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- 5296
Exact name of registrant as specified in charter: 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
Registrant's telephone number, including area code: 973-367-7521
Date of fiscal year end: August 31, 2003
Date of reporting period: August 31, 2003
Item 1 - Reports to Stockholders
The High
Yield Income
Fund, Inc.
-------------------------------------------------------------------
Annual Report
August 31, 2003
LETTER TO
SHAREHOLDERS
------------------------------------
October 14, 2003
Dear Shareholder:
Performance at a Glance
The U.S. high yield corporate bond market turned in a stellar performance
for the fiscal year ended August 31, 2003. High yield bonds, commonly called
"junk bonds," benefited from a monetary policy aimed at stimulating economic
growth in the United States through lower borrowing costs for businesses and
individuals. For the 12-month reporting period, the High Yield Income Fund
posted a 29.75%1 return that exceeded the 24.86% return of its benchmark
Lehman Brothers U.S. Corporate High Yield Index (the Index), but lagged the
32.03% return of the Lipper Closed-End High Current Yield Average.
FUND'S PERFORMANCE
As of 8/31/03
Total Return NAV Market Price
12 Months 8/31/03 8/31/03
High Yield
Income Fund(1) 29.75% $5.25 $5.23
Lehman Brothers U.S.
Corporate High Yield Index(2) 24.86 N/A N/A
Lipper Closed-End
High Current Yield Avg(3) 32.03 N/A N/A
1. Source: Lipper Inc. Total return of the Fund represents the change in
net asset value from the beginning of the period (9/1/02) through the end
(8/31/03), 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.
2. Source: Lipper Inc. The Lehman Brothers U.S. Corporate High Yield Index
is an unmanaged index of fixed-rate, noninvestment-grade debt securities with
at least one year remaining to maturity.
3. Source: Lipper Inc. These are the average returns of 25 funds in the
Closed-End High Current Yield category for 12 months.
-1-
YIELD AND DIVIDEND
As of 8/31/03
Total Monthly Dividends
Paid per Share Yield at Market Price
12 Months
$0.54 10.33%
The Fund's primary investment objective is to maximize current income to
shareholders. As a secondary investment objective, the Fund will seek
capital appreciation, but only when consistent with its primary objective.
The Fund will seek to achieve its objectives by investing primarily in
corporate bonds rated 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.
Market Background
A REMARKABLE YEAR FOR HIGH YIELD BONDS
The high yield bond market rallied strongly during the 12-month reporting
period that began September 1, 2002. High yield bonds gained on the view that
a declining-interest-rate environment would succeed in boosting economic
growth and ultimately result in significantly improved corporate
profitability. Some firms took advantage of the drop in rates by refinancing
their debt, which means they issued new bonds and used the proceeds to pay
off higher-rate bonds and bank loans that would soon come due. Because junk
bonds continued to yield more than better-rated bonds, demand for junk bonds
remained strong among investors searching for attractive yields.
Conditions in the high yield bond market were challenging in the first few
weeks of the reporting period. The fragile U.S. economic recovery, concern
about the health of corporate balance sheets, and the memory of accounting
scandals at certain U.S. firms encouraged a general distaste for speculative
assets. That began to change in the early autumn of 2002 when a rebound in
the stock market helped inspire renewed enthusiasm for high yield bonds.
Investors also appreciated the efforts of certain companies to clean up their
balance sheets by reducing debt, curtailing spending, and selling assets. In
addition, the Federal Reserve (the Fed) cut its target for the federal funds
rate by half a percentage point to 1.25% in November 2002 in an effort to
strengthen the fragile economy.
The high yield bond market gained for most of the remainder of the reporting
period amid further favorable developments. After selling off prior to the
start of a war in Iraq, the stock market rally resumed and corporate earnings
improved modestly. Economic growth accelerated in the second quarter of 2003
even though the job market remained weak. In June, the Fed provided
additional support to the economy by cutting its target for the federal funds
rate another quarter of a percentage point to 1%.
-2-
Our Strategy
LEVERAGE HELPED THE FUND AS BONDS RALLIED
We believe the Fund outperformed the Index for the 12-month reporting period
largely because we employed leverage, which refers to the practice of taking
out a relatively low-interest loan against a percentage of assets in the
portfolio and using that money to purchase other investments. This strategy
can materially enhance a portfolio's returns when fixed income markets rally
as they did during the fiscal year.
UTILITIES AND CABLE TV BONDS AIDED THE FUND
We increased the Fund's exposure to the electric utility sector. High yield
bonds in this sector generally gained in value due to the dramatic
improvement in the refinancing environment. The influx of money into the high
yield market, combined with low interest rates, allowed certain cash-
strapped electric power generating companies to get access to new debt
funding. By refinancing debt that would soon come due with new bonds offering
lower rates and longer maturity dates, these firms built a "liquidity bridge"
to better economic times.
We maintained what we believed to be a considerable exposure to cable
television bonds. This sector of the high yield market generally rallied as
investors shifted their focus from a major accounting scandal at Adelphia
Communications to the industry's steady cash flows and other strengths. Among
the Fund's cable television holdings were Cablevision Systems (held under CSC
Holdings) and Charter Communications. Cablevision Systems' bonds rallied as
the firm sold its Bravo cable network and certain other assets and used the
proceeds to improve its cash position and liquidity profile. Charter
Communications bonds rose in value after the firm announced its intention to
buy back some of its debt.
PLAYING IT SAFE IN TELECOM
The telecommunications industry was among the largest issuers of high yield
bonds in the late 1990s when there was much capital available to finance the
construction of what proved to be an overcapacity of fiber optic networks.
Since then the industry has struggled under a substantial amount of debt.
News that WorldCom (now MCI) had inflated its profits by billions of dollars
followed by its subsequent bankruptcy dealt another blow to the telecom
sector in the summer of 2002. Considering these difficulties, we maintained
what we believed to be a relatively conservative posture in the Fund's
telecom position.
However, during the reporting period, the telecom sector was revitalized by
the successful turnaround of Nextel Communications. The mobile telephone firm
reduced debt, cut spending, trimmed its work force, and saw its customer base
increase. Qwest Communications International also took steps to improve its
financial health in December 2002 when it lowered its debt by exchanging
roughly $5 billion of its bonds for new debt securities. More recently, Qwest
Communications' bonds gained after the company received permission to sell
-3-
the western half of its directories business, which it completed shortly
after the reporting period ended.
Overall, the telecom sector posted one of the strongest returns in the high
yield market for the 12 months ended August 31, 2003. We increased the Fund's
telecom exposure, emphasizing bonds of Sprint and other firms rated
investment grade, as well as some of the least speculative high yield bonds
of Nextel Communications and Qwest Communications. The Fund's telecom
holdings rallied, supporting the Fund's returns during our reporting period.
However, we believe the somewhat conservative nature of our telecom exposure
detracted from the Fund's relative performance to the Index because the more
speculative telecom bonds contained in the Index gained the most during the
12-month period under review.
FUND HELD TOO FEW BONDS OF "FALLEN ANGELS"
The Fund's underweight exposure to the bonds of certain fallen angels
detracted from its relative performance to the Index as the Fund derived less
benefit than it could have from the sharp rally in these debt securities.
Fallen angels are troubled firms that were originally rated investment grade
but were downgraded to junk bond status. Because some fallen angels have
substantial amounts of bonds outstanding, their weighting in the Index can be
more than 10 times greater than the average issuer size in the Index. We
believe that holding very large positions in the Fund (simply because they
are so large in the Index) is not prudent from the standpoint of
diversification.
The High Yield Income Fund, Inc. Management Team
-4-
Portfolio of Investments as of August 31, 2003 THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
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LONG-TERM INVESTMENTS--137.4%
CORPORATE BONDS--131.9%
------------------------------------------------------------------------------------------------------------------------------
Aerospace--2.5%
Alliant Techsystems, Inc., Sr. Sub. Notes B2 8.50% 5/15/11 $ 200 (a) $ 216,000
Aviall, Inc., Sr. Notes B1 7.625 7/1/11 425 (a) 421,812
Esterline Technologies Corp., Sr. Sub. Notes B1 7.75 6/15/13 300 (a) 309,750
GenCorp, Inc., Sr. Sub Notes B2 9.50 8/15/13 175 177,188
K & F Industries, Inc., Sr. Sub. Notes, Ser. B B3 9.25 10/15/07 350 (a) 360,790
------------
1,485,540
------------------------------------------------------------------------------------------------------------------------------
Airlines--1.7%
AMR Corp.,
Deb. Caa2 10.00 4/15/21 125 79,375
Notes, Ser. B NR 10.40 3/10/11 100 (a) 68,500
Continental Airlines, Inc., Sr. Notes Caa2 8.00 12/15/05 50 44,000
Delta Air Lines, Inc., Notes B3 8.30 12/15/29 435 (a) 267,525
Northwest Airlines, Inc.,
Gtd. Notes Caa1 9.875 3/15/07 50 36,000
Notes Caa1 8.875 6/1/06 100 72,000
Worldspan LP, Sr. Notes B2 9.625 6/15/11 450 (a) 465,750
------------
1,033,150
------------------------------------------------------------------------------------------------------------------------------
Automotive--1.3%
ArvinMeritor, Inc., Notes Baa3 8.75 3/1/12 300 (a) 310,500
Goodyear Tire & Rubber Co., Notes B1 7.857 8/15/11 125 (a) 97,813
Lear Corp., Sr. Notes, Ser. B Ba1 7.96 5/15/05 125 (a) 134,062
Standyne Automotive Corp., Sr. Sub. Notes, Ser. B Caa1 10.25 12/15/07 65 (a) 56,550
TRW Automotive, Inc., Sr. Sub. Notes B1 9.375 2/15/13 175 (a) 194,250
------------
793,175
------------------------------------------------------------------------------------------------------------------------------
Building Materials & Components--2.3%
American Standard, Inc., Sr. Unsec'd. Gtd. Notes Ba2 7.375 4/15/05 275 289,781
Beazer Homes USA, Inc., Sr. Notes Ba2 8.625 5/15/11 110 (a) 116,050
D.R. Horton, Inc., Notes Ba1 8.00 2/1/09 375 (a) 398,438
KB HOME, Sr. Sub. Notes Ba3 8.625 12/15/08 160 168,000
Louisiana-Pacific Corp., Sr. Notes Ba1 8.50 8/15/05 140 (a) 151,550
--------------------------------------------------------------------------------
See Notes to Financial Statements. 5
Portfolio of Investments as of August 31, 2003 THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
------------------------------------------------------------------------------------------------------------------------------
Building Materials & Components (cont'd.)
