
Ba2 | 8.00 | 2/01/09 | 750 | 750,000 | ||||||||
KB Home, Notes |
Ba2 | 6.375 | 8/15/11 | 150 | 138,000 | ||||||||
Nortek, Inc., Sr. Sub. Notes |
Caa1 | 8.50 | 9/01/14 | 100 | 61,000 | ||||||||
1,035,900 | |||||||||||||
Cable 5.1% |
|||||||||||||
Charter Communications Holdings I LLC, |
|||||||||||||
Gtd. Notes |
Caa3 | 10.00 | 5/15/14 | 99 | 49,005 | ||||||||
Gtd. Notes |
Caa3 | 11.125 | 1/15/14 | 198 | 99,000 | ||||||||
Gtd. Notes |
Caa3 | 11.75 | 5/15/14 | 500 | 267,500 | ||||||||
Gtd. Notes |
NR | 11.00 | 10/01/15 | 4 | 3,050 | ||||||||
Secd. Notes |
Caa3 | 11.00 | 10/01/15 | 300 | 230,250 | ||||||||
CSC Holdings, Inc., |
|||||||||||||
Debentures |
B1 | 7.625 | 7/15/18 | 100 | 93,000 | ||||||||
Debentures |
B1 | 7.875 | 2/15/18 | 50 | 47,000 | ||||||||
Sr. Notes, Ser. B |
B1 | 7.625 | 4/01/11 | 25 | 25,125 | ||||||||
Mediacom Broadband LLC, Sr. Notes |
B3 | 8.50 | 10/15/15 | 125 | 114,063 | ||||||||
Mediacom LLC., Sr. Notes |
B3 | 9.50 | 1/15/13 | 80 | 77,400 | ||||||||
NTL Cable PLC (United Kingdom), |
B2 | 9.125 | 8/15/16 | 300 | (c) | 285,750 | |||||||
Shaw Communications, Inc. (Canada), |
|||||||||||||
Sr. Notes |
Ba1 | 7.20 | 12/15/11 | 300 | (c) | 303,375 | |||||||
Sr. Notes |
Ba1 | 8.25 | 4/11/10 | 600 | (c) | 615,749 | |||||||
Videotron Ltee, (Canada), |
|||||||||||||
Gtd. Notes |
Ba2 | 6.375 | 12/15/15 | 100 | (c) | 93,375 | |||||||
Gtd. Notes |
Ba2 | 6.875 | 1/15/14 | 208 | (c) | 202,020 | |||||||
Sr. Notes, 144A |
Ba2 | 9.125 | 4/15/18 | 375 | (c) | 394,219 | |||||||
2,899,881 |
See Notes to Financial Statements.
The High Yield Income Fund, Inc. | 9 |
Portfolio of Investments
as of August 31, 2008 continued
Moodys Rating |
Interest Rate |
Maturity Date |
Principal Amount (000) |
Value (Note 1) | |||||||||
CORPORATE BONDS (Continued) |
|||||||||||||
Capital Goods 12.3% |
|||||||||||||
Actuant Corp., Gtd. Notes |
Ba2 | 6.875% | 6/15/17 | $ | 125 | $ | 122,500 | ||||||
ALH Finance LLC, Sr. Sub. Notes |
B3 | 8.50 | 1/15/13 | 250 | 233,125 | ||||||||
Allied Waste North America, Inc., |
|||||||||||||
Secd. Notes, Ser. B |
B1 | 5.75 | 2/15/11 | 450 | 446,624 | ||||||||
Sr. Notes |
B1 | 7.25 | 3/15/15 | 95 | 96,188 | ||||||||
Sr. Secd. Notes |
B1 | 6.125 | 2/15/14 | 150 | 145,875 | ||||||||
Sr. Secd. Notes |
B1 | 6.375 | 4/15/11 | 250 | 250,625 | ||||||||
Ashtead Capital, Inc., Notes, 144A |
B1 | 9.00 | 8/15/16 | 475 | 427,500 | ||||||||
Ashtead Holdings PLC (United Kingdom), Secd. Notes, 144A |
B1 | 8.625 | 8/01/15 | 150 | (c) | 133,500 | |||||||
Baldor Electric Co., Gtd. Notes |
B3 | 8.625 | 2/15/17 | 360 | 364,500 | ||||||||
Blount, Inc., Sr. Sub. Notes |
B2 | 8.875 | 8/01/12 | 425 | 433,500 | ||||||||
Columbus McKinnon Corp., Sr. Sub. Notes |
B1 | 8.875 | 11/01/13 | 300 | 309,000 | ||||||||
Ucar Finance, Inc., Gtd. Notes |
Ba3 | 10.25 | 2/15/12 | 98 | 100,940 | ||||||||
Hertz Corp., Gtd. Notes |
B1 | 8.875 | 1/01/14 | 820 | 767,724 | ||||||||
JohnsonDiversey Holdings, Inc., Discount Notes |
Caa1 | 10.67 | 5/15/13 | 310 | 311,550 | ||||||||
JohnsonDiversey, Inc., Gtd. Notes, Ser. B |
B2 | 9.625 | 5/15/12 | 75 | 76,313 | ||||||||
Lender Processing Services, Inc., Sr. Unsecd Notes, 144A |
Ba2 | 8.125 | 7/01/16 | 375 | 381,094 | ||||||||
Mobile Mini, Inc., Sr. Notes |
B2 | 6.875 | 5/01/15 | 295 | 251,488 | ||||||||
RBS Global, Inc. & Rexnord Corp., Gtd. Notes |
B3 | 9.50 | 8/01/14 | 345 | 336,375 | ||||||||
Rental Service Corp., Bonds |
Caa1 | 9.50 | 12/01/14 | 320 | 256,000 | ||||||||
SPX Corp., Sr. Notes, 144A |
Ba2 | 7.625 | 12/15/14 | 225 | 231,188 | ||||||||
Stena AB (Sweden), |
|||||||||||||
Sr. Notes |
Ba2 | 7.00 | 12/01/16 | 100 | (c) | 94,500 | |||||||
Sr. Notes |
Ba2 | 7.50 | 11/01/13 | 275 | (c) | 268,125 | |||||||
Terex Corp., |
|||||||||||||
Gtd. Notes |
Ba2 | 7.375 | 1/15/14 | 275 | 270,875 | ||||||||
Sr. Sub. Notes |
Ba3 | 8.00 | 11/15/17 | 100 | 98,750 | ||||||||
United Rentals North America, Inc., |
|||||||||||||
Sr. Sub. Notes |
B2 | 7.75 | 11/15/13 | 400 | 316,000 | ||||||||
Valmont Industries, Inc., Gtd. Notes |
Ba2 | 6.875 | 5/01/14 | 350 | 339,500 | ||||||||
7,063,359 |
See Notes to Financial Statements.
10 |
Moodys Rating |
Interest Rate |
Maturity Date |
Principal Amount (000) |
Value (Note 1) | ||||||||
CORPORATE BONDS (Continued) |
||||||||||||
Chemicals 5.7% |
||||||||||||
Hercules, Inc., Gtd. Notes |
Ba1 | 6.75% | 10/15/29 | $ | 175 | $ | 175,875 | |||||
Huntsman LLC, Gtd. Notes |
Ba1 | 11.625 | 10/15/10 | 1,111 | 1,149,884 | |||||||
Koppers, Inc., Gtd. Notes |
Ba3 | 9.875 | 10/15/13 | 805 | 845,250 | |||||||
Momentive Performance Materials, Inc., Gtd Notes |
B3 | 9.75 | 12/01/14 | 300 | 270,750 | |||||||
Mosaic Co. (The), |
||||||||||||
Sr. Notes, 144A |
Baa3 | 7.375 | 12/01/14 | 125 | 129,267 | |||||||
Sr. Notes, 144A |
Baa3 | 7.625 | 12/01/16 | 125 | 131,454 | |||||||
Nalco Co., Sr. Notes |
B1 | 7.75 | 11/15/11 | 575 | 582,188 | |||||||
3,284,668 | ||||||||||||
Consumer 2.6% |
||||||||||||
Mac-Gray Corp., Sr. Notes |
B3 | 7.625 | 8/15/15 | 150 | 142,875 | |||||||
Realogy Corp., Gtd. Notes, PIK |
Caa2 | 11.00 | 4/15/14 | 850 | 399,500 | |||||||
Service Corp. International, |
||||||||||||
Sr. Notes |
B1 | 6.75 | 4/01/16 | 175 | 161,000 | |||||||
Sr. Notes |
B1 | 7.375 | 10/01/14 | 450 | 438,750 | |||||||
Stewart Enterprises, Inc., Gtd. Notes |
Ba3 | 6.25 | 2/15/13 | 200 | 193,000 | |||||||
Ticketmaster, Sr. Notes, 144A |
Ba3 | 10.75 | 8/01/16 | 125 | 128,125 | |||||||
1,463,250 | ||||||||||||
Electric 7.7% |
||||||||||||
AES Corp., |
||||||||||||
Secd. Notes, 144A |
Ba3 | 8.75 | 5/15/13 | 47 | 48,645 | |||||||
Sr. Unsecd Notes |
B1 | 7.75 | 10/15/15 | 150 | 148,500 | |||||||
Sr. Unsecd Notes |
B1 | 8.00 | 10/15/17 | 500 | 492,500 | |||||||
AES Eastern Energy LP, |
||||||||||||
Pass-Through Cert., |
||||||||||||
Ser. 1999-A |
Ba1 | 9.00 | 1/02/17 | 184 | 196,629 | |||||||
CMS Energy Corp., Sr. Notes |
Ba1 | 8.50 | 4/15/11 | 135 | 141,967 | |||||||
Dynegy Roseton/Danskammer, |
||||||||||||
Pass-Through Trust, |
||||||||||||
Series B |
Ba3 | 7.67 | 11/08/16 | 550 | 538,314 | |||||||
Edison Mission Energy, Sr. Unsecd. Notes |
B1 | 7.75 | 6/15/16 | 225 | 225,000 | |||||||
Energy Future Holdings Corp., Gtd. Notes, PIK, 144A |
B3 | 11.25 | 11/01/17 | 200 | 197,500 | |||||||
Midwest Generation LLC, Pass-Thru Certs., Ser. A |
Baa3 | 8.30 | 7/02/09 | 70 | 70,645 |
See Notes to Financial Statements.
The High Yield Income Fund, Inc. | 11 |
Portfolio of Investments
as of August 31, 2008 continued
Moodys Rating |
Interest Rate |
Maturity Date |
Principal Amount (000) |
Value (Note 1) | |||||||||
CORPORATE BONDS (Continued) |
|||||||||||||
Electric (contd) |
|||||||||||||
Mirant Corp., 144A |
NR | 7.40% | 7/15/49 | $ | 75 | (a)(f) | $ | 75 | |||||
Mirant Mid Atlantic LLC, Pass-Through Cert., Ser. B, |
Ba1 | 9.125 | 6/30/17 | 335 | 363,122 | ||||||||
Mirant North America LLC, Gtd. Notes |
B1 | 7.375 | 12/31/13 | 100 | 99,250 | ||||||||
NRG Energy, Inc., |
|||||||||||||
Gtd. Notes |
B1 | 7.25 | 2/01/14 | 400 | 394,500 | ||||||||
Gtd. Notes |
B1 | 7.375 | 2/01/16 | 280 | 276,500 | ||||||||
Orion Power Holdings, Inc., Sr. Notes |
Ba3 | 12.00 | 5/01/10 | 370 | 399,600 | ||||||||
Sierra Pacific Resources, Inc., Sr. Notes |
Ba3 | 8.625 | 3/15/14 | 199 | 208,134 | ||||||||
Tenaska Alabama Partners LP, |
|||||||||||||
Secd Notes, 144A |
Ba2 | 7.00 | 6/30/21 | 136 | 127,842 | ||||||||
Texas Competitive Electric Holdings Co. LLC, Gtd. Notes, 144A |
B3 | 10.25 | 11/01/15 | 475 | 473,813 | ||||||||
4,402,536 | |||||||||||||
EnergyOther 7.9% |
|||||||||||||
Compagnie Generale de Geophysique-Veritas (France), Gtd. Notes |
Ba3 | 7.50 | 5/15/15 | 110 | (c) | 109,450 | |||||||
Forest Oil Corp., Sr. Notes |
B1 | 8.00 | 12/15/11 | 170 | 173,825 | ||||||||
McMoRan Exploration Co., Gtd. Notes |
Caa1 | 11.875 | 11/15/14 | 275 | 283,250 | ||||||||
Newfield Exploration Co., |
|||||||||||||
Sr. Sub. Notes |
Ba3 | 6.625 | 9/01/14 | 25 | 23,531 | ||||||||
Sr. Sub. Notes |
Ba3 | 6.625 | 4/15/16 | 400 | 372,499 | ||||||||
Sr. Sub. Notes |
Ba3 | 7.125 | 5/15/18 | 150 | 141,375 | ||||||||
Opti Canada, Inc., (Canada), Sr. Secd Notes |
B1 | 7.875 | 12/15/14 | 350 | (c) | 346,063 | |||||||
Parker Drilling Co., Sr. Notes |
B2 | 9.625 | 10/01/13 | 270 | 282,150 | ||||||||
PetroHawk Energy Corp., |
|||||||||||||
Gtd. Notes |
B3 | 9.125 | 7/15/13 | 250 | 248,750 | ||||||||
Sr. Notes, 144A |
B3 | 7.875 | 6/01/15 | 275 | 256,438 |
See Notes to Financial Statements.
