-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q/uC/QMhuMrDxFTPK5zzmM4h692gqaLYn8CeNwwC6IZAcU+yRSx2M3jzZxuRIjyp WBBJt+NGTOeN/lKR1OS6/w== 0000828990-98-000001.txt : 19980611 0000828990-98-000001.hdr.sgml : 19980611 ACCESSION NUMBER: 0000828990-98-000001 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980610 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HIGH YIELD PLUS FUND INC CENTRAL INDEX KEY: 0000828990 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05468 FILM NUMBER: 98645331 BUSINESS ADDRESS: STREET 1: GATEWAY CENTER THREE 100 MULBERRT ST CITY: NEWARK STATE: NJ ZIP: 07102 BUSINESS PHONE: 2013671495 MAIL ADDRESS: STREET 1: GATEWAY CENTER THREE 100 MULBERRY STREET CITY: NEWARK STATE: NJ ZIP: 07102 N-30D 1 THE HIGH YIELD PLUS FUND The High Yield Plus Fund, Inc. ANNUAL REPORT March 31, 1998 Letter To Shareholders April 13, 1998 Dear Shareholder: Fiscal 1998 proved to be a healthy year for the high yield market. Strong returns were driven by favorable economic conditions as well as broad-based demand for high yield instruments. In addition, the general strength of the equity markets and liquidity in the commercial banking system have both supported the financial flexibility of high yield issuers, insuring that capital is readily available. The high yield market witnessed a record amount of new issuance during 1997 - nearly $140 billion. The new issue market has commenced 1998 at a blistering pace, and to date, the vast majority of new issues have been readily absorbed, validating the strength of investor demand. Fund Performance. The Fund's total returns for the periods ended March 31, 1998 are shown on the following table. For comparison, we have also provided the returns of the Lipper Closed-End Leveraged High Yield category, an average of 19 closed-end high yield funds. We would note that the degree of leverage varies substantially amongst the funds in this group. In addition, we have included the returns of the Lehman Brothers High Yield Index, a proxy for high yield market performance. TOTAL RETURNS For the Periods Ended March 31, 1998
6 Months 12 Months 24 Months High Yield Plus Fund (NAV)1 7.1% 18.3% 32.0% Lipper CEHY - Leveraged 5.9% 18.4% 34.3% Lehman Brothers 5.4% 15.3% 27.5% High Yield Index
1Source: Prudential Investments Fund Management. The Fund's total return represents the change in net asset value from the beginning of the period noted through March 31, 1998 and assumes the reinvestment of dividends and distributions. Past performance is no guaratee of future results. The Fund's shares closed the period at $9.125 per share. This price reflected a modest discount to the Fund's net asset value of $9.21 per share as of March 31, 1998. The monthly dividend of $0.07 per share ($0.84 per share annualized) equates to a yield of 9.2% on the closing stock price. For reference, this dividend yield was approximately 355 basis points in excess of the 10-year Treasury bond yield as of March 31. Global High Yield Market Developments. Perhaps the issue of most interest during the year was the financial turmoil that swept through Asia, wreaking havoc in the emerging market sector. By the end of the year, several previously highly rated countries, most notably South Korea, had suddenly achieved junk status. By year- end 1997, virtually all emerging market issues had depreciated sharply in value, in sympathy with the Asian crisis. While we remain circumspect of the issues of investing outside of the U.S., as well as of the complexities created by severe market dislocation, we believed that valuations of selected issuers merited the Fund's investment. Given the International Monetary Fund's quick focus, as well as South Korea's resounding resolve to build anew its fiscal balance sheet, the broader - -------------------------------------------------- - ----------------------------- 1 emerging markets have recovered from their lows, to the benefit of the Fund's recent purchases in this arena. We believe that