Nortek, Inc., Sr. Sub. Notes, Ser. B B3 9.875% 6/15/11 $ 280 (a) $ 292,600
------------
1,416,419
------------------------------------------------------------------------------------------------------------------------------
Business Services--2.3%
Dex Media East LLC, Sr. Sub. Notes B3 12.125 11/15/12 450 (a) 543,375
Dex Media West LLC, Sr. Sub. Notes B3 9.875 8/15/13 400 (a) 446,000
Iron Mountain, Inc., Sr. Notes B2 8.625 4/1/13 175 (a) 182,000
RH Donnelley Finance Corp., Sr. Sub. Notes B2 10.875 12/15/12 200 (a) 233,000
------------
1,404,375
------------------------------------------------------------------------------------------------------------------------------
Cable--6.3%
Callahan Nordrhein-Westfalen, Sr. Disc. Notes, Zero
Coupon (until 7/15/05) (Germany) NR Zero 7/15/10 500 (a)(b)(d) 15,625
Charter Communications Holdings LLC,
Sr. Disc. Notes, Zero Coupon (until 5/15/06) Ca Zero 5/15/11 500 (a) 270,000
Sr. Notes Ca 8.625 4/1/09 625 478,125
Sr. Notes Ca 10.75 10/1/09 100 80,000
Sr. Notes Ca 9.625 11/15/09 250 191,250
Sr. Notes Ca 10.25 1/15/10 400 306,000
Sr. Notes Ca 11.125 1/15/11 470 376,000
Sr. Notes Ca 10.00 5/15/11 200 151,000
Comcast UK Cable Corp., Sr. Disc. Deb. (United Kingdom) Caa2 11.20 11/15/07 400 (a)(d) 397,000
EchoStar DBS Corp.,
Sr. Notes Ba3 10.375 10/1/07 825 (a) 912,656
Sr. Notes Ba3 9.125 1/15/09 192 (a) 212,640
Sr. Notes Ba3 9.375 2/1/09 100 (a) 106,375
Mediacom LLC, Sr. Notes B2 7.875 2/15/11 250 (a) 232,500
United Pan Europe, Sr. Disc. Notes, Ser. B, Zero Coupon
(until 8/1/04) (Netherlands) Ca Zero 8/1/09 315 (a)(d) 72,450
------------
3,801,621
------------------------------------------------------------------------------------------------------------------------------
Chemicals--5.5%
Equistar Chemicals Funding LP,
Notes BB-(f) 6.50 2/15/06 140 132,300
Sr. Notes B1 10.625 5/1/11 55 54,725
Hercules, Inc., Deb. Ba1 6.60 8/1/27 325 (a) 325,000
Huntsman Advanced Materials LLC, Sec'd. Notes B2 11.00 7/15/10 350 (a) 369,250
Huntsman ICI Chemicals LLC, Sr. Sub. Notes Caa1 10.125 7/1/09 855 (a) 807,975
IMC Global, Inc.,
Gtd. Notes, Ser. B B1 11.25 6/1/11 100 103,500
Notes B2 7.625 11/1/05 100 101,500
--------------------------------------------------------------------------------
See Notes to Financial Statements. 6
Portfolio of Investments as of August 31, 2003 THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
------------------------------------------------------------------------------------------------------------------------------
Chemicals (cont'd.)
ISP Chemco, Inc., Notes, Ser. B B2 10.25% 7/1/11 $ 155 (a) $ 170,887
Lyondell Chemical Co., Sr. Sub. Notes B2 10.875 5/1/09 360 (a) 343,800
OM Group, Inc., Sr. Sub. Notes Caa1 9.25 12/15/11 420 (a) 403,200
Rhodia SA, Sr. Sub. Notes Ba3 8.875 6/1/11 75 75,375
Rockwood Specialties, Inc., Sr. Sub. Notes B3 10.625 5/15/11 400 417,000
------------
3,304,512
------------------------------------------------------------------------------------------------------------------------------
Computer Services--0.8%
Unisys Corp.,
Sr. Notes Ba1 7.25 1/15/05 350 (a) 361,375
Sr. Notes Ba1 8.125 6/1/06 100 (a) 106,625
------------
468,000
------------------------------------------------------------------------------------------------------------------------------
Containers--5.0%
Anchor Glass Container Corp., Sr. Sec'd. Notes B2 11.00 2/15/13 150 164,625
Berry Plastics Corp., Sr. Sub. Notes B3 10.75 7/15/12 125 (a) 137,188
BWAY Corp., Sr. Sub Notes B3 10.00 10/15/10 175 (a) 180,250
Crown European Holdings S.A., Sr. Sec'd. Notes (France) B1 9.50 3/1/11 250 (a)(d) 266,250
Graham Packaging Holdings Co.,
Sr. Disc. Notes, Ser. B Caa2 10.75 1/15/09 650 666,250
Sr. Sub. Notes, Ser. B Caa1 8.75 1/15/08 100 98,500
Greif Bros. Corp., Sr. Sub. Notes B2 8.875 8/1/12 300 318,000
Owens-Brockway Glass Container,
Sr. Sec'd. Notes B1 7.75 5/15/11 450 450,000
Sr. Sec'd. Notes B1 8.75 11/15/12 80 84,000
Silgan Holdings, Inc., Sr. Sub. Deb. B1 9.00 6/1/09 475 (a) 491,625
U.S. Can Corp.,
Sr. Sec'd. Notes B3 10.875 7/15/10 100 99,250
Sr. Sub. Notes, Ser. B Caa1 12.375 10/1/10 85 65,875
------------
3,021,813
------------------------------------------------------------------------------------------------------------------------------
Diversified Manufacturing Operations--1.0%
AMSTED Industries, Inc., Sr. Notes B3 10.25 10/15/11 175 179,375
Tyco Int'l. Group S.A.,
Gtd. Notes (Luxembourg) Ba2 6.125 11/1/08 50 (d) 50,250
Gtd. Notes (Luxembourg) Ba2 6.75 2/15/11 100 (d) 101,750
Notes (Luxembourg) Ba2 6.375 10/15/11 250 (a)(d) 250,312
------------
581,687
--------------------------------------------------------------------------------
See Notes to Financial Statements. 7
Portfolio of Investments as of August 31, 2003 THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
------------------------------------------------------------------------------------------------------------------------------
Education--0.4%
Kindercare Learning Center, Inc., Sr. Sub. Notes, Ser. B B3 9.50% 2/15/09 $ 250 (a) $ 251,250
------------------------------------------------------------------------------------------------------------------------------
Electric Utilities--10.0%
AES Corp.,
Sr. Notes B3 9.50 6/1/09 75 72,187
Sr. Notes B3 9.375 9/15/10 700 672,000
Sr. Sec'd. Notes B2 8.75 5/15/13 400 407,000
AES Drax Holdings Ltd., Sr. Sec'd. Notes, Ser. B
(Cayman Islands) Caa2 10.41 12/31/20 190 (a)(d) 142,500
AES Eastern Energy LP, Pass-Through Cert., Ser 99-A Ba1 9.00 1/2/17 224 (a) 234,971
Aquila, Inc., Sr. Notes Caa1 7.95 2/1/11 100 (a) 91,000
Calpine Corp.,
Sr. Notes B1 8.50 2/15/11 980 (a) 730,100
Sr. Sec'd. Notes B(f) 8.75 7/15/13 200 (a) 188,000
Cogentrix Energy, Inc.,
Sr. Notes B1 8.10 3/15/04 60 55,350
Sr. Notes, Ser. B B1 8.75 10/15/08 135 (a) 116,100
Edison Mission Energy, Sr. Notes B2 7.73 6/15/09 275 213,125
Empresa Nacional de Electricidad, Notes (Chile) Ba3 8.35 8/1/13 520 (d) 521,320
Homer City Funding LLC, Gtd. Notes Ba2 8.137 10/1/19 150 155,250
Midland Funding Corp.,
Deb., Ser. A Ba3 11.75 7/23/05 577 (a) 624,990
Deb., Ser. B Ba3 13.25 7/23/06 305 (a) 355,325
Mirant Americas Generation LLC, Sr. Notes D(f) 7.20 10/1/08 60 (b) 44,100
Mirant Corp., Sr. Notes NR 7.40 7/15/04 225 (b) 101,250
Mirant Mid-Atlantic LLC, Pass-Through Cert., Ser. A D(f) 8.625 6/30/12 87 (a)(b) 82,541
Orion Power Holdings, Inc., Sr. Notes B2 12.00 5/1/10 370 (a) 410,700
Reliant Energy, Inc., Mid-Atlantic, Ser. C B1 9.681 7/2/26 200 184,000
TECO Energy, Inc., Sr. Notes Ba1 7.50 6/15/10 400 (a) 392,500
Westar Energy, Inc., First Mtge. Ba1 7.875 5/1/07 250 (a) 272,813
------------
6,067,122
------------------------------------------------------------------------------------------------------------------------------
Electronic Components--1.3%
Flextronics International Ltd., Sr. Sub. Notes
(Singapore) Ba2 6.50 5/15/13 145 (a)(d) 138,838
L-3 Communications Corp., Sr. Sub. Notes Ba3 7.625 6/15/12 300 (a) 312,000
ON Semiconductor Corp., Gtd. Notes Caa1 12.00 5/15/08 190 (a) 199,500
Sanmina-SCI Corp., Sr. Sec'd. Notes Ba2 10.375 1/15/10 125 142,500
------------
792,838
------------------------------------------------------------------------------------------------------------------------------
Energy--2.6%
Arch Western Finance LLC, Sr. Notes Ba2 6.75 7/1/13 275 271,562
El Paso Corp., Sr. Notes Caa1 7.00 5/15/11 365 (a) 314,813
--------------------------------------------------------------------------------
See Notes to Financial Statements. 8
Portfolio of Investments as of August 31, 2003 THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
------------------------------------------------------------------------------------------------------------------------------
Energy (cont'd.)