12 |
Moodys Rating |
Interest Rate |
Maturity Date |
Principal Amount (000) |
Value (Note 1) | |||||||||
CORPORATE BONDS (Continued) |
|||||||||||||
EnergyOther (contd) |
|||||||||||||
Petroplus Finance Ltd. (Bermuda), |
|||||||||||||
Gtd. Notes, 144A |
B1 | 6.75% | 5/01/14 | $ | 400 | (c) | $ | 361,999 | |||||
Gtd. Notes, 144A |
B1 | 7.00 | 5/01/17 | 225 | (c) | 199,688 | |||||||
Pioneer Natural Resource Co., |
|||||||||||||
Sr. Notes |
Ba1 | 5.875 | 7/15/16 | 50 | 43,843 | ||||||||
Sr. Unsecd Notes |
Ba1 | 6.65 | 3/15/17 | 365 | 332,544 | ||||||||
Sr. Unsecd. Notes |
Ba1 | 6.875 | 5/01/18 | 150 | 136,298 | ||||||||
Plains Exploration & Production Co., |
|||||||||||||
Gtd. Notes |
B1 | 7.00 | 3/15/17 | 460 | 413,999 | ||||||||
Gtd. Notes |
B1 | 7.625 | 6/01/18 | 25 | 23,563 | ||||||||
Gtd. Notes |
B1 | 7.75 | 6/15/15 | 50 | 47,625 | ||||||||
Sandridge Energy, Inc., Sr. Notes, 144A |
B3 | 8.00 | 6/01/18 | 375 | 351,563 | ||||||||
Swift Energy Co., Gtd. Notes |
B1 | 7.125 | 6/01/17 | 130 | 116,675 | ||||||||
Tesoro Corp |
|||||||||||||
Gtd. Notes |
Ba1 | 6.25 | 11/01/12 | 90 | 81,000 | ||||||||
Gtd. Notes |
Ba1 | 6.50 | 6/01/17 | 175 | 146,563 | ||||||||
Gtd. Notes |
Ba1 | 6.625 | 11/01/15 | 50 | 43,375 | ||||||||
4,536,066 | |||||||||||||
Foods 3.0% |
|||||||||||||
Ahold Finance USA Inc., |
|||||||||||||
Gtd. Notes |
Baa3 | 6.875 | 5/01/29 | 75 | 75,048 | ||||||||
Notes |
Baa3 | 8.25 | 7/15/10 | 75 | 78,407 | ||||||||
Albertons, Inc., Debentures |
B1 | 8.70 | 5/01/30 | 70 | 73,521 | ||||||||
Aramark Corp., |
|||||||||||||
Gtd. Notes |
B3 | 6.301(h) | 2/01/15 | 200 | 186,000 | ||||||||
Gtd. Notes |
B3 | 8.50 | 2/01/15 | 250 | 251,875 | ||||||||
Carrols Corp., Gtd. Notes |
B3 | 9.00 | 1/15/13 | 175 | 147,875 | ||||||||
Del Monte Corp., Sr. Sub. Notes |
B2 | 8.625 | 12/15/12 | 100 | 101,000 | ||||||||
Dole Food Co., Inc., Gtd. Notes |
Caa1 | 7.25 | 6/15/10 | 150 | 138,750 | ||||||||
National Beef Packing Co. LLC, Sr. Notes |
Caa1 | 10.50 | 8/01/11 | 150 | 150,000 | ||||||||
Smithfield Foods, Inc., Sr. Notes |
Ba3 | 7.00 | 8/01/11 | 200 | 190,000 | ||||||||
Stater Brothers Holdings, |
|||||||||||||
Sr. Notes |
B2 | 7.75 | 4/15/15 | 225 | 217,125 | ||||||||
Sr. Notes |
B2 | 8.125 | 6/15/12 | 100 | 99,500 | ||||||||
1,709,101 |
See Notes to Financial Statements.
The High Yield Income Fund, Inc. | 13 |
Portfolio of Investments
as of August 31, 2008 continued
Moodys Rating |
Interest Rate |
Maturity Date |
Principal Amount (000) |
Value (Note 1) | ||||||||
CORPORATE BONDS (Continued) |
||||||||||||
Gaming 5.9% |
||||||||||||
Park Place Entertainment, Inc., Sr. Sub. Notes |
Caa2 | 8.125% | 5/15/11 | $ | 135 | $ | 94,500 | |||||
CCM Merger, Inc., Notes, 144A |
Caa1 | 8.00 | 8/01/13 | 550 | 442,750 | |||||||
Fountainebleau Las Vegas Holdings LLC, Mortgage Backed, 144A |
Caa1 | 10.25 | 6/15/15 | 275 | 129,938 | |||||||
Harrahs Operating Co. Inc., |
||||||||||||
Gtd. Notes |
Caa2 | 5.50 | 7/01/10 | 150 | 126,000 | |||||||
Gtd. Notes |
Caa2 | 5.625 | 6/01/15 | 175 | 68,688 | |||||||
Gtd. Notes, 144A |
Caa1 | 10.75 | 2/01/16 | 800 | 538,000 | |||||||
Notes |
Caa2 | 6.50 | 6/01/16 | 25 | 10,000 | |||||||
Mandalay Resort Group, Sr. Sub. Notes |
B1 | 9.375 | 2/15/10 | 100 | 98,000 | |||||||
MGM Mirage, Inc., |
||||||||||||
Gtd. Notes |
Ba2 | 6.00 | 10/01/09 | 150 | 147,000 | |||||||
Gtd. Notes |
Ba2 | 6.875 | 4/01/16 | 225 | 178,313 | |||||||
Gtd. Notes |
Ba2 | 7.50 | 6/01/16 | 200 | 163,000 | |||||||
Mohegan Tribal Gaming Authority, |
||||||||||||
Sr. Sub. Notes |
Ba3 | 8.00 | 4/01/12 | 175 | 148,750 | |||||||
Sr. Sub. Notes |
Ba3 | 8.375 | 7/01/11 | 850 | 832,999 | |||||||
Sr. Unsecd. Notes |
Ba1 | 6.125 | 2/15/13 | 25 | 21,000 | |||||||
Shingle Springs Tribal Gaming Authority, Sr. Notes, 144A |
B3 | 9.375 | 6/15/15 | 150 | 121,875 | |||||||
Station Casinos, Inc., |
||||||||||||
Sr. Notes |
B3 | 6.00 | 4/01/12 | 100 | 69,750 | |||||||
Sr. Sub. Notes |
Caa2 | 6.50 | 2/01/14 | 275 | 123,750 | |||||||
Sr. Sub. Notes |
Caa2 | 6.625 | 3/15/18 | 75 | 31,125 | |||||||
Sr. Sub. Notes |
Caa2 | 6.875 | 3/01/16 | 65 | 28,275 | |||||||
3,373,713 | ||||||||||||
Health Care & Pharmaceutical 13.8% |
||||||||||||
Accellent, Inc., Gtd. Notes |
Caa3 | 10.50 | 12/01/13 | 475 | 446,500 | |||||||
Biomet, Inc., |
||||||||||||
Gtd. Notes |
Caa1 | 11.625 | 10/15/17 | 530 | 557,163 | |||||||
Gtd. Notes, PIK |
B3 | 10.375 | 10/15/17 | 200 | 210,000 | |||||||
Bio-Rad Labortories, Inc., Sr. Sub. Notes |
Ba3 | 7.50 | 8/15/13 | 125 | 125,000 |
See Notes to Financial Statements.
14 |
Moodys Rating |
Interest Rate |
Maturity Date |
Principal Amount (000) |
Value (Note 1) | |||||||||
CORPORATE BONDS (Continued) |
|||||||||||||
Health Care & Pharmaceutical (contd) |
|||||||||||||
Boston Scientific Corp., |
|||||||||||||
Sr. Unsecd Notes |
Ba2 | 5.45% | 6/15/14 | $ | 200 | $ | 187,000 | ||||||
Sr. Unsecd Notes |
Ba2 | 6.25 | 11/15/15 | 250 | 236,250 | ||||||||
Catalent Pharma Solutions, Inc., Gtd. Notes |
Caa1 | 9.50 | 4/15/15 | 325 | 271,375 | ||||||||
Columbia/HCA Healthcare Corp., M.T.N. |
Caa1 | 8.70 | 2/10/10 | 500 | 505,026 | ||||||||
Columbia/HCA, Inc., Debentures |
Caa1 | 7.50 | 11/15/95 | 100 | 70,615 | ||||||||
Community Health Systems, Inc., |
B3 | 8.875 | 7/15/15 | 750 | 757,499 | ||||||||
Elan Finance PLC (Ireland), |
|||||||||||||
Gtd. Notes |
B3 | 6.804(h) | 11/15/11 | 103 | (c) | 95,018 | |||||||
Gtd. Notes |
B3 | 7.75 | 11/15/11 | 80 | (c) | 74,000 | |||||||
FMC Finance, S.A., (Luxembourg), Gtd. Notes |
Ba2 | 6.875 | 7/15/17 | 75 | (c) | 72,000 | |||||||
HCA, Inc., Sr. Secd. Notes |
B2 | 9.125 | 11/15/14 | 725 | 744,937 | ||||||||
Omega Healthcare Investors, Inc., |
|||||||||||||
Gtd. Notes |
Ba3 | 7.00 | 4/01/14 | 300 | 287,250 | ||||||||
Gtd. Notes |
Ba3 | 7.00 | 1/15/16 | 170 | 158,525 | ||||||||
Res-Care, Inc., Sr. Notes |
B1 | 7.75 | 10/15/13 | 325 | 307,938 | ||||||||
Select Medical Corp., Gtd. Notes |
B3 | 7.625 | 2/01/15 | 45 | 38,700 | ||||||||
Senior Housing Properties Trust, Sr. Notes |
Ba1 | 8.625 | 1/15/12 | 618 | 630,359 | ||||||||
Skilled Healthcare Group, Inc., Sr. Sub. Notes |
Caa1 | 11.00 | 1/15/14 | 328 | 346,040 | ||||||||
Sun Healthcare Group, Inc., Sr. Sub. Notes |
B3 | 9.125 | 4/15/15 | 300 | 300,000 | ||||||||
Surgical Care Affiliates, Inc., Sr. Sub. Notes, 144A (original cost $191,884; purchased 6/21/07 - 1/4/08) |
Caa1 | 10.00 | 7/15/17 | 200 | (g) | 150,000 | |||||||
Vanguard Health Holdings Co. II LLC, Sr. Sub. Notes |
Caa1 | 9.00 | 10/01/14 | 375 | 368,438 | ||||||||
Ventas Realty LP, |
|||||||||||||
Gtd. Notes |
Ba1 | 8.75 | 5/01/09 | 300 | 306,000 | ||||||||
Sr. Notes |
Ba1 | 9.00 | 5/01/12 | 175 | 184,625 | ||||||||
Viant Holdings, Inc., |
Caa1 | 10.125 | 7/15/17 | 555 | (f) | 468,975 | |||||||
7,899,233 |
See Notes to Financial Statements.
The High Yield Income Fund, Inc. | 15 |
Portfolio of Investments
as of August 31, 2008 continued
Moodys Rating |
Interest Rate |
Maturity Date |
Principal Amount (000) |
Value (Note 1) | ||||||||
CORPORATE BONDS (Continued) |
||||||||||||
Lodging 1.6% |
||||||||||||
Felcor Lodging LP, Gtd. Notes |
Ba3 | 8.50% | 6/01/11 | $ | 225 | $ | 217,125 | |||||
Host Marriott LP, |
||||||||||||
Sr. Notes |
Ba1 | 7.125 | 11/01/13 | 525 | 494,813 | |||||||
Sr. Notes, Ser. M |
Ba1 | 7.00 | 8/15/12 | 200 | 187,000 | |||||||
898,938 | ||||||||||||
Media & Entertainment 6.6% |
||||||||||||
AMC Entertainment, Inc., |
||||||||||||
Gtd. Notes |
B2 | 11.00 | 2/01/16 | 50 | 50,750 | |||||||
Sr. Sub. Notes |
B2 | 8.00 | 3/01/14 | 100 | 90,250 | |||||||
Cinemark, Inc., Sr. Disc. Notes |
B3 | 9.223(i) | 3/15/14 | 90 | 86,850 | |||||||
Clear Channel Communications, Inc., |
||||||||||||
Debentures |
Caa1 | 6.875 | 6/15/18 | 25 | 11,750 | |||||||
Sr. Notes |
Caa1 | 5.75 | 1/15/13 | 250 | 142,500 | |||||||
Sr. Notes |
Caa1 | 5.50 | 9/15/14 | 150 | 73,125 | |||||||
CMP Susquehanna Corp., Gtd. Notes |
Caa1 | 9.875 | 5/15/14 | 50 | 31,250 | |||||||
Dex Media West LLC, |
||||||||||||
Sr. Sub. Notes, Ser. B |
B1 | 9.875 | 8/15/13 | 415 | 319,550 | |||||||
Notes |
B2 | 8.00 | 11/15/13 | 165 | 97,350 | |||||||
DirecTV Holdings LLC, |
||||||||||||
Gtd. Notes |
Ba3 | 6.375 | 6/15/15 | 25 | 23,563 | |||||||
Sr. Notes |
Ba3 | 8.375 | 3/15/13 | 275 | 284,625 | |||||||
Echostar DBS Corp., |
||||||||||||
Gtd. Notes |
Ba3 | 6.375 | 10/01/11 | 75 | 73,313 | |||||||
Gtd. Notes |
Ba3 | 6.625 | 10/01/14 | 75 | 69,000 | |||||||
Gtd. Notes |
Ba3 | 7.00 | 10/01/13 | 75 | 71,250 | |||||||
Gtd. Notes |
Ba3 | 7.125 | 2/01/16 | 375 | 345,000 | |||||||
Gtd. Notes |
Ba3 | 7.75 | 5/31/15 | 175 | 167,125 | |||||||
Idearc, Inc., Gtd. Notes |
B3 | 8.00 | 11/15/16 | 350 | 158,375 | |||||||
LIN Television Corp., Gtd. Notes |
B1 | 6.50 | 5/15/13 | 300 | 246,000 | |||||||
Medianews Group, Inc., Sr. Sub. Notes |
Caa2 | 6.875 | 10/01/13 | 125 | 43,281 | |||||||
Morris Publishing Group LLC, Gtd. Notes |
Caa1 | 7.00 | 8/01/13 | 65 | 31,200 | |||||||
Radio One, Inc., Gtd. Notes, Ser. B |
B3 | 8.875 | 7/01/11 | 200 | 170,500 |
See Notes to Financial Statements.
16 |
Moodys Rating |
Interest Rate |
Maturity Date |
Principal Amount (000) |
Value (Note 1) | |||||||||
CORPORATE BONDS (Continued) |
|||||||||||||
Media & Entertainment (contd) |
|||||||||||||
Rainbow National Services LLC, 144A |
|||||||||||||
Sr. Notes |
B1 | 8.75% | 9/01/12 | $ | 125 | $ | 127,500 | ||||||
Sr. Sub. Debentures |
B2 | 10.375 | 9/01/14 | 20 | 21,275 | ||||||||
RH Donnelley Corp., |
|||||||||||||
Sr. Notes, Ser. A-3 |
B3 | 8.875 | 1/15/16 | 225 | 118,125 | ||||||||
Sr. Unsecd Notes |
B3 | 8.875 | 10/15/17 | 150 | 77,250 | ||||||||
Sun Media Corp. (Canada), Gtd. Notes |
Ba2 | 7.625 | 2/15/13 | 400 | (c) | 378,999 | |||||||
Universal City Florida Holdings Co., Sr. Notes |
B3 | 7.551(h) | 5/01/10 | 250 | 241,875 | ||||||||
Univision Communications, Inc., |
|||||||||||||
Sr. Notes, PIK, 144A |
Caa1 | 9.75 | 3/15/15 | 350 | 250,250 | ||||||||
3,801,881 | |||||||||||||
Metal 7.7% |
|||||||||||||
AK Steel Corp., Gtd. Notes |
B1 | 7.75 | 6/15/12 | 200 | 204,500 | ||||||||
Aleris International, Inc., |
B3 | 9.00 | 12/15/14 | 150 | 117,000 | ||||||||
Century Aluminum Co., Gtd. Notes |
B1 | 7.50 | 8/15/14 | 155 | 150,350 | ||||||||
FMG Finance Pty Ltd. (Australia), 144A |
|||||||||||||
Secd. Notes |
B1 | 10.00 | 9/01/13 | 140 | (c) | 149,800 | |||||||
Secd. Notes |
B1 | 10.625 | 9/01/16 | 475 | (c) | 532,000 | |||||||
Freeport-McMoRan Copper & Gold, Inc., Sr. Unsecd. Notes |
Ba2 | 8.375 | 4/01/17 | 540 | 572,400 | ||||||||
Gerdau AmeriSteel Corp. (Canada), Sr. Notes |
Ba1 | 10.375 | 7/15/11 | 1,000 | (c) | 1,037,499 | |||||||
Ispat Inland ULC (Canada), |
Baa2 | 9.75 | 4/01/14 | 940 | (c) | 1,004,660 | |||||||
Metals USA, Inc., Secd. Notes |
B3 | 11.125 | 12/01/15 | 222 | 231,990 | ||||||||
Novelis, Inc. (Canada), Gtd. Notes |
B3 | 7.25 | 2/15/15 | 115 | (c) | 106,663 | |||||||
Russel Metals, Inc. (Canada), Sr. Notes |
Ba2 | 6.375 | 3/01/14 | 150 | (c) | 141,000 | |||||||
Ryerson, Inc., Secd Notes, 144A (original cost $250,000; purchased 10/03/07) |
B2 | 12.00 | 11/01/15 | 170 | (g) | 166,600 | |||||||
4,414,462 |
See Notes to Financial Statements.