the need for global capital access will probably serve as the most compelling force for longer-term market liberalization and transparency. Parenthetically, the Fund's overall exposure to U.S. dollar-denominated issues outside of the U.S. and Canada has increased from approximately 10% to 23% over the six-month period ended March 31, 1998. Thank you for your interest in the Fund, and we look forward to continuing the Fund's investment program. Sincerely yours, Catherine A. Smith Portfolio Manager Senior Vice President Wellington Management Company, LLP - -------------------------------------------------- - ----------------------------- 2 Portfolio of Investments as of March 31, 1998 THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------- - ------------------------------
Moody's Principal Rating Interest Maturity Amount Value Description (Unaudited) Rate Date (000) (Note 1) - -------------------------------------------------- - -------------------------------------------------- - -------------------------- LONG-TERM INVESTMENTS--125.4% CORPORATE BONDS--113.8% - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Aerospace/Defense--3.6% Argo-Tech Corp., Sr. Sub. Notes B3 8.625% 10/01/07 $ 1,500 $ 1,533,750 K&F Industries, Inc., Sr. Sub. Notes, Ser. B B3 9.25 10/15/07 750 783,750 Moog, Inc., Sr. Sub. Notes, Ser. B B2 10.00 5/01/06 1,340 1,450,550 - ------------ 3,768,050 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Automotive--4.1% Accuride Corp., Sr. Sub. Notes B2 9.25 2/01/08 450 447,750 Federal-Mogul Corp., Sr. Notes Ba2 8.80 4/15/07 500 524,770 Johnstown America Industries, Inc., Sr. Sub. Notes B3 11.75 8/15/05 1,500 1,676,250 Key Plastics, Inc., Sr. Sub. Notes, Ser. B B3 10.25 3/15/07 750 796,875 LDM Technologies, Inc., Sr. Sub. Notes, Ser. B B3 10.75 1/15/07 750 817,500 - ------------ 4,263,145 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Basic Industries-Manufacturing--6.3% Clark-Schwebel Inc., Sr. Notes, Ser. B B2 10.50 4/15/06 465 520,800 Gaylord Container Corp., Sr. Notes B3 9.375 6/15/07 1,000 1,000,000 Great Lakes Carbon Corp., Sr. Sec. Notes Ba3 10.00 1/01/06 1,000 1,095,000 International Wire Group, Inc., Sr. Sub. Notes B3 11.75 6/01/05 750 832,500 Neenah Corp., Sr. Sub. Notes, Ser. B B3 11.125 5/01/07 750 830,625 Roller Bearing Co. Amer. Inc., Sr. Sub. Notes, Ser. B B3 9.625 6/15/07 750 770,625 Thermadyne Holdings Corp., Sr. Notes B1 10.25 5/01/02 750 780,000 UNICCO Service Co./UNICCO Fin. Corp., Sr. Sub. Notes, Ser. B B3 9.875 10/15/07 750 768,750 - ------------ 6,598,300 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Building & Related Industries--0.8% Amtrol Inc., Sr. Sub. Notes B3 10.625 12/31/06 500 518,750 Nortek Inc., Sr. Notes, Ser. B B1 9.25 3/15/07 350 364,000 - ------------ 882,750 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Cable--5.2% Adelphia Communications Corp., Sr. Notes, Ser. B B3 9.875 3/01/07 500 545,000 Century Communications Corp., Sr. Disc. Notes Ba3 Zero 1/15/08 1,250 550,000
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 3 Portfolio of Investments as of March 31, 1998 THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------- - ------------------------------
Moody's Principal Rating Interest Maturity Amount Value Description (Unaudited) Rate Date (000) (Note 1) - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Cable (cont'd.) CSC Holdings, Inc., Sr. Deb., Ser. B Ba2 8.125% 8/15/09 $ 250 $ 261,875 Diamond Cable Co., Sr. Disc. Notes, Zero Coupon (until 2/15/02) (United Kingdom) B3 10.75 2/15/07 1,000D 707,500 Diamond Holdings, PLC, Sr. Notes (United Kingdom) B3 9.125 2/01/08 240D 246,600 Falcon Holding Group L.P., Sr. Deb. B2 8.375 4/15/10 845 842,735 Frontiervision Holdings L.P., Sr. Disc. Notes, Zero Coupon (until 9/15/01) B## 11.875 9/15/07 1,500 1,166,250 Rifkin Acquisition Partners L.L.L.P., Sr. Sub. Notes B3 11.125 1/15/06 1,000 1,110,000 - ------------ 5,429,960 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Chemicals--4.5% Acetex