Gemstone Investors Ltd. Caa1 7.71% 10/31/04 $ 345 (a) $ 340,688
Peabody Energy Corp., Gtd. Notes Ba3 6.875 3/15/13 275 275,000
SEMCO Energy, Inc., Sr. Notes Ba2 7.125 5/15/08 400 (a) 389,500
------------
1,591,563
------------------------------------------------------------------------------------------------------------------------------
Environmental Services--2.8%
Allied Waste North America, Inc.,
Sr. Notes Ba3 8.50 12/1/08 135 (a) 143,438
Sr. Notes, Ser. B Ba3 7.625 1/1/06 500 (a) 516,250
Sr. Notes, Ser. B Ba3 7.875 1/1/09 345 (a) 353,194
Sr. Notes, Ser. B B2 10.00 8/1/09 245 (a) 265,212
Browning Ferris Industries, Inc. Ba3 7.40 9/15/35 500 (a) 440,000
------------
1,718,094
------------------------------------------------------------------------------------------------------------------------------
Financial Services--1.5%
Chevy Chase Savings Bank, Sub. Deb. Ba3 9.25 12/1/05 250 (a) 250,625
Sovereign Bancorp, Inc., Sr. Notes Ba1 10.50 11/15/06 165 193,713
TD Funding Corp., Gtd. Notes B3 8.375 7/15/11 325 339,625
Western Financial Bank, F.S.B., Sr. Sub. Deb. B1 8.875 8/1/07 125 (a) 130,000
------------
913,963
------------------------------------------------------------------------------------------------------------------------------
Foods--2.7%
Agrilink Foods, Inc., Sr. Sub. Notes B3 11.875 11/1/08 85 (a) 90,738
Del Monte Corp., Sr. Sub. Notes B2 8.625 12/15/12 250 (a) 260,313
Dole Foods Co., Inc.,
Gtd. Notes B2 7.25 6/15/10 125 121,562
Sr. Notes B2 8.625 5/1/09 150 156,750
Sr. Notes B2 8.875 3/15/11 115 120,750
Domino's, Inc., Sr. Sub. Notes B3 8.25 7/1/11 100 105,000
Merisant Co., Gtd. Notes B2 9.50 7/15/13 425 (a) 446,250
National Beef Packing Co. LLC, Sr. Notes B2 10.50 8/1/11 100 (a) 104,500
Smithfield Foods, Inc.,
Notes Ba2 7.75 5/15/13 200 (a) 206,000
Sr. Notes, Ser. B Ba2 8.00 10/15/09 35 36,750
------------
1,648,613
------------------------------------------------------------------------------------------------------------------------------
Funeral Services--0.4%
Service Corp. International, Sr. Notes B1 6.00 12/15/05 235 (a) 235,000
--------------------------------------------------------------------------------
See Notes to Financial Statements. 9
Portfolio of Investments as of August 31, 2003 THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
------------------------------------------------------------------------------------------------------------------------------
Gaming--6.0%
Argosy Gaming Co., Sr. Sub. Notes B2 9.00% 9/1/11 $ 75 (a) $ 80,813
Aztar Corp., Sr. Sub. Notes Ba3 8.875 5/15/07 150 (a) 157,125
Boyd Gaming Corp., Sr. Sub. Notes B1 8.75 4/15/12 200 (a) 214,500
Circus Circus Enterprises, Inc., Deb. Ba2 6.70 11/15/96 130 (a) 130,975
Coast Hotels & Casinos, Inc., Sr. Sub. Notes B2 9.50 4/1/09 200 (a) 213,000
Isle of Capri Casinos, Inc., Sr. Sub. Notes B2 9.00 3/15/12 110 (a) 118,800
Mandalay Resort Group,
Sr. Notes Ba2 9.50 8/1/08 250 (a) 281,875
Sr. Notes Ba2 6.50 7/31/09 250 250,625
Mohegan Tribal Gaming Authority,
Sr. Sub. Notes Ba3 6.375 7/15/09 150 150,375
Sr. Sub. Notes Ba3 8.00 4/1/12 100 106,500
Park Place Entertainment Corp.,
Sr. Notes Ba1 7.50 9/1/09 610 (a) 649,650
Sr. Sub. Notes Ba2 8.125 5/15/11 85 91,800
Station Casinos, Inc., Sr. Sub. Notes B2 9.875 7/1/10 150 (a) 165,000
Venetian Casino Resort LLC, Second Mtge. B3 11.00 6/15/10 555 631,312
Wynn Las Vegas LLC, Second Mtge. B3 12.00 11/1/10 350 397,250
------------
3,639,600
------------------------------------------------------------------------------------------------------------------------------
Gas Pipelines--5.8%
Dynegy Holdings, Inc.,
Deb. Caa2 7.125 5/15/18 50 35,500
Deb. Caa2 7.625 10/15/26 75 52,125
Sr. Notes Caa2 8.75 2/15/12 325 276,250
El Paso Production Holding Co., Gtd. Notes B2 7.75 6/1/13 695 (a) 674,150
Leviathan Gas Pipeline Corp., Sr. Sub. Notes, Ser. B B1 10.375 6/1/09 300 (a) 336,750
Plains All American Pipeline, Notes Ba2 7.75 10/15/12 45 47,700
Southern Natural Gas Co., Sr. Notes B1 8.875 3/15/10 250 263,750
Tennessee Gas Pipeline Co.,
Deb. B1 7.00 3/15/27 215 (a) 213,387
Deb. B1 7.00 10/15/28 25 21,688
Deb. B1 7.625 4/1/37 295 (a) 272,875
TransMontaigne, Inc., Sr. Sub. Notes B3 9.125 6/1/10 150 157,500
Williams Cos., Inc.,
Notes B3 9.25 3/15/04 620 (a) 630,850
Notes B3 7.125 9/1/11 200 (a) 192,000
Notes B3 8.125 3/15/12 300 (a) 303,000
------------
3,477,525
--------------------------------------------------------------------------------
See Notes to Financial Statements. 10
Portfolio of Investments as of August 31, 2003 THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
------------------------------------------------------------------------------------------------------------------------------
Health Care--10.4%
Alliance Imaging, Inc., Sr. Sub. Notes B3 10.375% 4/15/11 $ 150 $ 156,000
Concentra Operating Corp., Sr. Sub. Notes B3 13.00 8/15/09 125 (a) 137,500
Coventry Health Care, Inc., Sr. Notes Ba3 8.125 2/15/12 250 (a) 263,750
Fresenius Medical Care Capital Trust IV Ba2 7.875 6/15/11 155 (a) 161,200
Hanger Orthopedic Group, Inc., Sr. Sub. Notes B-(f) 11.25 6/15/09 100 (a) 108,750
HCA, Inc.,
Deb. Ba1 8.36 4/15/24 100 102,103
Deb. Ba1 7.50 11/15/95 575 (a) 517,633
Notes Ba1 7.125 6/1/06 550 (a) 583,674
Notes Ba1 7.69 6/15/25 500 (a) 482,547
HEALTHSOUTH Corp.,
Sr. Notes Caa2 6.875 6/15/05 300 (a) 265,500
Sr. Notes Caa2 8.50 2/1/08 75 64,125
Magellan Health Services, Inc., Sr. Notes D(f) 9.375 11/15/07 440 (a) 459,800
Medco Health Solutions, Inc., Sr. Notes Ba1 7.25 8/15/13 200 206,999
MedQuest, Inc., Gtd. Notes, Ser. B B3 11.875 8/15/12 275 (a) 283,250
Omnicare, Inc., Sr. Sub. Notes Ba2 6.125 6/1/13 100 95,500
Res-Care, Inc., Sr. Notes B2 10.625 11/15/08 250 (a) 238,750
Rotech Healthcare, Inc., Sr. Sub. Notes B2 9.50 4/1/12 100 (a) 104,000
Select Medical Corp.,
Sr. Sub. Notes B2 9.50 6/15/09 160 (a) 172,800
Sr. Sub. Notes B2 7.50 8/1/13 225 (a) 224,438
Senior Housing Properties Trust, Sr. Notes Ba2 8.625 1/15/12 600 (a) 624,000
Tenet Healthcare Corp.,
Sr. Notes Ba3 6.375 12/1/11 75 69,750
Sr. Notes Ba3 6.50 6/1/12 200 184,000
Triad Hospitals Holdings, Inc.,
Sr. Notes, Ser. B B1 8.75 5/1/09 110 (a) 117,150
Sr. Sub. Notes, Ser. B B2 11.00 5/15/09 260 (a) 284,050
Ventas Realty LP,
Sr. Notes Ba3 8.75 5/1/09 280 294,000
Sr. Notes Ba3 9.00 5/1/12 70 74,725
------------
6,275,994
------------------------------------------------------------------------------------------------------------------------------
Industrials--3.0%
Actuant Corp., Sr. Sub. Notes B2 13.00 5/1/09 195 228,150
Coinmach Corp., Sr. Notes B2 9.00 2/1/10 305 (a) 317,200
Gentek, Inc., Sr. Sub. Notes NR 11.00 8/1/09 320 (a)(b) 2,000
International Wire Group, Inc., Sr. Sub. Notes Ca 11.75 6/1/05 275 (a) 140,250
Manitowoc Co., Inc., Sr. Sub. Notes B2 10.50 8/1/12 325 (a) 357,500
Motors & Gears, Inc., Sr. Notes, Ser. D Caa1 10.75 11/15/06 400 (a) 346,000
--------------------------------------------------------------------------------
See Notes to Financial Statements. 11
Portfolio of Investments as of August 31, 2003 THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
------------------------------------------------------------------------------------------------------------------------------
Industrials (cont'd.)