The High Yield Income Fund, Inc. | 17 |
Portfolio of Investments
as of August 31, 2008 continued
Moodys Rating |
Interest Rate |
Maturity Date |
Principal Amount (000) |
Value (Note 1) | |||||||||
CORPORATE BONDS (Continued) |
|||||||||||||
Non-Captive Finance 1.0% |
|||||||||||||
General Motors Acceptance Corp., |
|||||||||||||
Notes |
B3 | 6.875% | 8/28/12 | $ | 530 | $ | 310,922 | ||||||
Notes |
B3 | 6.75 | 12/01/14 | 85 | 46,152 | ||||||||
GMAC LLC, Unsub. Notes |
B3 | 6.625 | 5/15/12 | 75 | 43,799 | ||||||||
Residential Capital LLC, Secd. Notes, 144A |
Caa3 | 9.625 | 5/15/15 | 464 | 153,120 | ||||||||
553,993 | |||||||||||||
Packaging 5.1% |
|||||||||||||
Ball Corp., Gtd. Notes |
Ba1 | 6.625 | 3/15/18 | 525 | 514,499 | ||||||||
Berry Plastics Holding Corp., |
|||||||||||||
Secd. Notes |
Caa1 | 6.651(h) | 9/15/14 | 225 | 168,750 | ||||||||
Secd. Notes |
Caa1 | 8.875 | 9/15/14 | 175 | 145,250 | ||||||||
BWAY Corp., Gtd. Notes |
B3 | 10.00 | 10/15/10 | 150 | 149,250 | ||||||||
Crown Americas LLC, |
|||||||||||||
Gtd. Notes |
B1 | 7.625 | 11/15/13 | 300 | 305,250 | ||||||||
Gtd. Notes |
B1 | 7.75 | 11/15/15 | 250 | 256,250 | ||||||||
Exopack Holding Corp., Gtd. Notes |
B3 | 11.25 | 2/01/14 | 225 | 197,438 | ||||||||
Graham Packaging Co., Inc., |
|||||||||||||
Gtd. Notes |
Caa1 | 8.50 | 10/15/12 | 100 | 94,250 | ||||||||
Sub. Notes |
Caa1 | 9.875 | 10/15/14 | 75 | 65,813 | ||||||||
Greif, Inc., Sr. Notes |
Ba2 | 6.75 | 2/01/17 | 415 | 402,550 | ||||||||
Owens Brockway Glass Container, Inc., Gtd. Notes |
Ba3 | 8.25 | 5/15/13 | 450 | 463,500 | ||||||||
Silgan Holdings, Inc., Sr. Sub. Notes |
B1 | 6.75 | 11/15/13 | 175 | 164,500 | ||||||||
2,927,300 | |||||||||||||
Paper 2.3% |
|||||||||||||
Cascades, Inc. (Canada), Sr. Notes |
Ba3 | 7.25 | 2/15/13 | 185 | (c) | 156,325 | |||||||
Cellu Tissue Holdings, Inc., Secd. Notes |
B2 | 9.75 | 3/15/10 | 75 | 69,563 | ||||||||
Domtar Corp., |
|||||||||||||
Gtd. Notes |
Ba3 | 5.375 | 12/01/13 | 175 | 154,000 | ||||||||
Notes |
Ba3 | 7.875 | 10/15/11 | 100 | 102,750 | ||||||||
Georgia-Pacific Corp., Gtd. Notes, 144A (original cost $275,000; purchased 12/13/06) |
Ba3 | 7.125 | 1/15/17 | 275 | (g) | 255,063 | |||||||
Graphic Packaging International Corp., Sr. Notes |
B3 | 8.50 | 8/15/11 | 275 | 270,875 |
See Notes to Financial Statements.
18 |
Moodys Rating |
Interest Rate |
Maturity Date |
Principal Amount (000) |
Value (Note 1) | |||||||||
CORPORATE BONDS (Continued) |
|||||||||||||
Paper (contd) |
|||||||||||||
Norampac, Inc. (Canada), Sr. Notes |
Ba3 | 6.75% | 6/01/13 | $ | 60 | (c) | $ | 49,350 | |||||
Verso Paper Holdings LLC, Gtd. Notes, Ser. B |
B3 | 11.375 | 8/01/16 | 335 | 284,749 | ||||||||
1,342,675 | |||||||||||||
Pipelines & Other 3.7% |
|||||||||||||
AmeriGas Partners LP, Sr. Notes |
Ba3 | 7.125 | 5/20/16 | 175 | 162,750 | ||||||||
Copano Energy LLC, Sr. Notes, 144A |
B1 | 7.75 | 6/01/18 | 225 | 209,250 | ||||||||
El Paso Corp., Sr. Notes, M.T.N. |
Ba3 | 7.75 | 1/15/32 | 110 | 108,030 | ||||||||
Ferrellgas Partners LP, Sr. Notes |
Ba3 | 6.75 | 5/01/14 | 50 | 43,500 | ||||||||
Inergy LP, |
|||||||||||||
Gtd. Notes |
B1 | 8.25 | 3/01/16 | 50 | 47,000 | ||||||||
Sr. Notes |
B1 | 6.875 | 12/15/14 | 100 | 90,000 | ||||||||
MarkWest Energy Partners LP, Sr. Notes, 144A |
B2 | 8.75 | 4/15/18 | 170 | 169,150 | ||||||||
Targa Resources, Inc., Gtd. Notes |
B3 | 8.50 | 11/01/13 | 400 | 380,000 | ||||||||
Williams Cos., Inc. (The), Sr. Unsecd. Notes |
Baa3 | 8.125 | 3/15/12 | 475 | 504,687 | ||||||||
Williams Partners LP, Gtd. Notes |
Ba2 | 7.25 | 2/01/17 | 375 | 375,938 | ||||||||
2,090,305 | |||||||||||||
Retailers 1.4% |
|||||||||||||
GSC Holdings Corp., Gtd. Notes |
Ba1 | 8.00 | 10/01/12 | 165 | 172,838 | ||||||||
Neiman-Marcus Group, Inc., Gtd. Notes, PIK |
B2 | 9.00 | 10/15/15 | 255 | 247,987 | ||||||||
Pantry, Inc. (The), Sr. Sub. Notes |
Caa1 | 7.75 | 2/15/14 | 165 | 137,775 | ||||||||
Saks, Inc., Gtd. Notes |
B2 | 9.875 | 10/01/11 | 58 | 58,145 | ||||||||
Susser Holdings LLC, Gtd. Notes |
B3 | 10.625 | 12/15/13 | 204 | 205,020 | ||||||||
821,765 | |||||||||||||
Technology 9.5% |
|||||||||||||
Affiliated Computer Services, Inc. |
Ba2 | 4.70 | 6/01/10 | 1,100 | 1,039,500 | ||||||||
Avago Technologies Finance Wireless (Singapore), |
|||||||||||||
Gtd. Notes |
B1 | 10.125 | 12/01/13 | 205 | (c) | 220,631 | |||||||
Gtd. Notes |
B3 | 11.875 | 12/01/15 | 125 | (c) | 135,625 | |||||||
First Data Corp., Gtd. Notes, 144A |
B3 | 9.875 | 9/24/15 | 350 | 301,875 | ||||||||
Freescale Semiconductor, Inc., |
|||||||||||||
Sr. Unsecd. Notes, PIK |
B2 | 9.125 | 12/15/14 | 455 | 354,900 |
See Notes to Financial Statements.
The High Yield Income Fund, Inc. | 19 |
Portfolio of Investments
as of August 31, 2008 continued
Moodys Rating |
Interest Rate |
Maturity Date |
Principal Amount (000) |
Value (Note 1) | |||||||||
CORPORATE BONDS (Continued) |
|||||||||||||
Technology (contd) |
|||||||||||||
Iron Mountain, Inc., |
|||||||||||||
Gtd. Notes |
B2 | 7.75% | 1/15/15 | $ | 250 | $ | 250,000 | ||||||
Gtd. Notes |
B2 | 8.00 | 6/15/20 | 50 | 48,625 | ||||||||
Gtd. Notes |
B2 | 8.625 | 4/01/13 | 175 | 175,875 | ||||||||
Nortel Networks Ltd. (Canada), Gtd. Notes |
B3 | 10.125 | 7/15/13 | 200 | (c) | 186,000 | |||||||
NXP BV/ NXP Funding LLC (Netherlands), |
|||||||||||||
Gtd. Notes, Series WI |
Caa2 | 9.50 | 10/15/15 | 300 | (c) | 203,250 | |||||||
Secd.Notes, Series WI |
B3 | 7.875 | 10/15/14 | 200 | (c) | 164,000 | |||||||
Open Solutions, Inc., Sr. Sub. |
Caa1 | 9.75 | 2/01/15 | 100 | 71,000 | ||||||||
Seagate Technology HDD Holdings (Cayman Islands), Gtd. Notes |
Ba1 | 6.375 | 10/01/11 | 674 | (c) | 664,733 | |||||||
Sensata Technologies BV (Netherlands), Gtd. Notes |
Caa1 | 8.00 | 5/01/14 | 350 | (c) | 297,500 | |||||||
Serena Software, Inc., Gtd. Notes |
Caa1 | 10.375 | 3/15/16 | 300 | 276,750 | ||||||||
STATS ChipPAC Ltd. (Singapore), |
|||||||||||||
Gtd. Notes |
Ba1 | 6.75 | 11/15/11 | 250 | (c) | 252,500 | |||||||
Sr. Notes |
Ba1 | 7.50 | 7/19/10 | 150 | (c) | 153,750 | |||||||
SunGard Data Systems, Inc., |
|||||||||||||
Bonds, |
B3 | 4.875 | 1/15/14 | 485 | 426,194 | ||||||||
Gtd. Notes |
Caa1 | 9.125 | 8/15/13 | 200 | 203,000 | ||||||||
5,425,708 | |||||||||||||
Telecommunications 8.6% |
|||||||||||||
American Tower Corp., Sr. Unsecd. Notes |
Ba1 | 7.125 | 10/15/12 | 750 | 765,000 | ||||||||
Centennial Communications Corp., Gtd. Notes |
B2 | 10.125 | 6/15/13 | 175 | 182,438 | ||||||||
Citizens Communications Co., |
|||||||||||||
Notes |
Ba2 | 9.25 | 5/15/11 | 205 | 212,175 | ||||||||
Sr. Notes |
Ba2 | 9.00 | 8/15/31 | 150 | 130,125 | ||||||||
Cricket Communications, Inc., Sr. Unsecd Notes, 144A |
B3 | 10.00 | 7/15/15 | 175 | 175,875 | ||||||||
Fairpoint Communications, Inc., Sr. Notes, 144A |
B3 | 13.125 | 4/01/18 | 250 | 247,500 | ||||||||
Hawaiian Telcom Communications, Inc., Gtd. Notes, Ser. B |
Caa3 | 12.50 | 5/01/15 | 225 | 39,375 |
See Notes to Financial Statements.
20 |
Moodys Rating |
Interest Rate |
Maturity Date |
Principal Amount (000) |
Value (Note 1) | |||||||||
CORPORATE BONDS (Continued) |
|||||||||||||
Telecommunications (contd) |
|||||||||||||
Level 3 Financing, Inc., Gtd. Notes |
Caa1 | 12.25% | 3/15/13 | $ | 425 | $ | 433,500 | ||||||
Qwest Capital Funding, Inc., Gtd. Notes |
B1 | 7.00 | 8/03/09 | 1,000 | 998,749 | ||||||||
Qwest Communications International, Inc., Gtd. Notes, Ser. B |
Ba3 | 7.50 | 2/15/14 | 205 | 186,550 | ||||||||
Qwest Corp., Sr. Notes |
Ba1 | 7.50 | 10/01/14 | 275 | 255,063 | ||||||||
Rural Cellular Corp., Sr. Notes |
A3 | 9.875 | 2/01/10 | 135 | 138,375 | ||||||||
Sprint Capital Corp. |
|||||||||||||
Gtd. Notes |
Baa3 | 6.375 | 5/01/09 | 250 | 251,875 | ||||||||
Gtd. Notes |
Baa3 | 8.75 | 3/15/32 | 250 | 243,125 | ||||||||
Time Warner Telecom Holdings, Inc., Gtd. Notes |
B3 | 9.25 | 2/15/14 | 100 | 101,375 | ||||||||
Windstream Corp., |
|||||||||||||
Sr. Notes |
Ba3 | 7.00 | 3/15/19 | 300 | 262,500 | ||||||||
Sr. Notes |
Ba3 | 8.625 | 8/01/16 | 300 | 297,000 | ||||||||
4,920,600 | |||||||||||||
Total corporate bonds |
69,265,455 | ||||||||||||
Shares |
|||||||||||||
COMMON STOCK |
|||||||||||||
Electric |
|||||||||||||
Mirant Corp. |
92 | 2,721 | |||||||||||
Units |
|||||||||||||
WARRANTS(b) |
|||||||||||||
Sirius XM Radio, Inc., 144A Expiring 3/15/10 |
150 | 0 | |||||||||||
Viasystems Group, Inc., Expiring 1/10/31 |
10,871 | (f) | 1 | ||||||||||
Total warrants |
1 | ||||||||||||
Total long-term investments |
76,339,307 | ||||||||||||
See Notes to Financial Statements.