United Rentals, Inc.,
Ser. B B2 9.50% 6/1/08 $ 300 (a) $ 300,000
Sr. Notes B1 10.75 4/15/08 125 137,500
------------
1,828,600
------------------------------------------------------------------------------------------------------------------------------
Leisure--1.5%
Regal Cinemas, Inc., Sr. Sub. Notes B2 9.375 2/1/12 200 (a) 222,000
Royal Caribbean Cruises Ltd.,
Sr. Notes (Liberia) Ba2 8.125 7/28/04 70 (d) 72,275
Sr. Notes (Liberia) Ba2 8.00 5/15/10 350 (a)(d) 364,000
Six Flags, Inc., Sr. Notes B2 9.75 6/15/07 275 (a) 265,375
------------
923,650
------------------------------------------------------------------------------------------------------------------------------
Lodging--9.7%
Extended Stay America, Inc., Sr. Sub. Notes B2 9.875 6/15/11 175 (a) 185,937
Felcor Suites LP, Gtd. Notes B1 7.625 10/1/07 75 72,938
Felcore Lodging LP, Sr. Notes B1 9.50 9/15/08 420 (a) 439,425
Hilton Hotels Corp., Notes Ba1 7.625 12/1/12 100 105,500
HMH Properties, Inc., Sr. Notes, Ser. B Ba3 7.875 8/1/08 560 562,800
Host Marriott LP,
Gtd. Notes, Ser. E Ba3 8.375 2/15/06 700 719,250
Sr. Notes Ba3 9.50 1/15/07 275 (a) 291,500
ITT Corp.,
Notes Ba1 6.75 11/15/05 90 93,825
Notes Ba1 7.375 11/15/15 150 (a) 148,500
Kerzner International Ltd., Sr. Sub. Notes (Bahamas) B2 8.875 8/15/11 540 (a)(d) 581,850
La Quinta Inns, Inc., Sr. Notes Ba3 7.40 9/15/05 300 (a) 306,000
La Quinta Properties, Inc., Sr. Notes Ba3 8.875 3/15/11 100 103,750
MGM MIRAGE, Sr. Sub. Notes Ba2 9.75 6/1/07 980 (a) 1,092,700
Starwood Hotels & Resorts Worldwide, Inc.,
Notes Ba1 6.75 11/15/03 500 502,500
Notes Ba1 7.375 5/1/07 570 (a) 597,075
Notes Ba1 7.875 5/1/12 70 73,150
------------
5,876,700
------------------------------------------------------------------------------------------------------------------------------
Machinery--2.0%
Case New Holland, Inc., Sr. Notes Ba3 9.25 8/1/11 225 237,094
Columbus McKinnon Corp., Sr. Sec'd. Notes B3 10.00 8/1/10 250 258,125
Rexnord Corp., Sr. Sub. Notes B3 10.125 12/15/12 225 241,875
--------------------------------------------------------------------------------
See Notes to Financial Statements. 12
Portfolio of Investments as of August 31, 2003 THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
------------------------------------------------------------------------------------------------------------------------------
Machinery (cont'd.)
Terex Corp.,
Sr. Sub. Notes B3 8.875% 4/1/08 $ 150 (a) $ 155,250
Sr. Sub. Notes B3 9.25 7/15/11 50 (a) 53,375
Sr. Sub. Notes, Ser. B B3 10.375 4/1/11 240 (a) 265,800
------------
1,211,519
------------------------------------------------------------------------------------------------------------------------------
Media--6.6%
Alliance Atlantis Commerce, Inc., Sr. Sub. Notes
(Canada) B1 13.00 12/15/09 325 (a)(d) 363,594
American Color Graphics, Inc., Sr. Sec'd. Notes B3 10.00 6/15/10 500 (a) 521,250
American Media Operations, Inc., Ser. B B2 10.25 5/1/09 100 107,000
CanWest Media, Inc.,
Sr. Notes (Canada) B1 7.625 4/15/13 75 (d) 77,625
Sr. Sub. Notes (Canada) B2 10.625 5/15/11 225 (a)(d) 250,875
Gray Television, Inc., Sr. Sub. Notes B3 9.25 12/15/11 150 163,125
Moore North America Finance, Inc., Sr. Notes B1 7.875 1/15/11 175 181,125
Quebecor Media, Inc., Sr. Disc. Notes, Zero Coupon
(until 7/15/06) (Canada) B2 Zero 7/15/11 400 (a)(d) 330,000
Sinclair Broadcast Group, Inc.,
Gtd. Notes B2 8.00 3/15/12 225 (a) 234,563
Sr. Sub. Notes B2 8.75 12/15/11 200 (a) 215,500
Sun Media Corp., Gtd. Notes (Canada) Ba3 7.625 2/15/13 400 (a)(d) 413,000
Susquehanna Media Co., Sr. Sub. Notes B1 7.375 4/15/13 600 (a) 611,250
Vertis, Inc., Sec'd Notes B2 9.75 4/1/09 300 318,000
Vivendi Universal SA, Sr. Notes B1 6.25 7/15/08 175 175,000
------------
3,961,907
------------------------------------------------------------------------------------------------------------------------------
Metals--2.2%
AK Steel Corp.,
Gtd. Notes B2 7.875 2/15/09 100 79,000
Sr. Notes B2 7.75 6/15/12 315 239,400
Century Aluminum Co., First Mtge. Notes B1 11.75 4/15/08 260 (a) 262,600
EuraMax International, Ltd., Sr. Sub. Notes B2 8.50 8/15/11 250 (a) 253,750
Joy Global, Inc., Sr. Sub. Notes, Ser. B B2 8.75 3/15/12 350 (a) 378,000
Sheffield Steel Corp., Sr. Sec'd. Notes NR 10.00 4/30/07 71 (b) 42,506
UCAR Finance, Inc. B3 10.25 2/15/12 75 (a) 77,719
------------
1,332,975
--------------------------------------------------------------------------------
See Notes to Financial Statements. 13
Portfolio of Investments as of August 31, 2003 THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
------------------------------------------------------------------------------------------------------------------------------
Oil & Gas Exploration/Production--7.0%
AmeriGas Partners & Eagle, Sr. Notes B2 8.875% 5/20/11 $ 175 $ 187,250
Ferrellgas Partners LP, Sr. Notes B2 8.75 6/15/12 100 (a) 106,000
Forest Oil Corp.,
Sr. Notes Ba3 8.00 6/15/08 100 (a) 102,000
Sr. Notes Ba3 8.00 12/15/11 450 (a) 454,500
GulfTerra Energy Partners LP, Sr. Notes Ba3 6.25 6/1/10 225 219,375
Hanover Equipment Trust,
Sec'd. Notes, Ser. A B2 8.50 9/1/08 105 105,525
Sec'd. Notes, Ser. B B2 8.75 9/1/11 150 (a) 149,250
Houston Exploration Co., Sr. Sub. Notes B2 7.00 6/15/13 100 98,000
Magnum Hunter Resources, Inc., Sr. Notes B2 9.60 3/15/12 155 (a) 164,300
Offshore Logistics, Inc., Gtd. Notes Ba2 6.125 6/15/13 275 261,250
Parker & Parsley Petroleum Co., Sr. Notes Ba1 8.25 8/15/07 450 (a) 501,750
Parker Drilling Co., Sr. Notes, Ser. D B2 9.75 11/15/06 170 (a) 164,900
Premcor Refining Group, Inc.,
Sr. Notes Ba3 9.50 2/1/13 235 253,800
Sr. Notes Ba3 7.50 6/15/15 50 48,250
Pride International, Inc., Sr. Notes Ba2 9.375 5/1/07 75 77,250
Stone Energy Corp., Sr. Sub. Notes B2 8.25 12/15/11 440 (a) 463,100
Tesoro Petroleum Corp., Sec'd. Notes Ba3 8.00 4/15/08 30 31,125
Vintage Petroleum, Inc., Sr. Notes Ba3 8.25 5/1/12 750 (a) 787,500
------------
4,175,125
------------------------------------------------------------------------------------------------------------------------------
Paper & Packaging--4.2%
Cascades, Inc., Sr. Notes (Canada) Ba1 7.25 2/15/13 210 (a)(d) 207,375
Georgia-Pacific Corp.,
Deb. Ba3 8.125 6/15/23 75 65,625
Deb. Ba3 8.625 4/30/25 40 35,600
Notes Ba3 8.125 5/15/11 75 74,438
Sr. Notes Ba2 9.375 2/1/13 725 777,562
Graphic Packaging International Corp., Sr. Sub. Notes B3 9.50 8/15/13 250 262,500
Jefferson Smurfit Corp., Gtd. Notes B2 7.50 6/1/13 250 (a) 253,125
Norampac, Inc., Sr. Notes Ba2 6.75 6/1/13 200 (a) 197,500
Smurfit-Stone Container, Sr. Notes B2 8.25 10/1/12 100 (a) 103,500
Stone Container Corp., Sr. Notes B2 8.375 7/1/12 375 (a) 386,250
Stone Container Finance Co., Sr. Sub. Notes (Canada) B2 11.50 8/15/06 145 (a)(d) 154,062
------------
2,517,537
------------------------------------------------------------------------------------------------------------------------------
Real Estate--0.7%
Intrawest Corp., Sr. Notes (Canada) B1 10.50 2/1/10 385 (a)(d) 413,875
--------------------------------------------------------------------------------
See Notes to Financial Statements. 14
Portfolio of Investments as of August 31, 2003 THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
------------------------------------------------------------------------------------------------------------------------------
Restaurants--2.2%
Carrols Corp., Sr. Sub. Notes B3 9.50% 12/1/08 $ 250 (a) $ 240,000
Yum! Brands, Inc.,
Sr. Notes Ba1 7.45 5/15/05 525 (a) 552,562
Sr. Notes Ba1 8.875 4/15/11 500 (a) 563,750
------------
1,356,312
------------------------------------------------------------------------------------------------------------------------------
Retail--4.0%
AutoNation, Inc., Sr. Notes Ba2 9.00 8/1/08 50 (a) 55,125
Dillards, Inc., Notes Ba3 6.43 8/1/04 45 (a) 45,281
Group 1 Automotive, Inc., Sr. Sub Notes B1 8.25 8/15/13 300 304,500
J.C. Penney Co., Inc., Deb. Ba3 7.40 4/1/37 610 (a) 635,925
Rite Aid Corp.,
Deb. Caa2 6.875 8/15/13 250 (a) 217,500
Deb. Caa2 7.70 2/15/27 195 (a) 156,975
Sec'd. Notes B2 8.125 5/1/10 425 (a) 437,750
Saks, Inc.,
Sr. Notes B1 8.25 11/15/08 145 (a) 151,888
Sr. Notes B1 7.375 2/15/19 250 (a) 237,500
Sonic Automotive, Inc., Sr. Sub. Notes B2 8.625 8/15/13 200 202,000
------------
2,444,444
------------------------------------------------------------------------------------------------------------------------------
Supermarkets--1.6%
Ahold Finance USA, Inc., Notes B1 8.25 7/15/10 75 (a) 76,125
Delhaize America, Inc., Notes Ba1 8.125 4/15/11 445 (a) 463,912
Great Atlantic & Pacific Tea Co., Inc., Notes B3 7.75 4/15/07 85 (a) 77,350
Pantry, Inc., Sr. Sub. Notes B3 10.25 10/15/07 325 (a) 333,125
------------
950,512
------------------------------------------------------------------------------------------------------------------------------
Technology--3.2%
Xerox Capital (Europe) PLC, Notes (United Kingdom) B1 5.875 5/15/04 650 (a)(d) 650,812
Xerox Corp.,
Notes B1 6.25 11/15/26 740 740,925
Sr. Notes B1 9.75 1/15/09 120 130,500
Sr. Notes B1 7.125 6/15/10 400 (a) 388,000
------------
1,910,237
------------------------------------------------------------------------------------------------------------------------------
Telecommunications--10.4%
ACC Escrow Corp., Sr. Notes B2 10.00 8/1/11 285 303,525
Crown Castle International Corp., Sr. Notes B3 10.75 8/1/11 215 (a) 235,963
Dobson Communications Corp., Sr. Notes B3 10.875 7/1/10 210 (a) 227,850
Eircom Funding, Sr. Sub. Notes B1 8.25 8/15/13 300 315,000
--------------------------------------------------------------------------------
See Notes to Financial Statements. 15
Portfolio of Investments as of August 31, 2003 THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
------------------------------------------------------------------------------------------------------------------------------
Telecommunications (cont'd.)
Lucent Technologies, Inc., Notes Caa1 5.50% 11/15/08 $ 210 (a) $ 174,825
Nextel Communications, Inc.,
Sr. Notes B2 9.95 2/15/08 50 (a) 52,375
Sr. Notes B2 9.375 11/15/09 263 284,040
Sr. Notes B2 7.375 8/1/15 525 (a) 526,312
Nextel Partners, Inc., Sr. Notes Caa1 8.125 7/1/11 375 361,875
Qwest Capital Funding, Inc.,
Gtd. Notes Caa2 5.875 8/3/04 225 219,375
Notes Caa2 6.25 7/15/05 775 732,375
Notes Caa2 7.75 8/15/06 730 682,550
Qwest Services Corp., Notes CCC+(f) 13.50 12/15/10 752 861,040
Rogers Wireless, Inc., Sr. Sec. Notes (Canada) Ba3 9.625 5/1/11 125 (d) 137,656
Telus Corp., Notes (Canada) Ba1 8.00 6/1/11 335 (d) 371,497
Triton PCS, Inc., Sr. Sub. Notes B2 8.50 6/1/13 450 481,500
Verizon Wireless Capital, Notes A3 5.375 12/15/06 285 (a) 302,309
------------
6,270,067
------------------------------------------------------------------------------------------------------------------------------
Tobacco--0.1%
DIMON, Inc., Sr. Notes, Ser. B Ba3 9.625 10/15/11 80 88,000
------------------------------------------------------------------------------------------------------------------------------
Transportation--0.9%
Stena AB,
Sr. Notes (Sweden) Ba3 8.75 6/15/07 400 (a)(d) 410,000
Sr. Notes (Sweden) Ba3 9.625 12/1/12 100 (d) 108,625
------------
518,625
------------
Total corporate bonds (cost $77,183,397) 79,701,939
------------
ASSET BACKED SECURITIES--0.1%
Continental Airlines, Inc., Ser. 96-C (cost $100,361) B3 9.50 10/15/13 138 85,776
------------
CONVERTIBLE BONDS--1.2%
Nortel Networks Corp. (Canada) B3 4.25 9/1/08 260 (a)(d) 217,750
Solectron Corp. Ba3 Zero 11/20/20 300 (a) 168,750
Tyco Int'l. Group S.A. (Luxembourg)
Sr. Notes Ba2 2.75 1/15/18 200 (d) 217,500
Sr. Notes Ba2 3.125 1/15/23 100 (d) 112,125
------------
Total convertible bonds (cost $663,471) 716,125
------------
--------------------------------------------------------------------------------
See Notes to Financial Statements. 16
Portfolio of Investments as of August 31, 2003 THE HIGH YIELD INCOME FUND, INC.
------------------------------------------------------------
Value
Description Shares (Note 1)
------------------------------------------------------------
COMMON STOCKS--1.0%
IMPSAT Fiber Networks, Inc. 2,170 (c) $ 19,205
NTL, Inc. 2,738 (c) 110,177
PSF Group Holdings, Inc., Class A 279 (c)(e) 418,860
Sheffield Steel Corp. 10,579 (c) 42,316
Star Gas Partners, LP 308 6,576
Stellex Aerostructures, Inc. 107 (c)(e) 0
UnitedGlobalCom, Inc., Class A 2 (c) 13
--------------
Total common stocks
(cost $1,110,406) 597,147
--------------
PREFERRED STOCKS--3.2%
CSC Holdings, Inc., 11.125%,
Payment in Kind 6,658 695,761
CSC Holdings, Inc., 11.75%,
Payment in Kind, Ser. H 5,640 592,200
InterAct Systems, Inc., Ser. B,
14.00% 1,100 (c)(e) 11
McLeodUSA, Inc., Ser. A 1,868 (c) 10,573
Paxson Communications Corp.,
14.25%, Payment in Kind 47 432,400
Primedia, Inc., Ser. D, 10.00% 2,335 219,490
--------------
Total preferred stocks
(cost $2,488,091) 1,950,435
--------------
Value
Description Warrants (Note 1)
------------------------------------------------------------
WARRANTS(c)
Intelcom Group, Inc., expiring
9/15/05 (Canada) 9,900 (d) $ 99
InterAct Electronic Marketing,
Inc., expiring 12/15/09 1,100 11
McLeodUSA, Inc., expiring 4/16/07 4,141 1,532
MGC Communications, Inc.,
expiring 10/1/04 200 3
Pagemart Nationwide, Inc.,
expiring 12/31/03 4,600 (e) 5
Sterling Chemical Holdings, Inc.,
expiring 8/15/08 140 1
Telus Corp., expiring 9/15/05
(Canada) 4,049 (d)(e) 4
Viasystems Group Inc., expiring
1/31/10 10,871 (e) 11
XM Satellite Radio, Inc.,
expiring 3/15/10 150 2
--------------
Total warrants
(cost $321,872) 1,668
--------------
Total long-term investments
(cost $81,867,598) 83,053,090
--------------
--------------------------------------------------------------------------------
See Notes to Financial Statements. 17
Portfolio of Investments as of August 31, 2003 THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Principal
Interest Maturity Amount Value
Description Rate Date (000) (Note 1)
------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT--0.5%
Joint Repurchase Agreement Account,
(cost $316,000; Note 5) 1.093% 9/2/03 $ 316 $ 316,000
------------
Total Investments--137.9%
(cost $82,183,598; Note 4) 83,369,090
Liabilities in excess of other assets--( 37.9%) (22,922,821)
------------
Net Assets--100.0% $ 60,446,269
------------
------------
---------------
(a) Total or partial principal amount segregated as collateral for line of
credit. Aggregate value of segregated securities--$52,945,028; (Note 6).
(b) Issuer in default on interest payment, non-income producing security.