The High Yield Income Fund, Inc. | 21 |
Portfolio of Investments
as of August 31, 2008 continued
Moodys Rating |
Interest Rate |
Maturity Date |
Principal Amount (000) |
Value (Note 1) | |||||||||
SHORT-TERM INVESTMENT 5.1% |
|||||||||||||
U.S. GOVERNMENT AGENCY SECURITY |
|||||||||||||
Federal Home Loan Bank, Discount Note |
NR | 2.033%(i) | 9/02/08 | $ | 2,915 | $ | 2,914,681 | ||||||
Total short-term investments |
2,914,681 | ||||||||||||
Total Investments(e) 138.6% |
79,253,988 | ||||||||||||
Liabilities in excess of other assets (38.6)% |
(22,070,259 | ) | |||||||||||
Net Assets 100.0% |
$ | 57,183,729 | |||||||||||
| The ratings reflected are as of August 31, 2008. Ratings of certain bonds may have changed subsequent to that date. |
M.T.N.Medium Term Note
NRNot rated by Moodys or Standard & Poors
PIK Payment in Kind
144ASecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institution buyers. Unless other wise noted, 144A securities are deemed to be liquid.
(a) | Represents issuer in default on interest payment; non-income producing security. |
(b) | Non-income producing security. |
(c) | US$ denominated foreign securities. |
(d) | Standard & Poors Rating. |
(e) | As of August 31, 2008, two securities representing $76 and 0.0% of net assets were fair valued in accordance with the policies adopted by the Board of Directors. |
(f) | Indicates a security that has been deemed illiquid. |
(g) | Indicates a restricted security; the aggregate original cost of such securities is $716,884. The aggregate value of $571,663 is approximately 1.0% of net assets. |
(h) | Indicates a variable rate security. The interest rate shown reflects the rate in effect at August 31, 2008. |
(i) | Represents zero coupon or step bond. Rate shown reflects the effective yield at the time of purchase. |
See Notes to Financial Statements.
22 |
The industry classification of portfolio holdings and liabilities in excess of other assets shown as a percentage of net assets as of August 31, 2008 were as follows:
Healthcare & Pharmaceutical |
15.7 | % | |
Capital Goods |
12.3 | ||
Technology |
12.2 | ||
Telecommunications |
9.5 | ||
Electric |
9.3 | ||
Cable |
8.3 | ||
EnergyOther |
7.9 | ||
Metals |
7.7 | ||
Media & Entertainment |
7.5 | ||
Gaming |
5.9 | ||
Chemicals |
5.7 | ||
Packaging |
5.1 | ||
U.S. Government Agency Security |
5.1 | ||
Aerospace/Defense |
4.5 | ||
Pipelines & Other |
3.7 | ||
Paper |
3.5 | ||
Foods |
3.0 | ||
Consumer |
2.6 | ||
Automotive |
2.4 | ||
Building Materials & Construction |
1.8 | ||
Lodging |
1.6 | ||
Retailers |
1.4 | ||
Non-Captive Finance |
1.0 | ||
Banking |
0.7 | ||
Airlines |
0.2 | ||
138.6 | |||
Liabilities in excess of other assets |
(38.6 | ) | |
100.0 | % | ||
See Notes to Financial Statements.
The High Yield Income Fund, Inc. | 23 |
Statement of Assets and Liabilities
as of August 31, 2008
Assets |
||||
Investments, at value (cost $84,855,295) |
$ | 79,253,988 | ||
Cash |
147 | |||
Foreign currency, at value (cost $66,160) |
66,659 | |||
Interest |
1,648,036 | |||
Total assets |
80,968,830 | |||
Liabilities |
||||
Loan payable (Note 5) |
23,500,000 | |||
Accrued expenses |
120,955 | |||
Loan interest payable |
61,360 | |||
Deferred directors fees |
51,305 | |||
Management fee payable |
33,891 | |||
Dividends payable |
17,590 | |||
Total liabilities |
23,785,101 | |||
Net Assets |
$ | 57,183,729 | ||
Net assets were comprised of: |
||||
Common stock, at par |
$ | 116,005 | ||
Paid-in capital in excess of par |
83,296,005 | |||
83,412,010 | ||||
Undistributed net investment income |
557,934 | |||
Accumulated net realized loss on investments and foreign currency transactions |
(21,185,407 | ) | ||
Net unrealized depreciation on investments and foreign currencies |
(5,600,808 | ) | ||
Net assets, August 31, 2008 |
$ | 57,183,729 | ||
Net asset value per share |
$4.93 | |||
See Notes to Financial Statements.
24 |
Statement of Operations
Year Ended August 31, 2008
Net Investment Income |
||||
Income |
||||
Interest |
$ | 6,946,855 | ||
Expenses |
||||
Management fee |
420,374 | |||
Loan interest expense (Note 5) |
876,313 | |||
Custodians fees and expenses |
65,000 | |||
Legal fees and expenses |
30,000 | |||
Audit fee |
28,000 | |||
Registration fees |
24,000 | |||
Transfer agents fees and expenses |
23,000 | |||
Reports to shareholders |
18,000 | |||
Directors fees and expenses |
11,000 | |||
Miscellaneous |
10,624 | |||
Total expenses |
1,506,311 | |||
Net investment income |
5,440,544 | |||
Realized And Unrealized Loss On Investments And Foreign Currency Transactions |
||||
Net realized loss on investments |
(1,138,794 | ) | ||
Net change in net unrealized appreciation/depreciation on: |
||||
Investments |
(4,012,232 | ) | ||
Foreign currencies |
(7,058 | ) | ||
(4,019,290 | ) | |||
Net loss on investments and foreign currency transactions |
(5,158,084 | ) | ||
Net Increase In Net Assets Resulting From Operations |
$ | 282,460 | ||
See Notes to Financial Statements.
The High Yield Income Fund, Inc. | 25 |
Statement of Cash Flows
Year Ended August 31, 2008
Increase (Decrease) In Cash |
||||
Cash flows provided from (used in) operating activities: |
||||
Interest received (excluding discount and premium amortization of $186,658) |
$ | 6,845,563 | ||
Operating expenses paid |
(698,909 | ) | ||
Loan interest paid |
(910,578 | ) | ||
Maturities of short-term portfolio investments, net |
(2,268,849 | ) | ||
Purchases of long-term portfolio investments |
(64,290,968 | ) | ||
Proceeds from disposition of long-term portfolio investments |
62,128,267 | |||
Prepaid expenses |
1,255 | |||
Net cash provided from operating activities |
805,781 | |||
Cash flows provided from (used in) financing activities: |
||||
Cash dividends paid |
(5,311,766 | ) | ||
Increase in borrowing |
4,500,000 | |||
Net cash used in financing activities |
(811,766 | ) | ||
Net decrease in cash |
(5,985 | ) | ||
Cash at beginning of year |
72,791 | |||
Cash at end of year |
$ | 66,806 | ||
Reconciliation of Net Increase in Net Assets to Net Cash Provided from (used in) Operating Activities |
| |||
Net increase in net assets resulting from operations |
$ | 282,460 | ||
Increase in investments |
(4,501,544 | ) | ||
Net realized loss on investment transactions |
1,138,794 | |||
Increase in net unrealized depreciation on investments |
4,019,290 | |||
Decrease in interest receivable |
85,366 | |||
Decrease in receivable for investments sold |
18,957 | |||
Decrease in prepaid expenses |
1,255 | |||
Decrease in payable for investments purchased |
(153,211 | ) | ||
Decrease in loan interest payable |
(34,265 | ) | ||
Decrease in accrued expenses and other liabilities |
(51,321 | ) | ||
Total adjustments |
523,321 | |||
Net cash provided from operating activities |
$ | 805,781 | ||
See Notes to Financial Statements.
26 |
Statement of Changes in Net Assets
Year Ended August 31, | ||||||||
2008 | 2007 | |||||||
Decrease In Net Assets |
||||||||
Operations |
||||||||
Net investment income |
$ | 5,440,544 | $ | 4,886,621 | ||||
Net realized gain (loss) on investments |
(1,138,794 | ) | 1,244,579 | |||||
Net change in unrealized appreciation/depreciation on investments and foreign currencies |
(4,019,290 | ) | (2,174,339 | ) | ||||
Net increase in net assets resulting from operations |
282,460 | 3,956,861 | ||||||
Dividends paid to shareholders from net investment income |
(5,307,215 | ) | (5,162,210 | ) | ||||
Total decrease |
(5,024,755 | ) | (1,205,349 | ) | ||||
Net Assets |
||||||||
Beginning of year |
62,208,484 | 63,413,833 | ||||||
End of year(a) |
$ | 57,183,729 | $ | 62,208,484 | ||||
(a) Includes undistributed net investment income of |
$ | 557,934 | $ | 213,388 | ||||
See Notes to Financial Statements.
The High Yield Income Fund, Inc. | 27 |
Notes to Financial Statements
The High Yield Income Fund, Inc. (the Fund) was organized in Maryland on August 21, 1987 as a diversified, closed-end management investment company. The Funds primary investment objective is to maximize current income to shareholders through investment in a diversified portfolio of high-yield, fixed-income securities rated in the medium to lower categories by recognized rating services, or non-rated securities of comparable quality. As a secondary investment objective, the Fund will seek capital appreciation, but only when consistent with its primary objective. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific industry or region.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.
Securities Valuation: Securities for which market quotations are readily availableincluding securities listed on national securities exchanges and those traded over-the-counter are valued at the last quoted sales price on the valuation date on which the security is traded. If such securities were not traded on the valuation date, but market quotations are readily available, they are valued at the most recently quoted bid price provided by an independent pricing service or by a principal market maker. Securities for which market quotations are not readily available or for which the pricing agent or market maker does not provide a valuation or methodology, or provides a valuation or methodology that, in the judgment of the adviser, does not represent fair value, are valued by a Valuation Committee appointed by the Board of Directors, in consultation with the adviser. When determining the fair valuation of securities some of the factors influencing the valuation include, the nature of any restrictions on disposition of the securities; assessment of the general liquidity of the securities; the issuers financial condition and the markets in which it does business; the cost of the investment; the size of the holding and the capitalization of issuer; the prices of any recent transactions or bids/offers for such securities or any comparable securities; any available analyst media or other reports or information deemed reliable by the investment adviser regarding the issuer or the markets or industry in which it operates. Using fair value to price securities may result in a value that is different from a securitys most recent closing price and from the price used by other mutual funds to calculate their net asset values.
28 |
Short-term debt securities, which mature in sixty days or less, are valued at amortized cost, which approximates market value. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between the principal amount due at maturity and cost. Short-term debt securities, which mature in more than sixty days, are valued at current market quotations.
In connection with transactions in repurchase agreements with U.S. financial institutions, it is the Funds policy that its custodian or designated subcustodians, as the case may be under tri-party 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 Funds 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 Funds purchase commitments with respect to certain investments.
Restricted Securities: 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 accreting discounts and amortizing premiums on debt obligations.
Foreign Currency Translation: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis:
(i) market value of investment securities, other assets and liabilitiesat the current rates of exchange.
(ii) purchases and sales of investment securities, income and expensesat the rates of exchange prevailing on the respective dates of such transactions.
The High Yield Income Fund, Inc. | 29 |
Notes to Financial Statements
continued
The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of the securities held at the end of the period. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of long-term debt securities sold during the period. Accordingly, such realized foreign currency gains or losses are included in the reported net realized gains or losses on investment transactions.
Net realized gains or losses on foreign currency transactions represent net foreign exchange gains or losses from sales and maturities of short-term securities and forward currency contracts, disposition of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of interest, discount and foreign withholding taxes recorded on the Funds books and the U.S. dollar equivalent amounts actually received or paid. Net currency gains or losses resulting from the valuing of foreign currency denominated assets (excluding investments) and liabilities at period-end exchange rates are reflected as a component of net unrealized appreciation or depreciation on investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. companies as a result of, among other factors, the possibility of political or economic instability and the level of governmental supervision and regulation of foreign securities markets.
Security Transactions and Investment Income: Security transactions are recorded on the trade date. Realized and unrealized gains or losses from securities transactions are calculated on the identified cost basis. Interest income, which is comprised of stated coupon rate, original issue discount, market discount and premium, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. The Fund amortizes premium and accretes discounts on debt securities as adjustments to interest income. Expenses are recorded on the accrual basis.
Taxes: For federal income tax purposes, it is the Funds policy to continue to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable net income and capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required.
30 |
Withholding taxes on foreign dividends are recorded net of reclaimable amounts at the time the related income is earned.
Dividends and Distributions: The Fund expects to pay dividends of net investment income monthly and make distributions of net realized capital and currency gains, if any, annually. Dividends and distributions to shareholders, which are determined in accordance with federal income tax regulations and which may differ from generally accepted accounting principles, are recorded on the ex-dividend date. Permanent book/tax differences relating to income and gains are reclassified amongst undistributed net investment income, accumulated net realized gain or loss and paid-in capital in excess of par, as appropriate.
Estimates: The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
Note 2. Agreements
The Fund has a management agreement with Prudential Investments LLC (PI). Pursuant to this agreement, PI has responsibility for all investment advisory services and supervises the subadvisers performance of such services. PI has entered into a subadvisory agreement with Prudential Investment Management, Inc. (PIM). PIM furnishes investment advisory services in connection with the management of the Fund. PI pays for the services of PIM, 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 to PI is computed weekly and payable monthly, at an annual rate of .70 of 1% of the average weekly net assets of the Fund.
PI and PIM are indirect, wholly-owned subsidiaries of Prudential Financial, Inc. (Prudential).
Note 3. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments, for the year ended August 31, 2008, aggregated $64,136,419 and $62,044,841, respectively.
The High Yield Income Fund, Inc. | 31 |
Notes to Financial Statements
continued
Note 4. Distributions and Tax Information
In order to present undistributed net investment income, accumulated net realized loss on investments and foreign currency transactions and paid-in capital in excess of par on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to undistributed net investment income, accumulated net realized loss on investments and foreign currency transactions and paid-in capital in excess of par. For the year ended August 31, 2008, the adjustments were to increase undistributed net investment income by $211,217, decrease accumulated net realized loss on investments and foreign currency transactions by $3,038,023 and decrease paid-in capital in excess of par by $3,249,240 primarily due to the difference in the treatment of accreting market discount and premium amortization between financial and tax reporting, paydown gains (losses) and expiration of capital loss carryforwards. Net investment income, net realized loss on investments and net assets were not affected by this change.
For the years ended August 31, 2008 and August 31, 2007, the tax character of total dividends paid, as reflected on the Statement of Changes in Net Assets, of $5,307,215 and $5,162,210, respectively, was from ordinary income.
As of August 31, 2008, the distributable earnings on a tax basis were $626,829 (includes a timing difference of $17,590 for dividends payable) of ordinary income.
The United States federal income tax basis of the Funds investments and the net unrealized depreciation as of August 31, 2008, were as follows:
Tax Basis of |
Appreciation |
Depreciation |
Net | |||
$85,299,199 | $526,228 | $(6,571,439) | $(6,045,211) |
The difference between book basis and tax basis was attributed to deferred losses on wash sales and differences in the treatment of accreting market discount and premium amortization for book and tax purposes.
The adjusted net unrealized depreciation on a tax basis was $6,044,712, which includes other cost basis adjustments of $499 due to appreciation of foreign currencies.
32 |
For federal income tax purposes, the Fund had a capital loss carryforward as of August 31, 2008 of approximately $19,388,700 of which $5,010,500 expires in 2009, $6,960,200 expires in 2010, $7,076,300 expires in 2011, $282,300 expires in 2014 and $59,400 expires in 2016. Accordingly, no capital gains distribution is expected to be paid to shareholders until net realized gains have been realized in excess of such amounts. It is unlikely the Fund will be able to realize the full benefit of the remaining carryforwards prior to the expiration date. Approximately $3,249,200 of its capital loss carryforward expired unused in the fiscal year ended August 31, 2008. The Fund elected to treat post-October capital losses of approximately $1,344,400 as having been incurred in the following fiscal year (August 31, 2009).
Management has analyzed the Funds tax positions taken on federal income tax returns for all open tax years and has concluded that as of August 31, 2008, no provision for income tax would be required in the Funds financial statements. The Funds federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
Note 5. Borrowings
The Fund has a credit agreement with State Street Bank & Trust Co. The maximum commitment under this agreement is $30,000,000. Interest on any such borrowings outstanding fluctuates daily at .50 of 1% over the Federal Funds rate and is payable monthly. The Fund may utilize these borrowings (leverage) in order to increase the potential for gain on amounts invested. There can be no guarantee that these gains will be realized. There are increased risks associated with the use of leverage. The expiration of the credit agreement was June 2, 2008, which was subsequently extended thru June 29, 2008. Effective June 30, 2008, the Fund renewed the credit agreement with State Street Bank & Trust Co. The maximum commitment under this renewed agreement is $30,000,000. Interest on any such borrowings outstanding fluctuates daily at .85 of 1% over the Federal Funds rate and is payable monthly. The expiration of the renewed credit agreement is June 29, 2009. The average daily balance outstanding during the year ended August 31, 2008, was $22,695,355 at a weighted average interest rate of 3.83%. The maximum face amount of borrowings outstanding at any month-end during the year ended August 31, 2008 was $26,000,000.
The Fund pays commitment fees at an annual rate of .08 of 1% on any unused portion of the credit agreement. The commitment fee is accrued daily and paid quarterly. Effective June 30, 2008, as part of the renewed the credit agreement with
The High Yield Income Fund, Inc. | 33 |
Notes to Financial Statements
continued
State Street Bank & Trust Co., the Fund pays commitment fees at an annual rate of .15 of 1% of the maximum commitment under the credit agreement, regardless of usage. Commitment fees are included in Loan interest expense as reported on the Statement of Operations.
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, 2008.
During the years ended August 31, 2008 and August 31, 2007 the Fund did not issue shares in connection with the reinvestment of dividends.
Note 7. Subsequent Events
On September 2, 2008 and October 1, 2008 the Board of Directors of the Fund declared dividends of $.040 per share payable on September 30, 2008 and October 31, 2008, respectively, to shareholders of record on September 15, 2008 and October 15, 2008, respectively.
Note 8. New Accounting Pronouncements
On September 20, 2006, the Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards No. 157 Fair Value Measurements (FAS 157). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. The application of FAS 157 is required for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. At this time, management is evaluating the implications of FAS 157 and its impact, if any, in the financial statements has not yet been determined.
In March 2008, the FASB released Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (FAS 161). FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The application of FAS 161 is required for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. At this time, management is evaluating the implications of FAS 161 and its impact on the financial statements has not yet been determined.
34 |
Financial Highlights
AUGUST 31, 2008 | ANNUAL REPORT |
The High Yield Income Fund, Inc.
Financial Highlights
Year Ended August 31, 2008 |
||||
Per Share Operating Performance: |
||||
Net Asset Value, Beginning Of Year(a) |
$ | 5.36 | ||
Net investment income |
.47 | |||
Net realized and unrealized gain (loss) on investments |
(.44 | ) | ||
Total from investment operations |
.03 | |||
Dividends paid to shareholders from net investment income |
(.46 | ) | ||
Net asset value, at end of year(a) |
$ | 4.93 | ||
Market price per share, end of year(a) |
$ | 4.31 | ||
Total Investment Return(b) |
(3.14 | )% | ||
Ratios/Supplemental Data: |
||||
Net assets, end of year (000) |
$ | 57,184 | ||
Average net assets (000) |
$ | 60,040 | ||
Ratios to average net assets: |
||||
Expenses, before loan interest |
1.05 | % | ||
Total expenses |
2.51 | % | ||
Net investment income |
9.06 | % | ||
Portfolio turnover rate |
78 | % | ||
Asset coverage |
343 | % | ||
Total debt outstanding at year-end (000) |
$ | 23,500 |
(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 the purpose of this calculation, to be reinvested at prices obtainable under the Funds dividend reinvestment plan. This amount does not reflect brokerage commissions. |
See Notes to Financial Statements.
36 |
Year Ended August 31, | ||||||||||||||
2007 | 2006 | 2005 | 2004 | |||||||||||
$ | 5.47 | $ | 5.61 | $ | 5.57 | $ | 5.25 | |||||||
.42 | .43 | .45 | .50 | |||||||||||
(.08 | ) | (.14 | ) | .09 | .39 | |||||||||
.34 | .29 | .54 | .89 | |||||||||||
(.45 | ) | (.43 | ) | (.50 | ) | (.57 | ) | |||||||
$ | 5.36 | $ | 5.47 | $ | 5.61 | $ | 5.57 | |||||||
$ | 4.91 | $ | 4.89 | $ | 5.43 | $ | 5.93 | |||||||
9.29 | % | (1.87 | )% | (.04 | )% | 25.47 | % | |||||||
$ | 62,208 | $ | 63,414 | $ | 65,047 | $ | 64,471 | |||||||
$ | 64,798 | $ | 63,605 | $ | 65,406 | $ | 63,724 | |||||||
1.12 | % | 1.16 | % | 1.36 | % | 1.48 | % | |||||||
3.17 | % | 3.12 | % | 2.71 | % | 2.31 | % | |||||||
7.54 | % | 7.85 | % | 7.91 | % | 9.05 | % | |||||||
66 | % | 58 | % | 75 | % | 98 | % | |||||||
427 | % | 376 | % | 383 | % | 358 | % | |||||||
$ | 19,000 | $ | 23,000 | $ | 23,000 | $ | 25,000 |
See Notes to Financial Statements.
The High Yield Income Fund, Inc. | 37 |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
The High Yield Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of The High Yield Income Fund, Inc. (hereafter referred to as the Fund), including the portfolio of investments, as of August 31, 2008, and the related statement of operations and cash flows for the year then ended, the statement of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Funds management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of August 31, 2008, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the The High Yield Income Fund, Inc. as of August 31, 2008, and the results of its operations and cash flows for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
New York, New York
October 27, 2008
38 |
Tax Information
(Unaudited)
We are required by the Internal Revenue Code to advise you within 60 days of the Funds fiscal year end (August 31, 2008) as to the federal tax status of dividends paid by the Fund during such fiscal year.
During the fiscal year ended August 31, 2008, the Fund paid dividends of $0.458 per share which is taxable as ordinary income.
The Fund designates 100% of the ordinary income dividends as interest related dividends under The American Jobs Creation Act of 2004.
For the purpose of preparing your 2008 annual federal income tax return, however, you should report the amounts as reflected on the appropriate Form 1099 DIV or substitute 1099-DIV which will be mailed to you in January 2009.
The High Yield Income Fund, Inc. | 39 |
MANAGEMENT OF THE FUND
(Unaudited)
Information about Fund Directors/Trustees (referred to herein as Board Members) and Fund Officers is set forth below. Board Members who are not deemed to be interested persons, as defined in the 1940 Act, are referred to as Independent Board Members. Board Members who are deemed to be interested persons are referred to as Interested Board Members. The Board Members are responsible for the overall supervision of the operations of the Fund and perform the various duties imposed on the directors or trustees of investment companies by the 1940 Act.
Independent Board Members | ||||
Name, Address, Age | Principal Occupation(s) During Past Five | Other Directorships Held | ||
Position(s) | Years | |||
Portfolios Overseen (1) | ||||
Kevin J. Bannon (56) | Managing Director (since April 2008) of | None. | ||
Board Member | Highmount Capital LLC (registered | |||
Portfolios Overseen: 63 | investment adviser); formerly Executive | |||
Vice President and Chief Investment | ||||
Officer (January 2003-August 2007) of | ||||
Bank of New York Company; President | ||||
(May 2003-May 2007) of BNY Hamilton | ||||
Family of Mutual Funds. | ||||
Linda W. Bynoe (56) | President and Chief Executive Officer (since March 1995) of Telemat Ltd. (management consulting); formerly Vice President at Morgan Stanley Co. (broker- dealer). |
Director of Simon Property Group, Inc. (real estate investment trust) (since May 2003); Anixter International (communication products distributor) (since January 2006); Director of Northern Trust Corporation (banking) (since April 2006). | ||
Board Member | ||||
Portfolios Overseen: 63 | ||||
David E.A. Carson (74) | Director (since May 2008) of Liberty Bank; Director (since October 2007) of ICI Mutual Insurance Company; formerly President, Chairman and Chief Executive Officer of People's Bank (1987 2000). |
None. | ||
Board Member | ||||
Portfolios Overseen: 63 | ||||
Michael S. Hyland, CFA (62) Board Member Portfolios Overseen: 63 |
Independent Consultant (since February 2005); formerly Senior Managing Director (July 2001-February 2005) of Bear Stearns Co., Inc. |
None. | ||
Robert E. La Blanc (74) | President (since 1981) of Robert E. La | Director of CA, Inc. (since 2002) | ||
Board Member | Blanc Associates, Inc. | (software company); FiberNet Telecom | ||
Portfolios Overseen: 63 | (telecommunications). | Group, Inc. (since 2003) (telecom | ||
company). |
Douglas H. McCorkindale (69) Board Member Portfolios Overseen: 63 |
Formerly Chairman (February 2001-June 2006), Chief Executive Officer (June 2000-July 2005), President (September 1997-July 2005) and Vice Chairman (March 1984-May 2000) of Gannett Co. Inc. (publishing and media). |
Director of Continental Airlines, Inc. (since May 1993); Director of Lockheed Martin Corp. (aerospace and defense) (since May 2001). | ||
Stephen P. Munn (66) | Lead Director (since 2007) and formerly | None. | ||
Board Member | Chairman (1993-2007) of Carlisle | |||
Portfolios Overseen: 63 | Companies Incorporated (manufacturer | |||
of industrial products). | ||||
Richard A. Redeker (65) | Retired Mutual Fund Executive (36 | None. | ||
Board Member | years); Management Consultant; Director | |||
Portfolios Overseen: 63 | of Penn Tank Lines, Inc. (since 1999). | |||
Robin B. Smith (68) | Chairman of the Board (since January | Formerly Director of BellSouth | ||
Board Member & | 2003) of Publishers Clearing House | Corporation (telecommunications) | ||
Independent Chair | (direct marketing); formerly Chairman | (1992-2006). | ||
Portfolios Overseen: 63 | and Chief Executive Officer (August | |||
1996-January 2003) of Publishers | ||||
Clearing House. | ||||
Stephen G. Stoneburn (65) | President and Chief Executive Officer | None. | ||
Board Member | (since June 1996) of Quadrant Media | |||
Portfolios Overseen: 63 | Corp. (publishing company); formerly | |||
President (June 1995-June 1996) of | ||||
Argus Integrated Media, Inc.; Senior Vice | ||||
President and Managing Director | ||||
(January 1993-1995) of Cowles Business | ||||
Media; Senior Vice President of Fairchild | ||||
Publications, Inc (1975-1989). | ||||
Interested Board Members |
||||
Judy A. Rice (60) | President, Chief Executive Officer, Chief | None. | ||
Board Member & President | Operating Officer and Officer-In-Charge | |||
Portfolios Overseen: 63 | (since February 2003) of Prudential | |||
Investments LLC; President, Chief Executive | ||||
Officer and Officer-In-Charge (since April | ||||
2003) of Prudential Mutual Fund Services | ||||
LLC; formerly Vice President (February | ||||
1999-April 2006) of Prudential Investment | ||||
Management Services LLC; formerly | ||||
President, Chief Executive Officer, Chief | ||||
Operating Officer and Officer-In-Charge | ||||
(May 2003-June 2005) and Director (May | ||||
2003-March 2006) and Executive Vice | ||||
President (June 2005-March 2006) of AST | ||||
Investment Services, Inc.; Member of Board | ||||
of Governors of the Investment Company | ||||
Institute. |
The High Yield Income Fund, Inc.
Robert F. Gunia (61) | Chief Administrative Officer (since | Director (since May 1989) of The Asia | ||
Board Member & Vice | September 1999) and Executive Vice | Pacific Fund, Inc. and Vice President | ||
President | President (since December 1996) of | (since January 2007) of The Greater | ||
Portfolios Overseen: 147 | Prudential Investments LLC; President | China Fund, Inc. | ||
(since April 1999) of Prudential | ||||
Investment Management Services LLC; | ||||
Executive Vice President (since March | ||||
1999) and Treasurer (since May 2000) of | ||||
Prudential Mutual Fund Services LLC; | ||||
Chief Administrative Officer, Executive | ||||
Vice President and Director (since May | ||||
2003) of AST Investment Services, Inc. |
1 |
The year that each Board Member joined the Fund's Board is as follows: Kevin J. Bannon, 2008; Linda W. Bynoe, 2005; David E. A. Carson, 2003; Michael S. Hyland, 2008; Robert E. LaBlanc, 2003; Douglas H. McCorkindale, 2003; Stephen P. Munn, 2008; Richard A. Redeker, 1993; Robin B. Smith, 2003; Stephen G. Stoneburn, 2003; Judy A. Rice, Board Member and President since 2003; Robert F. Gunia, Board Member and Vice President since 1999. |
Fund Officers (a)(1) |
||
Name, Address and Age Position with Fund |
Principal Occupation(s) During Past Five Years | |
Deborah A. Docs (50) Secretary and Chief Legal Officer |
Vice President and Corporate Counsel (since January 2001) of Prudential; Vice President (since December 1996) and Assistant Secretary (since March 1999) of PI; formerly Vice President and Assistant Secretary (May 2003-June 2005) of AST Investment Services, Inc. | |
Jonathan D. Shain (50) Assistant Secretary |
Vice President and Corporate Counsel (since August 1998) of Prudential; Vice President and Assistant Secretary (since May 2001) of PI; Vice President and Assistant Secretary (since February 2001) of PMFS; formerly Vice President and Assistant Secretary (May 2003-June 2005) of AST Investment Services, Inc. | |
Andrew R. French (45) Assistant Secretary |
Director and Corporate Counsel (since May 2006) of Prudential; Vice President and Assistant Secretary (since January 2007) of PI; Vice President and Assistant Secretary (since January 2007) of PMFS; formerly Senior Legal Analyst of Prudential Mutual Fund Law Department (1997-2006). | |
Timothy J. Knierim (49) Chief Compliance Officer |
Chief Compliance Officer of Prudential Investment Management, Inc. (since July 2007); formerly Chief Risk Officer of PIM and PI (2002-2007) and formerly Chief Ethics Officer of PIM and PI (2006-2007). | |
Valerie M. Simpson (50) Deputy Chief Compliance Officer |
Chief Compliance Officer (since April 2007) of PI and AST Investment Services, Inc.; formerly Vice President-Financial Reporting (June 1999-March 2006) for Prudential Life and Annuities Finance. | |
Theresa C. Thompson (46) Deputy Chief Compliance Officer |
Vice President, Mutual Fund Compliance, PI (since April 2004); and Director, Compliance, PI (2001 - 2004). | |
Grace C. Torres (49) Treasurer and Principal Financial and Accounting Officer |
Assistant Treasurer (since March 1999) and Senior Vice President (since September 1999) of PI; Assistant Treasurer (since May 2003) and Vice President (since June 2005) of AST Investment Services, Inc.; Senior Vice President and Assistant Treasurer (since May 2003) of Prudential Annuities Advisory Services, Inc.; formerly Senior Vice President (May 2003-June 2005) of AST Investment Services, Inc. | |
M. Sadiq Peshimam (44) Assistant Treasurer |
Vice President (since 2005) and Director (2000-2005) within Prudential Mutual Fund Administration. | |
Peter Parrella (50) Assistant Treasurer |
Vice President (since 2007) and Director (2004-2007) within Prudential Mutual Fund Administration; formerly Tax Manager at SSB Citi Fund Management LLC (1997-2004). |
The High Yield Income Fund, Inc.