(c) Non-income producing securities.
(d) US $ Denominated Bonds-Foreign Issuers.
(e) Fair-valued security--value is determined by the Valuation Committee or
Board of Directors in consultation with the investment adviser.
(f) Standard & Poor's.
NR--Not rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 18
THE HIGH YIELD INCOME FUND, INC.
Statement of Assets and Liabilities
------------------------------------------------------------
Assets August 31, 2003
---------------
Investments, at value (cost $82,183,598)...... $ 83,369,090
Cash.......................................... 439
Interest and dividend receivable.............. 1,729,414
Receivable for investments sold............... 191,957
Other assets.................................. 1,025
---------------
Total assets............................... 85,291,925
---------------
Liabilities
Loan payable (Note 6)......................... 24,500,000
Loan interest payable......................... 123,150
Accrued expenses.............................. 101,806
Deferred directors' fees...................... 67,263
Management fee payable........................ 53,399
Dividends payable............................. 38
---------------
Total liabilities.......................... 24,845,656
---------------
Net Assets.................................... $ 60,446,269
---------------
---------------
Net assets were comprised of:
Common stock, at par....................... $ 115,165
Paid-in capital in excess of par........... 89,525,599
---------------
89,640,764
Undistributed net investment income........ 515,770
Accumulated net realized loss on
investments............................. (30,895,757)
Net unrealized appreciation on
investments............................. 1,185,492
---------------
Net assets, August 31, 2003................... $ 60,446,269
---------------
---------------
Net asset value and redemption price per share
($60,446,269 / 11,516,533 shares of common
stock issued and outstanding).............. $5.25
---------------
---------------
THE HIGH YIELD INCOME FUND, INC.
Statement of Operations
------------------------------------------------------------
Year
Ended
Net Investment Income August 31, 2003
---------------
Income
Interest................................... $ 7,001,176
Dividends.................................. 349,106
---------------
7,350,282
---------------
Expenses
Management fee............................. 387,889
Custodian's fees and expenses.............. 202,000
Reports to shareholders.................... 45,000
Transfer agent's fees and expenses......... 42,000
Registration fees.......................... 35,000
Legal fees and expenses.................... 35,000
Audit fee.................................. 30,000
Directors' fees and expenses............... 9,000
Miscellaneous.............................. 8,822
---------------
Total operating expenses................ 794,711
Loan interest expense (Note 6)............. 518,068
---------------
Total expenses.......................... 1,312,779
---------------
Net investment income......................... 6,037,503
---------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on:
Investments............................. (1,353,682)
---------------
Net change in net unrealized appreciation on
investments................................ 9,768,007
---------------
Net gain on investments....................... 8,414,325
---------------
Net Increase in Net Assets
Resulting from Operations..................... $14,451,828
---------------
---------------
--------------------------------------------------------------------------------
See Notes to Financial Statements. 19
THE HIGH YIELD INCOME FUND, INC.
Statement of Cash Flows
------------------------------------------------------------
Year
Ended
August 31,
Increase (Decrease) in Cash 2003
-------------
Cash flows provided from (used in) operating
activities:
Interest and dividends received (excluding
discount and premium amortization of
$825,239)................................ $ 6,331,360
Operating expenses paid..................... (753,223)
Loan interest paid.......................... (444,073)
Maturities of short-term portfolio
investments, net......................... 1,375,000
Purchases of long-term portfolio
investments.............................. (92,054,118)
Proceeds from disposition of long-term
portfolio investments.................... 87,934,885
Prepaid expenses............................ (9)
------------
Net cash provided from operating
activities............................... 2,389,822
------------
Cash flows provided from (used in) financing
activities:
Cash dividends paid (excluding reinvestment
of dividends of $388,051)................ (5,842,378)
Additional borrowing........................ 3,500,000
Repayment of amount due to custodian........ (47,005)
------------
Net cash used in financing activities.......... (2,389,383)
Net increase in cash........................... 439
Cash at beginning of year...................... 0
------------
Cash at end of year............................ $ 439
------------
------------
Reconciliation of Net Increase in Net Assets to
Net Cash Provided from (used in) Operating
Activities
Net increase in net assets resulting from
operations.................................. $ 14,451,828
------------
Increase in investments........................ (3,918,247)
Net realized loss on investment transactions... 1,353,682
Net change in net unrealized appreciation on
investments................................. (9,768,007)
Increase in interest and dividends
receivable.................................. (193,683)
Decrease in receivable for investments sold.... 502,558
Increase in prepaid expenses and other
assets...................................... (9)
Decrease in payable for investments
purchased................................... (153,783)
Increase in accrued expenses and other
liabilities................................. 115,483
------------
Total adjustments........................... (12,062,006)
------------
Net cash provided from operating activities.... $ 2,389,822
------------
------------
THE HIGH YIELD INCOME FUND, INC.
Statement of Changes in Net Assets
------------------------------------------------------------
Year Ended August 31,
---------------------------
Increase (Decrease) 2003 2002
in Net Assets ------------ ------------
Operations
Net investment income............ $ 6,037,503 $ 6,325,560
Net realized loss on investment
transactions.................. (1,353,682) (8,876,609)
Net change in net unrealized
appreciation (depreciation) on
investments................... 9,768,007 (1,228,275)
----------- -----------
Net increase (decrease) in net
assets resulting
from operations............... 14,451,828 (3,779,324)
Dividends paid to shareholders
from net investment income....... (6,199,416) (6,330,687)
Net asset value of shares issued to
shareholders in reinvestment of
dividends........................ 388,051 396,720
----------- -----------
Total increase (decrease)........... 8,640,463 (9,713,291)
Net Assets
Beginning of year................... 51,805,806 61,519,097
----------- -----------
End of year(a)...................... $60,446,269 $51,805,806
----------- -----------
----------- -----------
---------------
(a) Includes undistributed net
investment income of............ $ 515,770 $ 324,358
----------- -----------
----------- -----------
--------------------------------------------------------------------------------
See Notes to Financial Statements. 20
Notes to Financial Statements THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
The High Yield Income Fund, Inc. (the 'Fund') was organized in Maryland on
August 21, 1987 as a diversified, closed-end management investment company. The
Fund's primary investment objective is to maximize current income to
shareholders through investment in a diversified portfolio of high-yield,
fixed-income securities rated in the medium to lower categories by recognized
rating services, or nonrated securities of comparable quality. As a secondary
investment objective, the Fund will seek capital appreciation, but only when
consistent with its primary objective. The ability of issuers of debt securities
held by the Fund to meet their obligations may be affected by economic or
political developments in a specific industry or region.
------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Security Valuation: Portfolio securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued at market prices provided
by principal market makers and pricing agents. Any security for which the
primary market is on an exchange is valued at the last sales price on such
exchange on the day of valuation or, if there was no sale on such day, the last
bid price quoted on such day. Securities issued in private placements are valued
at the bid price or the mean between the bid and asked prices, if available,
provided by principal market makers. Any security for which a reliable market
quotation is unavailable is valued at fair value as determined in good faith by
or under the direction of the Fund's Board of Directors.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
If the seller defaults and the value of the collateral declines, or if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited. The Fund's
custodian will maintain, in a segregated account of the Fund, cash, U.S.
Government securities, equity securities or other liquid, unencumbered assets
marked to market daily, having a value equal to or greater than the Fund's
purchase commitments with respect to certain investments.
The Fund may invest up to 20% of its total assets in securities which are not
readily marketable, including those which are restricted as to disposition under
securities law ('restricted securities').
Cash Flow Information: The Fund invests in securities and distributes dividends
from net investment income which are paid in cash or are reinvested at the
discretion of shareholders. These activities are reported in the Statement of
Changes in Net Assets and additional information on cash receipts and cash
payments is presented in the Statement of Cash Flows.
Accounting practices that do not affect reporting activities on a cash basis
include carrying investments at value, accruing income on PIK (payment-in-kind)
securities and accreting market discounts and amortizing premiums on debt
obligations.
Security Transactions and Investment Income: Security transactions are recorded
on the trade date. Realized and unrealized gains (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. Expenses are recorded on the accrual basis which may require
the use of certain estimates by management.
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
Therefore, no federal income tax provision is required.
Dividends and Distributions: The Fund expects to pay dividends from net
investment income monthly and make distributions at least annually of net
capital gains, if any. Dividends and distributions are recorded on the
ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Investments LLC ('PI').
Pursuant to this agreement, PI has responsibility for all investment advisory
services and supervises the subadviser's 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.
--------------------------------------------------------------------------------
21
Notes to Financial Statements THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
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, 2003 aggregated $91,900,335 and $88,681,258,
respectively.
------------------------------------------------------------
Note 4. Tax Information
Distributions to shareholders are determined in accordance with United States
federal income tax regulation, which may differ from generally accepted
accounting principles. In order to present undistributed net investment income
and accumulated net realized gains (losses) on the Statement of Assets and
Liabilities that more closely represent their tax character, certain adjustments
have been made to undistributed net investment income and accumulated net
realized gain (loss) on investments. For the year ended August 31, 2003, the
adjustments were to increase accumulated net investment income by $353,325,
increase accumulated net realized loss on investments by $90,360, and decrease
paid-in capital in excess of par by $262,965 primarily due to the difference in
the treatment of accreting market discount between financial and tax reporting
and the expiration of a capital loss carryforward in the current year. Net
investment income, net realized losses and net assets were not affected by this
change.
For the years ended August 31, 2003 and August 31, 2002, the tax character of
total dividends paid, as reflected on the Statement of Changes in Net Assets, of
$6,199,416 and $6,330,687, respectively, was ordinary income.
As of August 31, 2003, the accumulated undistributed earnings on a tax basis was
$515,808 (includes a timing difference of $38 for dividends payable) of taxable
ordinary income.