(a) | Excludes interested Board Members who also serve as President or Vice President. |
1 | The year that each individual became an Officer of the Fund is as follows: |
Deborah A. Docs, 1997; Jonathan D. Shain, 2004; Andrew R. French, 2006; Timothy J. Knierim, 2007; Valerie M. Simpson, 2007; Theresa Thompson, 2008; Grace C. Torres, 1997; M. Sadiq Peshimam, 2006; Peter Parrella, 2007.
Explanatory Notes
| Board Members are deemed to be Interested, as defined in the 1940 Act, by reason of their affiliation with Prudential Investments LLC and/or an affiliate of Prudential Investments LLC. |
| Unless otherwise noted, the address of all Board Members and Officers is c/o Prudential Investments LLC, Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102. |
| There is no set term of office for Board Members or Officers. The Board Members have adopted a retirement policy, which calls for the retirement of Board Members on December 31st of the year in which they reach the age of 75. |
| Other Directorships Held includes only directorships of companies required to register or file reports with the SEC under the Securities Exchange Act of 1934 (that is, "public companies") or other investment companies registered under the 1940 Act. |
| Portfolios Overseen includes all investment companies managed by Prudential Investments LLC. The investment companies for which PI serves as manager include the JennisonDryden Funds, Strategic Partners Funds, The Prudential Variable Contract Accounts, The Target Portfolio Trust, The Prudential Series Fund, The High Yield Income Fund, Inc., The High Yield Plus Fund, Inc., Nicholas-Applegate Fund, Inc., Prudentials Gibraltar Fund, Inc. and the Advanced Series Trust. |
Approval of Advisory Agreements
The Board of Directors (the Board) of The High Yield Income Fund, Inc. (the Fund) oversees the management of the Fund, and, as required by law, determines annually whether to renew the Funds management agreement with Prudential Investments LLC (PI) and the Funds subadvisory agreement with Prudential Investment Management, Inc. (PIM). In considering the renewal of the agreements, the Board, including all of the Independent Directors, met on June 3-5, 2008 and approved the renewal of the agreements through July 31, 2009, after concluding that renewal of the agreements was in the best interests of the Fund and its shareholders.
In advance of the meetings, the Board received materials relating to the agreements, and had the opportunity to ask questions and request further information in connection with their consideration. Among other things, the Board considered comparisons with other mutual funds in relevant Peer Universes and Peer Groups. The mutual funds included in each Peer Universe or Peer Group were objectively determined solely by Lipper Inc., an independent provider of mutual fund data. The comparisons placed the Fund in various quartiles over one-, three-, five- and ten-year periods ending December 31, 2007, with the first quartile being the best 25% of the mutual funds (for performance, the best performing mutual funds and, for expenses, the lowest cost mutual funds).
In approving the agreements, the Board, including the Independent Directors advised by independent legal counsel, considered the factors they deemed relevant, including the nature, quality and extent of services provided, the performance of the Fund, the profitability of PI and its affiliates, expenses and fees, and the potential for economies of scale that may be shared with the Fund and its shareholders. In their deliberations, the Directors did not identify any single factor which alone was responsible for the Boards decision to approve the agreements with respect to the Fund. In connection with their deliberations, the Board considered information provided by PI throughout the year at regular Board meetings, presentations from portfolio managers and other information, as well as information furnished at or in advance of the meetings on June 3-5, 2008.
The Directors determined that the overall arrangements between the Fund and PI, which serves as the Funds investment manager pursuant to a management agreement, and between PI and PIM, which serves as the Funds subadviser pursuant to the terms of a subadvisory agreement with PI, are fair and reasonable in light of the services performed, fees charged and such other matters as the Directors considered relevant in the exercise of their business judgment.
The High Yield Income Fund, Inc. |
Approval of Advisory Agreements (continued)
The material factors and conclusions that formed the basis for the Directors reaching their determinations to approve the continuance of the agreements are separately discussed below.
Nature, Quality and Extent of Services
The Board received and considered information regarding the nature and extent of services provided to the Fund by PI and PIM. The Board considered the services provided by PI, including but not limited to the oversight of the subadviser for the Fund, as well as the provision of fund recordkeeping, compliance, and other services to the Fund. With respect to PIs oversight of the subadviser, the Board noted that PIs Strategic Investment Research Group (SIRG), which is a business unit of PI, is responsible for monitoring and reporting to PIs senior management on the performance and operations of the subadviser. The Board also considered that PI pays the salaries of all of the officers and non-independent Directors of the Fund. The Board also considered the investment subadvisory services provided by PIM, as well as adherence to the Funds investment restrictions and compliance with applicable Fund policies and procedures. The Board considered PIs evaluation of the subadviser, as well as PIs recommendation, based on its review of the subadviser, to renew the subadvisory agreement.
The Board reviewed the qualifications, backgrounds and responsibilities of PIs senior management responsible for the oversight of the Fund and PIM, and also reviewed the qualifications, backgrounds and responsibilities of PIMs portfolio managers who are responsible for the day-to-day management of the Funds portfolio. The Board was provided with information pertaining to PIs and PIMs organizational structure, senior management, investment operations, and other relevant information pertaining to both PI and PIM. The Board also noted that it received favorable compliance reports from the Funds Chief Compliance Officer (CCO) as to both PI and PIM. The Board noted that PIM is affiliated with PI.
The Board concluded that it was satisfied with the nature, extent and quality of the investment management services provided by PI and the subadvisory services provided to the Fund by PIM, and that there was a reasonable basis on which to conclude that the Fund benefits from the services provided by PI and PIM under the management and subadvisory agreements.
Performance of The High Yield Income Fund
The Board received and considered information about the Funds historical performance. The Board considered that the Funds gross performance in relation to its Peer Universe (the Lipper All Leveraged Closed-End High Current Yield Funds
Performance Universe) was in the first quartile over the one-, three, and ten-year periods, and in the third quartile over the five-year period. The Board also noted that the Fund outperformed its benchmark during all periods. The Board concluded that, in light of the Funds competitive performance against its benchmark, it would be in the interest of the Fund and its shareholders to renew the agreements.
Fees and Expenses
The Board considered that the Funds actual management fee (which reflects any subsidies, waivers or expense caps) ranked in the Expense Groups first quartile, and that the Funds total expenses ranked in the Expense Groups second quartile. The Board concluded that the management and subadvisory fees are reasonable in light of the services provided.
Costs of Services and Profits Realized by PI
The Board was provided with information on the profitability of PI and its affiliates in serving as the Funds investment manager. The Board discussed with PI the methodology utilized in assembling the information regarding profitability and considered its reasonableness. The Board recognized that it is difficult to make comparisons of profitability from fund management contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the advisers capital structure and cost of capital. The Board did not separately consider the profitability of the subadviser, an affiliate of PI, as its profitability was reflected in the profitability report for PI. Taking these factors into account, the Board concluded that the profitability of PI and its affiliates in relation to the services rendered was not unreasonable.
Economies of Scale
When reviewing and approving management and subadvisory agreements, boards of directors generally consider, among other factors, the extent to which economies of scale will be realized as the investment company grows and whether fee levels reflect these economies of scale for the benefit of shareholders. The Board noted, however, that because the Fund is a closed-end fund, its size would increase only as a result of any appreciation in its portfolio holdings or as a result of dividend reinvestments. The Board therefore determined that a consideration of economies of scale was not relevant to its evaluation of the agreements.
The High Yield Income Fund, Inc. |
Approval of Advisory Agreements (continued)
Other Benefits to PI and PIM
The Board considered potential ancillary benefits that might be received by PI and PIM and their affiliates as a result of their relationship with the Fund. The Board concluded that potential benefits to be derived by PI included brokerage commissions received by affiliates of PI, transfer agency fees received by the Funds transfer agent (which is affiliated with PI), as well as benefits to the reputation or other intangible benefits resulting from PIs association with the Fund. The Board concluded that the potential benefits to be derived by PIM included its ability to use soft dollar credits, brokerage commissions received by affiliates of PIM, as well as the potential benefits consistent with those generally resulting from an increase in assets under management, specifically, potential access to additional research resources and benefits to the reputation. The Board concluded that the benefits derived by PI and PIM were consistent with the types of benefits generally derived by investment managers and subadvisers to mutual funds.
After full consideration of these factors, the Board concluded that the approval of the agreements was in the interest of the Fund and its shareholders.
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| your name and address, |
| income and Social Security number. |
We also collect data others give us about you, for example:
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| consumer reports from consumer reporting agencies and |
| participant information from organizations that purchase products or services from us for the benefit of their members or employees, for example, group life insurance. |
Sharing Data
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| your name, |
| address, and |
| the types of products you own |
to service providers so they can provide marketing services to us.
Prudential, Prudential Financial and the Prudential Financial logo are registered service marks of The Prudential Insurance Company of America, Newark, NJ and its affiliates. The Prudential Insurance Company of America, 751 Broad Street, Newark, NJ 07102-3777.
Your Financial Security, Your Satisfaction & Your Privacy |
Privacy 0019 Ed. 4/2008 NS |
We may also disclose data as permitted or required by law, for example:
| to law enforcement officials, |
| in response to subpoenas, |
| to regulators, or |
| to prevent fraud. |
We do not disclose data to Prudential affiliates or other companies to allow them to market their products or services to you. We may tell you about a product or service that a Prudential company or other companies offer. If you respond, that company will know that you were in the group selected to receive the information.
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If you have questions about Prudentials Privacy Notice please call us. The toll-free number is (800) 236-6848.
Many Prudential Financial companies are required to send privacy notices to their customers. This notice is being provided to customers of the Prudential Financial companies listed below:
Insurance Companies and Separate Accounts
Prudential Insurance Company of America, The Prudential Annuities Life Assurance Corporation
Pruco Life Insurance Company
Pruco Life Insurance Company of New Jersey
Separate accounts of The Prudential Insurance Company of America, Pruco Life Insurance Company, Pruco Life Insurance Company of New Jersey, and Prudential Annuities Life Assurance Corporation
Prudential Retirement Insurance and Annuity Company (PRIAC)
PRIAC Variable Contract Account A
Connecticut General Variable Annuity Contract I & II
Insurance Agencies
Prudential Insurance Agency, LLC
Broker-Dealers and Registered Investment Advisers
AST Investment Services, Inc.
Prudential Annuities Distributors, Inc.
Global Portfolio Strategies, Inc.
Prudential Bache Securities, LLC
Pruco Securities, LLC
Prudential Investment Management, Inc.
Prudential Investment Management Services LLC
Prudential Investments LLC
Bank and Trust Companies
Prudential Bank & Trust, FSB
Prudential Trust Company
Investment Companies and Other Investment Vehicles
Asia Pacific Fund, Inc.,
The Cash Accumulation Trust
Greater China Fund, Inc., The
High Yield Income Fund, Inc., The
High Yield Plus Fund, Inc., The
JennisonDryden Mutual Funds
MoneyMart Assets, Inc.
Nicholas-Applegate Fund, Inc.
Prudential Capital Partners, L.P.
Prudential Bache Commodities, LLC
Prudential Institutional Liquidity Portfolio, Inc.
Strategic Partners Mutual Funds
Target Asset Allocation Funds, Inc.
Target Portfolio Trust, The
PB Financial Services, Inc.
CGOV-D2385
n MAIL | n TELEPHONE | n WEBSITE | ||
Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 |
(800) 451-6788 | www.prudential.com |
DIRECTORS |
Kevin J. Bannon Linda W. Bynoe David E. A. Carson Robert F. Gunia Michael S. Hyland Robert E. La Blanc Douglas H. McCorkindale Stephen P. Munn Richard A. Redeker Judy A. Rice Robin B. Smith Stephen G. Stoneburn |
OFFICERS |
Judy A. Rice, President Robert F. Gunia, Vice President Grace C. Torres, Treasurer and Principal Financial and Accounting Officer Deborah A. Docs, Chief Legal Officer and Secretary Timothy J. Knierim, Chief Compliance Officer Valerie M. Simpson, Deputy Chief Compliance Officer Theresa C. Thompson, Deputy Chief Compliance Officer Jonathan D. Shain, Assistant Secretary Andrew R. French, Assistant Secretary M. Sadiq Peshimam, Assistant Treasurer Peter Parrella, Assistant Treasurer |
MANAGER | Prudential Investments LLC | Gateway Center Three 100 Mulberry Street Newark, NJ 07102 | ||
| ||||
INVESTMENT ADVISER | Prudential Investment Management, Inc. |
Gateway Center Two 100 Mulberry Street Newark, NJ 07102 | ||
| ||||
CUSTODIAN | The Bank of New York Mellon | One Wall Street New York, NY 10286 | ||
| ||||
TRANSFER AGENT AND REGISTRAR | Computershare Trust Company, N.A. c/o Computershare |
PO Box 43011 Providence, RI 02940 | ||
| ||||
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | KPMG LLP | 345 Park Avenue New York, NY 10154 | ||
| ||||
FUND COUNSEL | Sullivan & Cromwell LLP | 125 Broad Street New York, NY 10004 |
PROXY VOTING |
The Board of Directors of the Fund has delegated to the Funds investment adviser the responsibility for voting any proxies and maintaining proxy recordkeeping with respect to the Fund. A description of these proxy voting policies and procedures is available without charge, upon request, by calling (800) 451-6788 or by visiting the Securities and Exchange Commissions website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Funds website and on the Commissions website. |
An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. |
SHAREHOLDER COMMUNICATIONS WITH DIRECTORS |
Shareholders can communicate directly with the Board of Directors by writing to the Chair of the Board, The High Yield Income Fund, Inc., Prudential Investments, Attn: Board of Directors, 100 Mulberry Street, Gateway Center Three, Newark, NJ 07102. Shareholders can communicate directly with an individual Director by writing to that Director at the same address. Communications are not screened before being delivered to the addressee. |
AVAILABILITY OF PORTFOLIO SCHEDULE |
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Funds Forms N-Q are available on the Commissions website at www.sec.gov. The Funds Forms N-Q may also be reviewed and copied at the Commissions Public Reference Room in Washington, D.C. Information on the operation and location of the Public Reference Room may be obtained by calling (800) SEC-0330 (732-0330). |
Mutual Funds:
ARE NOT INSURED BY THE FDIC OR ANY FEDERAL GOVERNMENT AGENCY | MAY LOSE VALUE | ARE NOT A DEPOSIT OF OR GUARANTEED BY ANY BANK OR ANY BANK AFFILIATE |
HYIA 429904105 IFS-A156665 Ed. 10/2008
Item 2 | | Code of Ethics See Exhibit (a) |
As of the end of the period covered by this report, the registrant has adopted a code of ethics (the Section 406 Standards for Investment Companies Ethical Standards for Principal Executive and Financial Officers) that applies to the registrants Principal Executive Officer and Principal Financial Officer; the registrant's Principal Financial Officer also serves as the Principal Accounting Officer.
The registrant hereby undertakes to provide any person, without charge, upon request, a copy of the code of ethics. To request a copy of the code of ethics, contact the registrant 973-367-7521, and ask for a copy of the Section 406 Standards for Investment Companies - Ethical Standards for Principal Executive and Financial Officers.
Item 3 | | Audit Committee Financial Expert |
The registrants Board has determined that Mr. David E. A. Carson, member of the Boards Audit Committee is an "audit committee financial expert," and that he is "independent," for purposes of this Item.
Item 4 | | Principal Accountant Fees and Services |
(a) Audit Fees
For the fiscal years ended August 31, 2008 and August 31, 2007, KPMG LLP (KPMG), the Registrants principal accountant, billed the Registrant $27,617 and $26,281, respectively, for professional services rendered for the audit of the Registrants annual financial statements or services that are normally provided in connection with statutory and regulatory filings.
(b) Audit-Related Fees
None.
(c) Tax Fees
None.
(d) All Other Fees
None.
(e) (1) Audit Committee Pre-Approval Policies and Procedures
THE PRUDENTIAL MUTUAL FUNDS
AUDIT COMMITTEE POLICY
on
Pre-Approval of Services Provided by the Independent Accountants
The Audit Committee of each Prudential Mutual Fund is charged with the responsibility to monitor the independence of the Funds independent accountants. As part of this responsibility, the Audit Committee must pre-approve any independent accounting firms engagement to render audit and/or permissible non-audit services, as required by law. In evaluating a proposed engagement of the independent accountants, the Audit Committee will assess the effect that the engagement might reasonably be expected to have on the accountants independence. The Committees evaluation will be based on:
| a review of the nature of the professional services expected to be provided, |
| a review of the safeguards put into place by the accounting firm to safeguard independence, and |
| periodic meetings with the accounting firm. |
Policy for Audit and Non-Audit Services Provided to the Funds
On an annual basis, the scope of audits for each Fund, audit fees and expenses, and audit-related and non-audit services (and fees proposed in respect thereof) proposed to be performed by the Funds independent accountants will be presented by the Treasurer and the independent accountants to the Audit Committee for review and, as appropriate, approval prior to the initiation of such services. Such presentation shall be accompanied by confirmation by both the Treasurer and the independent accountants that the proposed services will not adversely affect the independence of the independent accountants. Proposed services shall be described in sufficient detail to enable the Audit Committee to assess the appropriateness of such services and fees, and the compatibility of the provision of such services with the auditors independence. The Committee shall receive periodic reports on the progress of the audit and other services which are approved by the Committee or by the Committee Chair pursuant to authority delegated in this Policy.
The categories of services enumerated under Audit Services, Audit-related Services, and Tax Services are intended to provide guidance to the Treasurer and the independent accountants as to those categories of services which the Committee believes are generally consistent with the independence of the independent accountants and which the Committee (or the Committee Chair) would expect upon the presentation of specific proposals to pre-approve. The enumerated categories are not intended as an exclusive list of audit, audit-related or tax services, which the Committee (or the Committee Chair) would consider for pre-approval.
Audit Services
The following categories of audit services are considered to be consistent with the role of the Funds independent accountants:
| Annual Fund financial statement audits |
| Seed audits (related to new product filings, as required) |
| SEC and regulatory filings and consents |
Audit-related Services
The following categories of audit-related services are considered to be consistent with the role of the Funds independent accountants:
| Accounting consultations |
| Fund merger support services |
| Agreed Upon Procedure Reports |
| Attestation Reports |
| Other Internal Control Reports |
Individual audit-related services that fall within one of these categories and are not presented to the Audit Committee as part of the annual pre-approval process will be subject to pre-approval by the Committee Chair (or any other Committee member on whom this responsibility has been delegated) so long as the estimated fee for those services does not exceed $50,000.
Tax Services
The following categories of tax services are considered to be consistent with the role of the Funds independent accountants:
| Tax compliance services related to the filing or amendment of the following: |
| Federal, state and local income tax compliance; and, |
| Sales and use tax compliance |
| Timely RIC qualification reviews |
| Tax distribution analysis and planning |
| Tax authority examination services |
| Tax appeals support services |
| Accounting methods studies |
| Fund merger support services |
| Tax consulting services and related projects |
Individual tax services that fall within one of these categories and are not presented to the Audit Committee as part of the annual pre-approval process will be subject to pre-approval by the Committee Chair (or any other Committee member on whom this responsibility has been delegated) so long as the estimated fee for those services does not exceed $50,000.
Other Non-audit Services
Certain non-audit services that the independent accountants are legally permitted to render will be subject to pre-approval by the Committee or by one or more Committee members to whom the Committee has delegated this authority and who will report to the full Committee any pre-approval decisions made pursuant to this Policy. Non-audit services presented for pre-approval pursuant to this paragraph will be accompanied by a confirmation from both the Treasurer and the independent accountants that the proposed services will not adversely affect the independence of the independent accountants.
Proscribed Services
The Funds independent accountants will not render services in the following categories of non-audit services:
| Bookkeeping or other services related to the accounting records or financial statements of the Fund |
| Financial information systems design and implementation |
| Appraisal or valuation services, fairness opinions, or contribution-in-kind reports |
| Actuarial services |
| Internal audit outsourcing services |
| Management functions or human resources |
| Broker or dealer, investment adviser, or investment banking services |
| Legal services and expert services unrelated to the audit |
| Any other service that the Public Company Accounting Oversight Board determines, by regulation, is impermissible. |
Pre-approval of Non-Audit Services Provided to Other Entities Within the Prudential Fund Complex
Certain non-audit services provided to Prudential Investments LLC or any of its affiliates that also provide ongoing services to the Prudential Mutual Funds will be subject to pre-approval by the Audit Committee. The only non-audit services provided to these entities that will require pre-approval are those related directly to the operations and financial reporting of the Funds. Individual projects that are not presented to the Audit Committee as part of the annual pre-approval process will be subject to pre-approval by the Committee Chair (or any other Committee member on whom this responsibility has been delegated) so long as the estimated fee for those services does not exceed $50,000. Services presented for pre-approval pursuant to this paragraph will be accompanied by a confirmation from both the Treasurer and the independent accountants that the proposed services will not adversely affect the independence of the independent accountants.
Although the Audit Committee will not pre-approve all services provided to Prudential Investments LLC and its affiliates, the Committee will receive an annual report from the Funds independent accounting firm showing the aggregate fees for all services provided to Prudential Investments and its affiliates.
(e) (2) Percentage of services referred to in 4(b)- (4)(d) that were approved by the audit committee
Not applicable.
(f) Percentage of hours expended attributable to work performed by other than full time employees of principal accountant if greater than 50%.
The percentage of hours expended on the principal accountants engagement to audit the registrants financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountants full-time, permanent employees was 0%.
(g) Non-Audit Fees
Not applicable to Registrant for the fiscal years 2008 and 2007. The aggregate non-audit fees billed by KPMG for services rendered to the registrants investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant for the fiscal years 2008 and 2007 was $0 and $340,700, respectively.
(h) Principal Accountants Independence
Not applicable as KPMG has not provided non-audit services to the registrants investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X.
Item 5 | | Audit Committee of Listed Registrants | ||
The registrant has a separately designated standing audit committee (the "Audit Committee") established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit Committee are Kevin J. Bannon, Linda W. Bynoe, David E.A. Carson (chair), Robert E. La Blanc, Stephen P. Munn and Robin B. Smith (ex-officio). |
Item 6 | | Schedule of Investments The schedule is included as part of the report to shareholders filed under Item 1 of this Form. |
Item 7 | | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies |
Summary of Prudential Investment Management, Inc. Proxy Voting Policy
The overarching goal of each of the asset management units within Prudential Investment Management, Inc. (PIM) is to vote proxies in the best interests of their respective clients based on the clients priorities. Client interests are placed ahead of any potential interest of PIM or its asset management units.
Because the various asset management units within PIM manage distinct classes of assets with differing management styles, some units will consider each proxy on its individual merits while other units may adopt a pre-determined set of voting guidelines. The specific voting approach of each unit is noted below.
A committee comprised of senior business representatives from each of the asset management units together with relevant regulatory personnel oversees the proxy voting process and monitors potential conflicts of interests. The committee is responsible for interpretation of the proxy voting policy and periodically assesses the policys effectiveness. In addition, should the need arise, the committee is authorized to address any proxy matter involving an actual or apparent conflict of interest that cannot be resolved at the level of an individual asset management business unit.
In all cases, clients may obtain the proxy voting policies and procedures of the various PIM asset management units, and information is available to each client concerning the voting of proxies with respect to the clients securities, simply by contacting the client service representative of the respective unit.
Voting Approach of PIM Asset Management Units
Prudential Public Fixed Income
As this asset management unit invests primarily in public debt, there are few traditional proxies voted in this unit. Generally, when a proxy is received, this unit will vote with management on routine matters such as the appointment of accountants or the election of directors. With respect to non-routine matters such as proposed anti-takeover provisions or mergers the financial impact will be analyzed and the proxy will be voted on a case-by-case basis. Specifically, if a proxy involves:
| a proposal regarding a merger, acquisition or reorganization, |
| a proposal that is not addressed in the units detailed policy statement, or |
| circumstances that suggest a vote not in accordance with the detailed policy, |
the proxy will be referred to the applicable portfolio manager(s) for individual consideration.
Prudential Real Estate Investors
As this asset management unit invests primarily in real estate and real estate-related interests, there are few traditional proxies voted in this unit. Generally, when a proxy is received, this unit will vote with management on routine matters such as the appointment of accountants or the election of directors. With respect to non-routine matters such as proposed anti-takeover provisions or mergers the financial impact will be analyzed and the proxy will be voted on a case-by-case basis. Specifically, if a proxy involves:
| a proposal regarding a merger, acquisition or reorganization, |
| a proposal that is not addressed in the units detailed policy statement, or |
| circumstances that suggest a vote not in accordance with the detailed policy, |
the proxy will be referred to the relevant portfolio manager(s) for individual consideration.
Prudential Capital Group
As this asset management unit invests almost exclusively in privately placed debt, there are few, if any, traditional proxies voted in this unit. As a result, this unit evaluates
each proxy it receives and votes on a case-by-case basis. Considerations will include detailed knowledge of the issuers financial condition, long- and short-term economic outlook for the issuer, its capital structure and debt-service obligations, the issuers management team and capabilities, as well as other pertinent factors. In short, this unit attempts to vote all proxies in the best economic interest of its clients based on the clients expressed priorities, if any.
Item 8 | | Portfolio Managers of Closed-End Management Investment Companies |
Information pertaining to the portfolio managers of the registrant, as of October 31, 2008, is set forth below.
PORTFOLIO MANAGERS
Paul Appleby, CFA, is Managing Director and Head of the Leveraged Finance Team, which includes the High Yield Sector Team and the Bank Loan Sector Team. In addition, Mr. Appleby is portfolio manager for institutional and retail high yield bond portfolios. Previously, he was Director of Credit Research and Chief Equity Strategist for Prudential Financial's proprietary portfolios. Mr. Appleby also was a high yield credit analyst and worked in Prudential Financial's private placement group. Before joining Prudential Financial in 1987, he was a strategic planner for Amerada Hess. Mr. Appleby received a BS in Economics from The Wharton School of the University of Pennsylvania and an MBA from the Sloan School at the Massachusetts Institute of Technology (MIT). He holds the Chartered Financial Analyst (CFA) designation.
Sector Managers
Stephen Haeckel is Principal and high yield sector portfolio manager for the High Yield Team. Before assuming this role in 1999, he was a research analyst in the Credit Research Unit. Mr. Haeckel has also worked in Prudential Financial's Corporate Finance and Financial Restructuring groups, managing Prudential Financial's private investments. He served on the Board of Directors of three private companies in conjunction with the Financial Restructuring Group. Prior to joining Prudential Financial in 1990, Mr. Haeckel was an Investment Officer at MONY Capital Management. He received a BS in Psychology from Dartmouth College and an MBA from the J.L. Kellogg Graduate School of Management at Northwestern University.
Robert Spano, CFA, CPA, is a Principal and high yield sector portfolio manager for the High Yield Bond Team. Previously, he was a high yield credit analyst for 10 years in the Credit Research Unit, covering the health, lodging, consumer, gaming, restaurant, and chemical industries. Earlier, Mr. Spano worked as an investment analyst in the Project Finance Unit of Prudential Financial's private placement group. He also held positions in the internal audit and risk management units of Prudential Securities. Mr. Spano received a BS in Accounting from the University of Delaware and an MBA from New York University. He holds the Chartered Financial Analyst (CFA) and Certified Public Accountant (CPA) designations.
Terence Wheat, CFA, is Principal and high yield sector portfolio manager for the High Yield Team. Prior to assuming his current position in 2005, he spent 12 years as a credit analyst in the Credit Research Unit, where he was responsible for the consumer products, gaming and leisure, retail, supermarkets, and textile/apparel industries. Mr. Wheat covered
high yield bonds from 1998 to 2003, and investment grade issues from 1993 to 1998. Earlier, he worked for Prudentials Financial Management Group and Individual Insurance Unit. Mr. Wheat joined Prudential Financial in 1988. He received a BS in Accounting and an MBA from Rider University. Mr. Wheat holds the Chartered Financial Analyst (CFA) designation.
Michael J. Collins, CFA, is Principal for the High Yield Team, responsible for investment strategy and risk management. Prior to assuming his current role, Mr. Collins was Senior Investment Strategist, covering all fixed income sectors. Previously, Mr. Collins was a credit research analyst. He also developed proprietary quantitative international interest rate and currency valuation models for our global bond unit. Mr. Collins began his career at Prudential Financial in 1986 as a software applications designer. He received a BS in Mathematics and Computer Science from the State University of New York at Binghamton and an MBA in Finance from New York University. Mr. Collins holds the Chartered Financial Analyst (CFA) designation and is a Fellow of the Life Management Institute (FLMI).