The United States federal income tax basis of the Fund's investments and the net
unrealized appreciation as of August 31, 2003, were as follows:
Net
Tax Basis of Unrealized
Investments Appreciation Depreciation Appreciation
------------ ------------ ------------ ------------
$ 82,895,975 $ 4,534,479 $ (4,061,364) $473,115
The difference between book basis and tax basis was attributable to deferred
losses on wash sales and differences in the treatment of premium and market
discount amortization for book and tax purposes.
For federal income tax purposes, the Fund has a capital loss carryforward as of
August 31, 2003 of approximately $29,314,600, of which $5,569,500 expires in
2004, $1,361,400 expires in 2007, $3,336,700 expires in 2008, $5,010,500 expires
in 2009, $6,960,200 expires in 2010 and $7,076,300 expires in 2011. During the
year ended August 31, 2003 the Fund had approximately $263,000 of capital loss
carryforward expire. In addition, the fund will elect to treat net capital
losses of approximately $868,800 incurred in the ten month period ended August
31, 2003 as having been incurred in the next year. Accordingly, no capital gains
distribution is expected to be paid to shareholders until net realized gains
have been realized in excess of such amounts.
------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of August 31, 2003, the Fund
had a 0.16% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Fund represented $316,000 in principal
amount. As of such date, each repurchase agreement in the joint account and the
collateral therefore was as follows:
Bank of America, 1.08%, in the principal amount of $64,477,000, repurchase price
$64,484,737, due 9/2/03. The value of the collateral including accrued interest
was $65,766,540.
Greenwich Capital Markets, 1.10%, in the principal amount of $64,477,000,
repurchase price $64,484,881, due 9/2/03. The value of the collateral including
accrued interest was $65,768,753.
Merrill Lynch, 1.10%, in the principal amount of $64,477,000, repurchase price
$64,484,881, due 9/2/03. The value of the collateral including accrued interest
was $65,767,244.
------------------------------------------------------------
Note 6. Borrowings
The Fund has approved a $25,000,000 uncommitted line of credit with State Street
Bank & Trust Co. Interest on any such borrowings outstanding fluctuates daily,
at one percentage point over the Federal Funds rate.
The average daily balance outstanding and the maximum face amount of borrowings
outstanding at any month end for the year ended August 31, 2003 was $22,286,301
and $24,500,000 respectively, at a weighted average interest rate of 2.34%.
--------------------------------------------------------------------------------
22
Notes to Financial Statements THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Note 7. 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, 2003.
During the fiscal years ended August 31, 2003 and 2002 the Fund issued 80,566
and 75,218 shares, respectively, in connection with the reinvestment of
dividends.
Note 8. Dividends and Distributions
On September 3 and October 1, 2003 the Board of Directors of the Fund declared
dividends of $.0425 per share payable on September 30 and October 31, 2003
respectively, to shareholders of record on September 15 and October 15, 2003,
respectively.
--------------------------------------------------------------------------------
23
Financial Highlights THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Year Ended August 31,
-------------------------------------------------------
2003 2002* 2001 2000 1999
------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year(a)............... $ 4.53 $ 5.42 $ 6.07 $ 6.62 $ 6.91
------- ------- ------- ------- -------
Net investment income............................... .52 .57 .62 .63 .71
Net realized and unrealized gain (loss) on
investments...................................... .74 (.90) (.67) (.52) (.28)
------- ------- ------- ------- -------
Total from investment operations................. 1.26 (.33) (.05) .11 .43
------- ------- ------- ------- -------
Dividends paid to shareholders from net investment
income........................................... (.54) (.56) (.60) (.64) (.72)
Distributions to shareholders in excess of net
investment income................................ -- -- -- --(c) --
Return of capital distributions..................... -- -- -- (.02) --
------- ------- ------- ------- -------
Total dividends and distributions................ (.54) (.56) (.60) (.66) (.72)
------- ------- ------- ------- -------
Net asset value, end of year(a)..................... $ 5.25 $ 4.53 $ 5.42 $ 6.07 $ 6.62
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Market price per share, end of year(a).............. $ 5.23 $ 4.67 $ 5.95 $ 5.69 $ 6.81
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN(b).......................... 24.52% (12.52)% 16.68% (5.98)% 18.55%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $60,446 $51,806 $61,519 $68,660 $74,861
Average net assets (000)............................ $55,261 $56,741 $64,140 $71,239 $77,389
Ratios to average net assets:
Expenses, before loan interest................... 1.44% 1.31% 1.23% 1.16% 1.12%
Total expenses................................... 2.38% 2.33% 3.11% 2.95% 2.69%
Net investment income............................ 10.93% 11.15% 11.00% 10.01% 10.36%
Portfolio turnover rate............................. 118% 133% 81% 88% 85%
Asset coverage...................................... 347% 349% 424% 427% 474%
Total debt outstanding at year-end (000)............ $24,500 $21,000 $19,000 $21,000 $20,000
---------------
(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 Fund's dividend reinvestment plan. This amount does not reflect
brokerage commissions.
(c) Less than $.005 per share.
* Effective September 1, 2001, the Fund has adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting market
discounts and amortizing premiums on debt securities. The effect of this
change for the year ended August 31, 2002 was to decrease net investment
income per share by $0.02 and increase net realized and unrealized gain (loss)
per share by $0.02 and decrease the ratio of net investment income from 11.40%
to 11.15%. Per share amounts and ratios for the years ended prior to August
31, 2002 have not been restated to reflect this change in presentation.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 24
Report of Independent Auditors THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
The High Yield Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, of cash
flows and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of The High Yield Income Fund,
Inc. (the 'Fund') at August 31, 2003, the results of its operations and its cash
flows for the year then ended, the changes in its net assets for each of the two
years in the period then ended and the financial highlights for each of the five
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as 'financial statements') are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at August
31, 2003 by correspondence with the custodian, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
October 22, 2003
--------------------------------------------------------------------------------
25
Tax Information (Unaudited) THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
We wish to advise you as to the federal tax status of dividends paid by the Fund
during its fiscal year ended August 31, 2003.
During the fiscal year ended August 31, 2003, the Fund paid dividends of
ordinary income of $0.54 per share from net investment income. Further, we wish
to advise you that 5.38% of the dividends taxable as ordinary income and paid in
the fiscal year ended August 31, 2003 qualified for corporate dividend received
deduction available to corporate taxpayers.
For the purpose of preparing your 2003 annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form 1099
DIV which will be mailed to you in January 2004.
Other Information
--------------------------------------------------------------------------------
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, by calling toll free (800) 451-6788 or by accessing the
Commission's website at www.sec.gov.
--------------------------------------------------------------------------------
26
Management of the Fund (Unaudited) THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Information pertaining to the Directors of the Fund is set forth below.
Directors who are not deemed to be 'interested persons' of the Fund as defined
in the Investment Company Act of 1940, as amended (the Investment Company Act or
the 1940 Act) are referred to as 'Independent Directors.' Directors who are
deemed to be 'interested persons' of the Fund are referred to as 'Interested
Directors.' 'Fund Complex'(D) consists of the Fund and any other investment
companies managed by PI.
Independent Directors(2)
Delayne Dedrick Gold (65), Director since 1996(3)
Oversees 89 portfolios in Fund complex
Principal occupations (last 5 years): Marketing Consultant (1982-present);
formerly Senior Vice President and Member of the Board of Directors,
Prudential-Bache Securities, Inc.
Other Directorships held:(4) None.
Robert E. La Blanc (69), Director since 2003(3)
Oversees 119 portfolios in Fund complex
Principal occupations (last 5 years): President (since 1981) of Robert E. La
Blanc Associates, Inc. (telecommunications); formerly General Partner at Salomon
Brothers and Vice-Chairman of Continental Telecom; Trustee of Manhattan
College.
Other Directorships held:(4) Director of Storage Technology Corporation (since
1979) (technology), Chartered Semiconductor Manufacturing, Ltd. (since 1998);
Titan Corporation (electronics) (since 1995), Computer Associates International,
Inc. (since 2002) (software company); FiberNet Telecom Group, Inc. (since 2003)
(telecom company); Director (since April 1999) of the High Yield Plus Fund,
Inc.
Douglas H. McCorkindale (64), Director since 2003(3)
Oversees 101 portfolios in Fund complex
Principal occupations (last 5 years): Chairman (since February 2001), Chief
Executive Officer (since June 2000) and President (since September 1997) of
Gannett Co. Inc. (publishing and media); formerly Vice Chairman (March 1984-May
2000) of Gannett Co., Inc.
Other Directorships held:(4) Director of Gannett Co. Inc.; Director of
Continental Airlines, Inc. (since May 1993); Director of Lockheed Martin Corp.
(aerospace and defense) (since May 2001); Director of The High Yield Plus
Fund, Inc. (since 1996).
Thomas T. Mooney (61), Director since 1996(3)
Oversees 81 portfolios in Fund complex
Principal occupations (last 5 years): Chief Executive Officer, the Rochester
Business Alliance, formerly President of the Greater Rochester Metro Chamber of
Commerce, Rochester City Manager; formerly Deputy Monroe County Executive;
Director of Blue Cross of Rochester and Executive Service Corps of Rochester;
Director of the Rochester Individual Practice Association; Director of Rural
Metro Ambulance Rochester (since 2003).
Other Directorships held:(4) Director (since 1998) of The High Yield Plus Fund,
Inc.
Stephen P. Munn (61), Director since 1999(3)
Oversees 107 portfolios in Fund complex
Principal occupations (last 5 years): Chairman of the Board (since 1994) and
formerly Chief Executive Officer (1988-2001) and President of Carlisle Companies
Incorporated.