Prudential Fixed Income
High Yield Portfolio Management and Research Teams
As of September 30, 2008
Name | Title/ Responsibilities |
Yrs Exp |
Yrs @ Firm |
Degrees/ Designations |
Sponsoring Body/School | |||||
Portfolio Management Team | ||||||||||
Paul Appleby |
Managing Director and Head of High Yield Team | 22 | 21 | MBA CFA |
Sloan School at Mass. Inst. of Tech. (MIT) | |||||
Michael J. Collins |
Principal, Sector Porfolio Manager, Investment Strategist |
15 | 23 | MBA CFA |
New York University | |||||
Stephen Haeckel |
Principal, Sector Portfolio Manager | 21 | 19 | MBA | J.L. Kellogg School of Mgmt. at Northwestern | |||||
Robert Spano |
Principal, Sector Portfolio Manager | 12 | 17 | MBA CFA, CPA |
New York University | |||||
Terence Wheat |
Principal, Sector Portfolio Manager | 15 | 20 | MBA CFA |
Rider University |
Additional Information About the Portfolio Managers Other Accounts and Fund Ownership. The following table sets forth information about the indicated Fund(s) and accounts other than the Fund(s) for which the Fund(s) Portfolio Managers are primarily responsible for the day-to-day portfolio management as of the Fund(s) most recently completed fiscal year. The table shows, for each Portfolio Manager, the number of accounts managed and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment vehicles, and other accounts. For each category, the number of accounts and total assets in the accounts whose fees are based on performance is indicated in italics typeface. The table also sets forth the dollar range of equity securities of the Fund(s) beneficially owned by the Portfolio Managers as of the Fund(s) most recently completed fiscal year. All reported numbers in the table below are rounded to the thousands.
Portfolio Managers: Information About Other Accounts | ||||||||||
Fund Name Subadviser | Portfolio Managers | Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts |
Fund Ownership | |||||
High Yield Income Fund |
Paul Appleby, CFA | 3/$1,350,158 | 17/$584,117; 5/$478,290 |
16/$5,773,298 | None | |||||
Robert Spano, CFA | 3/$1,350,158 | 13/$519,742; 5/$478,290 |
14/$1,583,771 | None | ||||||
Stephen Haeckel | 3/$1,350,158 | 15/$568,033; 5/$478,290 |
16/$5,868,778 | None | ||||||
Michael J. Collins, CFA | 10/$1,489,592 | 9/$445,153; 1/$390,294 |
18/$6,574,427 | None | ||||||
Terence Wheat, CFA | 5/$1,432,292 | 18/$577,953; 5/$478,290 |
16/$5,643,535 | None |
Compensation and Conflicts Disclosure:
Compensation
Prudential Investment Management, Inc.s Fixed Income unit ("PIM Fixed Income") seeks to maintain a highly competitive compensation program designed to attract and retain outstanding investment professionals, which includes portfolio managers and research analysts, and to align the interests of its investment professionals with that of its clients and overall firm results. PIM Fixed Incomes investment professionals are compensated through a combination of base salary, a performance-based annual cash incentive bonus and a long-term incentive grant. The long-term incentive grant is generally divided between restricted stock of Prudential Financial, providing investment professionals with an ownership stake, and interests in a phantom stock plan pursuant to which investment professionals are compensated based upon the three-year growth of certain portions of PIM Fixed Incomes asset management business. Investment professionals are all covered by the same general compensation structure although they manage multiple accounts. All investment compensation is paid by the investment adviser and not from any assets of the investment company or other managed accounts.
The salary component is based on market data relative to similar positions within the industry as well as the past performance, experience and responsibility of the individual. Investment professionals annual cash bonus is paid from an annual incentive pool. The size of the annual incentive pool is determined quantitatively based on three factors:
1) Investment performance (pre-tax) of all portfolios managed by PIM Fixed Income, in the aggregate, which affect the size of the annual incentive pool. Performance of the portfolios is judged versus the benchmarks against which each of the portfolios is managed or versus the performance of appropriate market peer groups. These portfolios are managed utilizing a variety of strategies and against benchmarks appropriate for each portfolio, 2) PIM Fixed
Incomes business results as measured by financial indicators such as revenue growth, operating income growth and return on required equity, and 3) market-based data indicating trends and levels of overall compensation in the asset management industry in a given year.
A portfolio managers long-term incentive grant of phantom stock units and restricted Prudential Financial stock is based on market data relative to similar positions within the industry as well as the past performance, experience and responsibility of the individual. The value of the phantom stock units will reflect the three-year growth of certain portions of PIM Fixed Incomes asset management business but will exclude from this calculation the growth of PI-managed mutual funds.
PIM Fixed Income regularly benchmarks its compensation program against leading asset management firms in the industry to monitor competitiveness. Each investment professionals incentive compensation payment, including the annual bonus and long-term incentive grant from the incentive pool, is primarily determined by how significantly he or she contributes to delivering investment performance to clients consistent with portfolio objectives, guidelines, and risk parameters, as well as the individuals qualitative contributions to the organization. The performance of each Fund is judged against the applicable Lipper performance peer group/peer universe, as part of this process.
For example, the performance of the Dryden High Yield Fund was judged versus the Lipper FI High Current Yield Funds as part of this process.
Conflicts of Interest
PIM is an indirect, wholly-owned subsidiary of Prudential Financial. PIM is part of a full scale global financial services organization, affiliated with insurance companies, investment advisers and broker-dealers. PIMs portfolio managers are often responsible for managing multiple accounts, including accounts of affiliates, institutional accounts, mutual funds, insurance company separate accounts and various pooled investment vehicles, such as commingled trust funds and unregistered funds. These affiliations and portfolio management responsibilities may cause potential and actual conflicts of interest. PIM aims to conduct itself in a manner it considers to be the most fair and consistent with its fiduciary obligations to all of its clients including the Fund.
A portion of PIM Fixed Incomes long-term incentive grant includes phantom stock units, the value of which reflects the three-year growth of certain portions of PIM Fixed Incomes asset management business. The calculation of growth does not include the growth of PI-managed mutual funds. A portfolio manager may face a conflict of interest given that a piece of his or her long-term compensation is not affected by the growth of PI-managed mutual funds, including this fund. A portfolio managers compensation may be affected as discussed above by the performance of the mutual funds he or she manages.
Management of multiple accounts and funds side-by-side may raise potential conflicts of interest relating to the allocation of investment opportunities, the aggregation and allocation of trades and cross trading. PIM has developed policies and procedures designed to address these potential conflicts of interest.
There may be restrictions imposed by l regulation or contract regarding how much, if any, of a particular security PIM may purchase or sell on behalf of the Fund, and as to the timing of such purchase or sale. Such restrictions may come into play as a result of PIMs relationship with Prudential Financial and its other affiliates. The Fund may be prohibited from engaging in transactions with its affiliates even when such transactions may be beneficial for the Fund. Certain affiliated transactions are permitted in accordance with procedures adopted by the Fund and reviewed by the independent directors of the Fund.
PIM may come into possession of material, non-public information with respect to a particular issuer and as a result be unable to execute purchase or sale transactions in securities of such issuer for the Fund. This can occur particularly with respect to fixed income investments because PIM has a bank loan unit that often invests in private loans that require the issuer to provide material, non-public information. PIM generally is able to avoid certain other potential conflicts due to the possession of material, non-public information by maintaining information barriers to prevent the transfer of this information between units of PIM as well as between affiliates and PIM. Additionally, in an effort to avoid potential conflicts of interest, PIMs fixed income unit has procedures in place to carefully consider whether or not to accept material, non-public information with respect to certain issuers, where appropriate.
Certain affiliates of PIM develop and may publish credit research that is independent from the research developed within PIM. PIM may hold different opinions on the investment merits of a given security, issuer or industry such that PIM may be purchasing or holding a security for the Fund and an affiliated entity may be selling or recommending a sale of the same security or other securities of the issuer. Conversely, PIM may be selling a security for the Fund and an affiliated entity may be purchasing or recommending a buy of the same security or other securities of the same issuer. In addition, PIMs affiliated broker-dealers or investment advisers may be executing transactions in the market in the same securities as the Fund at the same time.
PIM may cause securities transactions to be executed for the Fund concurrently with authorizations to purchase or sell the same securities for other accounts managed by PIM, including proprietary accounts or accounts of affiliates. In these instances, the executions of purchases or sales, where possible, are allocated equitably among the various accounts (including the Fund).
PIM may buy or sell, or may direct or recommend that one client buy or sell, securities of the same kind or class that are purchased or sold for the Fund, at prices which may be different. In addition, PIM may, at any time, execute trades of securities of the same kind or class in one direction for an account and trade in the opposite direction or not trade for any other account, including the Fund, due to differences in investment strategy or client direction.
The fees charged to advisory clients by PIM may differ depending upon a number of factors including, but not limited to, the unit providing the advisory services, the particular strategy, the size of a portfolio being managed, the relationship with the client, the origination and service requirements and the asset class involved. Fees may also differ based on account type
(e.g., commingled accounts, trust accounts, insurance company separate accounts, and corporate, bank or trust-owned life insurance products). Fees are negotiable so one client with similar investment objectives or goals may be paying a higher fee than another client. Fees paid by certain clients may also be higher due to performance-based fees which increase based on the performance of a portfolio above an established benchmark.
Large clients generate more revenue for PIM than do smaller accounts. A portfolio manager may be faced with a conflict of interest when allocating scarce investment opportunities given the benefit to PIM of favoring accounts that pay a higher fee or generate more income for PIM. To address this conflict of interest, PIM has adopted allocation policies as well as supervisory procedures that are intended to fairly allocate investment opportunities among competing client accounts.
PIM and its affiliates manage certain funds, including hedge funds, that are subject to incentive compensation on a side-by-side basis with other accounts including the Fund. PIM and/or certain of its affiliates may have an interest in such funds. PIM and its affiliates have implemented policies and procedures to address potential conflicts of interest arising out of such side-by-side management.
For example, the accounts may at times be precluded from taking positions over-weighted versus an index in securities and other instruments in which one or more of the funds hold short positions. Lending, borrowing and other financing opportunities with respect to securities for which the market is paying a premium rate over normal market rates and for which there maybe limited additional demand will be allocated to the accounts prior to allocating the opportunities to such funds.
Conflicts of interest may also arise regarding proxy voting. A committee of senior business representatives together with relevant regulatory personnel oversees the proxy voting process and monitors potential conflicts of interest relating to proxy voting.
Prudential Financial and the general account of The Prudential Insurance Company of America (PICA) may at times have various levels of financial or other interests in companies whose securities may be purchased or sold in PIMs client accounts, including the Fund. These financial interests may at any time be in potential or actual conflict or may be inconsistent with positions held or actions taken by PIM on behalf of the Fund. These interests can include loan servicing, debt or equity financing, services related to advising on merger and acquisition issues, strategic corporate relationships or investments and the offering of investment advice in various forms. Thus PIM may invest Fund assets in the securities of companies with which PIM or an affiliate of PIM has a financial relationship, including investment in the securities of companies that are advisory clients of PIM.
It is anticipated that there will be situations in which the interests of the Fund in a portfolio company may conflict with the interests of one or more affiliated accounts of PIM or other client accounts managed by PIM or its affiliates. This may occur because PIM affiliated accounts hold public and private debt and equity securities of a large number of issuers and may invest in some of the same companies as the Fund, but at different levels in the capital structure. Investment by PIM affiliated accounts at different levels to that of the Fund in the capital structure of a portfolio company presents inherent conflicts of interest between the PIM affiliated accounts and the Fund.
For example, in the event of restructuring or insolvency, the holders of senior debt may exercise remedies and take other actions that are not in the interest of or are adverse to holders of junior debt. Similarly, a PIM affiliated account might hold secured debt of an issuer whose public unsecured debt is held by the Fund. Such conflicts may also exist among client accounts managed by PIM or its affiliates. While these conflicts cannot be eliminated, PIM has implemented policies and procedures designed to ensure that, notwithstanding these conflicts, investments of the Fund are originated and managed in its best interests.
In addition, portfolio managers may advise PIM affiliated accounts. PIMs portfolio manager(s) may have a financial interest in the accounts they advise, either directly or indirectly. To address potential conflicts of interest, PIM has procedures designed to ensure that including to the extent that client accounts are managed differently from PIM affiliated accounts each of the client accounts and each affiliated account is managed in a manner that is consistent with its investment objectives, investment strategies and restrictions, as well as with PIMs fiduciary obligations. These procedures include supervisory review procedures.
Potential conflicts of interest may exist where P IM or its affiliates determine that a specific transaction in a security is appropriate for a specific account based upon numerous factors (including, investment objectives, investment strategies or restrictions), while other accounts may take the opposite position in the security in accordance with that accounts investment objectives, investment strategies and restrictions. PIM periodically conducts reviews of these accounts and assesses the appropriateness of these differing positions.
Finally, because of the substantial size of PICAs general account, trading by PICAs general account in certain securities, particularly certain fixed income securities, may result in market changes in response to trades. Although PIM expects that PICAs general account will execute transactions that will move a market in a security infrequently, and generally in response to unusual market or issuer events, the execution of these transactions could have an adverse effect on transactions for or positions held by other clients.
PIM follows Prudential Financials policies on business ethics, personal securities trading by investment personnel, and information barriers. PIM has adopted a code of ethics, allocation policies, supervisory procedures and conflicts of interest policies, which are designed to ensure that clients are not harmed by these potential or actual conflicts of interests. However, there is no guarantee that such policies and procedures will detect and ensure avoidance, disclosure or mitigation of each and every situation in which a conflict may arise.
Item 9 | | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers There have been no purchases of equity securities by the registrant or any affiliated purchasers during the period covered by this report. |
Item 10 | | Submission of Matters to a Vote of Security Holders Not applicable. |
Item 11 | | Controls and Procedures |
(a) | It is the conclusion of the registrant's principal executive officer and principal financial officer that the effectiveness of the registrant's current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the information required to be disclosed by the registrant has been recorded, processed, summarized and reported within the time period specified in the Commission's rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrant's principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure. |
(b) | There has been no significant change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter of the period covered by this report that has materially affected, or is likely to materially affect, the registrant's internal control over financial reporting. |
Item 12 | | Exhibits |
(a) (1) | Code of Ethics Attached hereto as Exhibit EX-99.CODE-ETH |
(2) | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act Attached hereto as Exhibit EX-99.CERT. |
(3) | Any written solicitation to purchase securities under Rule 23c-1. Not applicable. |
(b) | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act Attached hereto as Exhibit EX-99.906CERT. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) | The High Yield Income Fund, Inc. | |
By (Signature and Title)* | /s/Deborah A. Docs | |
Deborah A. Docs | ||
Secretary | ||
Date | October 24, 2008 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* | /s/Judy A. Rice | |
Judy A. Rice | ||
President and Principal Executive Officer | ||
Date | October 24, 2008 | |
By (Signature and Title)* | /s/Grace C. Torres | |
Grace C. Torres | ||
Treasurer and Principal Financial Officer | ||
Date | October 24, 2008 |
* |
Print the name and title of each signing officer under his or her signature. |