Other Directorships held:(4) Chairman of the Board (since January 1994) and
Director (since 1988) of Carlisle Companies Incorporated (manufacturer of
industrial products); Director of Gannet Co. Inc. (publishing and media).
Richard A. Redeker (60), Director since 1993(3)
Oversees 102 portfolios in Fund complex
Principal occupations (last 5 years): Management Consultant; formerly employee
of Prudential Investments (October 1996-December 1998); Director of Invesmart,
Inc. (since 2001) and Director of Penn Tank Lines, Inc. (since 1999)
Other Directorships held:(4) None.
--------------------------------------------------------------------------------
27
Management of the Fund (Unaudited) THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Robin B. Smith (63), Director since 2003(3)
Oversees 109 portfolios in Fund complex
Principal occupations (last 5 years): Chairman of the Board (since January 2003)
of Publishers Clearing House (direct marketing), formerly Chairman and Chief
Executive Officer (August 1996-January 2003) of Publishers Clearing House.
Other Directorships held:(4) Director of BellSouth Corporation (since 1992).
Stephen Stoneburn (60), Director since 2003(3)
Oversees 107 portfolios in Fund complex
Principal occupations (last 5 years): President and Chief Executive Officer
(since June 1996) of Quadrant Media Corp. (a 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 and
Senior Vice President of Fairchild Publications, Inc. (1975-1989).
Other Directorships held:(4) None
Louis A. Weil, III (62), Director since 1996(3)
Oversees 81 portfolios in Fund complex
Principal occupations (last 5 years): Formerly Chairman (January 1999-July
2000), President and Chief Executive Officer (January 1999-July 2000) and
Director (since September 1991) of Central Newspapers, Inc.; formerly Chairman
of the Board (January 1999-July 2000), Publisher and Chief Executive Officer
(August 1991-December 1995) of Phoenix Newspapers, Inc.
Other Directorships held:(4) None.
Interested Directors(1)
Judy A. Rice (55), President since 2003 and Director since 2000
Oversees 109 portfolios in Fund complex
Principal occupations (last 5 years): President, Chief Executive Officer, Chief
Operating Officer and Officer-in-Charge (since 2003) of PI; Director,
Officer-in-Charge, President, Chief Executive Officer and Chief Operating
Officer (since May 2003) of American Skandia Advisory Services, Inc. and
American Skandia Investment Services, Inc.; Director, Officer-in-Charge,
President, Chief Executive Officer (since May 2003) of American Skandia Fund
Services, Inc.; formerly various positions to Senior Vice President (1992-1999)
of Prudential Securities; and various positions to Managing Director (1975-1992)
of Salomon Smith Barney; Member of Board of Governors of the Money Management
Institute.
Other Directorships held:(4) None
Robert F. Gunia (56), Vice President and Director since 1996(3)
Oversees 189 portfolios in Fund complex
Principal occupations (last 5 years): Chief Administrative Officer (since June
1999) of PI; Executive Vice President and Treasurer (since January 1996) of PI;
President (since April 1999) of Prudential Investment Management Services LLC
(PIMS); Corporate Vice President (since September 1997) of The Prudential
Insurance Company of America (Prudential); Director, Executive Vice President
and Chief Administrative Officer (since May 2003) of American Skandia Investment
Services, Inc., American Skandia Advisory Services, Inc. and American Skandia
Fund Services, Inc.; formerly Senior Vice President (March 1987-May 1999) of
Prudential Securities.
Other Directorships held:(4) Vice President and Director (since May 1989) and
Treasurer (since 1999) of The Asia Pacific Fund, Inc.
David R. Odenath, Jr. (46), Director since 1999(3)
Oversees 80 portfolios in Fund complex
Principal occupations (last 5 years): President of Prudential Annuities (since
August 2002); Executive Vice President (since May 2003) of American Skandia
Investments Services, Inc.; Chief Executive Officer and Director (since May
2003) of American Skandia Life Assurance Corporation, American Skandia
Information Services and Technology Corporation and Skandia U.S. Inc.;
President, Chief Executive Officer and Director (since May 2003) of American
Skandia Marketing, Inc.; Formerly President, Chief Executive Officer, Chief
Operating Officer and Officer-In-Charge (1999-2003) of PI; Senior Vice President
(since June 1999) of Prudential; formerly Senior Vice President (August 1993-May
1999) of PaineWebber Group, Inc.
Other Directorships held:(4) None.
--------------------------------------------------------------------------------
28
Management of the Fund (Unaudited) THE HIGH YIELD INCOME FUND, INC.
--------------------------------------------------------------------------------
Information pertaining to the Officers of the Fund is set forth below.
Officers(2)
Deborah A. Docs (45), Secretary since 1999; Assistant Secretary 1997-1999(3)
Principal occupations (last 5 years): Vice President and Corporate Counsel
(since January 2001) of Prudential; Vice President and Assistant Secretary
(since December 1996) of PI, Vice President and Assistant Secretary (since May
2003) of American Skandia Investment Services, Inc.
Marguerite E.H. Morrison (47), Chief Legal Officer since 2003 and Assistant
Secretary since 2002(3)
Principal occupations (last 5 years): Vice President and Chief Legal
Officer--Mutual Funds and Unit Investment Trusts (since August 2000) of
Prudential; Senior Vice President and Secretary (since April 2003) of PI; Senior
Vice President and Secretary (since May 2003) of American Skandia Investment
Services, Inc., American Skandia Advisory Services, Inc. and American Skandia
Fund Services, Inc.; Vice President and Assistant Secretary of PIMS (since
October 2001), previously Senior Vice President and Assistant Secretary
(February 2001-April 2003) of PI, Vice President and Associate General Counsel
(December 1996-February 2001) of PI.
Grace C. Torres (44), Treasurer and Principal Financial and Accounting Officer
since 1997(3)
Principal occupations (last 5 years): Senior Vice President (since January 2000)
of PI, Senior Vice President and Assistant Treasurer (since May 2003) of
American Skandia Investment Services, Inc. and American Skandia Advisory
Services, Inc.; formerly First Vice President (December 1996-January 2000) of PI
and First Vice President (March 1993-1999) of Prudential Securities.
---------------------------
1 'Interested' Director, as defined in the 1940 Act, by reason of employment with the Manager, (Prudential Investments LLC or
PI), the Subadviser (Prudential Investment Management, Inc. or PIM) or the Distributor (Prudential Investment Management
Services LLC or PIMS).
2 Unless otherwise noted, the address of the Directors and Officers is c/o: Prudential Investments LLC, Gateway Center Three,
100 Mulberry Street, Newark, NJ 07102.
3 The Fund's Articles of Incorporation and Amended and Restated Bylaws provide that the Board of Directors is divided into
three classes of Directors, as nearly equal in number as possible. Each Director serves for a term of three years, with one
class being elected each year. In addition, the Board of Directors less adopted a retirement policy which calls for the
retirement of each Director on December 31 of the year in which the Director reaches the age of 75. The table shows the
number of years in which Director has served as a Director or Officers.
4 This includes only directorships of companies requested to register, or file reports with the SEC under the Securities and
Exchange Act of 1934 (that is, 'public companies') or other investment companies registered under the 1940 Act.
D The Fund Complex consists of all investment companies managed by PI. The Funds for which PI serves as manager include
JennisonDryden Mutual Funds, Strategic Partners Funds, American Skandia Advisor Funds, Inc., The Prudential Variable
Contract Accounts 2, 10, 11, The Target Portfolio Trust, The Prudential Series Fund, Inc., American Skandia Trust, and
Prudential's Gibraltar Fund.
--------------------------------------------------------------------------------
29
------------------------------------------------------
DIRECTORS
Delayne Dedrick Gold
Robert F. Gunia
Robert E. LaBlanc
Douglas H. McCorkindale
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
Judy A. Rice
Robin B. Smith
Stephen Stoneburn
Louis A. Weil, III
OFFICERS
Judy A. Rice, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Deborah A. Docs, Secretary
Marguerite E.H. Morrison, Chief Legal Officer
and Assistant Secretary
MANAGER
Prudential Investments LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
INVESTMENT ADVISER
Prudential Investment Management, Inc.
Gateway Center Two
Newark, NJ 07102
CUSTODIAN
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
TRANSFER AGENT
Equiserve, Inc.
PO Box 43011
Providence, RI 02940-3011
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL
Shearman & Sterling LLP
599 Lexington Avenue
New York, NY 10022
This report is for stockholder information. This is not a
prospectus intended for use in the purchase or sale of fund shares.
The High Yield Income Fund, Inc.
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Toll free (800) 451-6788
The views expressed in this report and information about the
Fund's holdings are for the period covered by this report and are
subject to change thereafter.
The Prudential Insurance Company of America
751 Broad Street
Newark, NJ 07102
429904105 IFS-A084720
HYIA
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 registrant's 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 at 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 registrant's Board has determined that Mr. Stephen Munn, member of
the Board's 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 - Not required in this
filing
Item 5 - Reserved
Item 6 - Reserved
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-
End Management Investment Companies - See Exhibit (b)
Item 8 - Reserved
Item 9 - 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 have been no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10 - Exhibits
(a) Code of Ethics - Attached hereto
(b) Proxy voting policies - Attached hereto
(c) Certifications pursuant to Sections 302 and 906 of the
Sarbanes-Oxley Act - Attached hereto
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) High Yield Income Fund, Inc.
By (Signature and Title)* /s/Deborah A. Docs
------------------
Deborah A. Docs
Secretary
Date October 28, 2003
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 28, 2003
By (Signature and Title)* /s/Grace C. Torres
------------------
Grace C. Torres
Treasurer and Principal Financial Officer
Date October 28, 2003
* Print the name and title of each signing officer under his or her signature.