Corp., Sr. Sec. Notes (Canada) B1 9.75 10/01/03 750D 776,250 Huntsman Corp., Sr. Sub. Notes, F.R.N B2 9.125 7/01/07 250 250,000 Laroche Industries, Inc., Sr. Sub. Notes B3 9.50 9/15/07 1,000 987,500 PCI Chemicals Canada Inc., Sr. Sec. Notes, Ser. B (Canada) B2 9.25 10/15/07 250D 252,500 Pioneer Americas Acquisition Corp., Sr. Sec. Notes, Ser. B B2 9.25 6/15/07 500 515,000 Sovereign Specialty Chemicals, Sr. Sub. Notes B3 9.50 8/01/07 1,000 1,055,000 Terra Industries, Inc., Sr. Notes Ba3 10.50 6/15/05 250 275,000 Texas Petrochemicals Corp., Sr. Sub. Notes B3 11.125 7/01/06 500 551,250 - ------------ 4,662,500 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Consumer Goods & Services--1.5% Chattem Inc., Sr. Sub. Notes B2 8.875 4/01/08 425 430,313 Muzak L.P., Muzak Capital, Sr. Notes Ba3 10.00 10/01/03 500 522,500 Revlon Worldwide, Sr. Sec. Disc. Notes, Ser. B B3 Zero 3/15/01 750 573,750 - ------------ 1,526,563 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Containers--3.3% BWay Corp., Sr. Sub. Notes, Ser B B2 10.25 4/15/07 750 825,000 Calmar Inc., Sr. Sub. Notes, Ser. B B3 11.50 8/15/05 500 531,250 Silgan Holdings Inc., Sr. Sub. Deb. B1 9.00 6/01/09 1,750 1,837,500 Sub. Deb., PIK NR 13.25 7/15/06 200 226,289 - ------------ 3,420,039
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 4 Portfolio of Investments as of March 31, 1998 THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------- - ------------------------------
Moody's Principal Rating Interest Maturity Amount Value Description (Unaudited) Rate Date (000) (Note 1) - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Energy & Related Goods & Services--11.0% Abraxas Petroleum Corp., Sr. Notes, Ser. B B2 11.50% 11/01/04 $ 1,500 $ 1,545,000 Costilla Energy Inc., Sr. Notes B2 10.25 10/01/06 875 888,125 Sr. Sub. Notes B2 10.25 10/01/06 375 380,625 Cross Timbers Oil Co., Sr. Sub. Notes, Ser. B B2 9.25 4/01/07 1,250 1,296,875 Kelley Oil And Gas Corp., Sr. Sub. Notes, Ser. B B3 10.375 10/15/06 500 517,500 Petroleos Mexicanos, Global Gtd. Notes (Mexico) Ba2 8.85 9/15/07 1,500D 1,511,250 Plains Resources, Inc., Sr. Sub. Notes B2 10.25 3/15/06 1,500 1,612,500 Pride Petroleum Services, Inc., Sr. Notes Ba3 9.375 5/01/07 315 337,050 RAM Energy, Inc., Sr. Notes B3 11.50 2/15/08 1,750 1,741,250 Tatneft Finance, Gtd. Bonds (Russia) Ba3 9.00 10/29/02 750D 682,500 Transportadora de Gas del Sur, S.A., Notes (Argentina) Ba3 10.25 4/25/01 250D 260,937 Wainoco Oil Corp., Sr. Notes B1 9.125 2/15/06 750 753,750 - ------------ 11,527,362 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Financial Services--13.1% Bangkok Bank Public Co., Deb. (Thailand) Ba1 7.25 9/15/05 1,000D 878,300 Chevy Chase Svgs. Bank, F.S.B., Sub. Deb. B1 9.25 12/01/08 500 522,500 Emergent Group Inc., Sr. Notes, Ser. B B3 10.75 9/15/04 1,000 942,500 First Nationwide Holdings, Inc., Sr. Notes B3 12.50 4/15/03 750 855,000 FirstFed Financial Corp., Notes B2 11.75 10/01/04 500 540,000 Guangdong Enterprises Hldgs., Ltd. (China), Sr. Notes Baa3 8.875 5/22/07 250D 224,182 Sr. Notes Baa3 8.875 5/22/07 900D 806,625 Hawthorne Financial Corp., Notes NR 12.50 12/31/04 1,250 1,284,375 Olympic Financial Ltd., Sr. Notes B2 11.50 3/15/07 1,500@ 1,477,500 Resource America, Inc., Sr. Notes Caa 12.00 8/01/04 1,500 1,593,750 Southern Pacific Funding Corp., Sr. Notes B3 11.50 11/01/04 350 346,500 Superior Nat'l. Cap. Trust I B1 10.75 12/1/17 1,135 1,205,938 Thai Farmers Bank Ltd., Sub. Notes (Thailand) Ba1 8.25 8/21/16 1,500D 1,288,650 Unibanco-Uniao de Bancos Brasileiros S.A., Unsub. Notes (Brazil) B1 8.00 3/06/00 250D 245,000 Western Financial Svgs. Bank, F.S.B., Sub. Cap. Deb. B1 8.875 8/01/07 1,500 1,440,000 - ------------ 13,650,820 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Food & Lodging--3.9% Aurora Foods Inc., Sr. Sub. Notes, Ser. D B3 9.875 2/15/07 230 247,250 Capstar Hotel Co., Sr. Sub. Notes B1 8.75 8/15/07 500 517,500 Del Monte Foods Co., Sr. Disc. Notes, Zero Coupon (until 12/15/02) Caa 12.50 12/15/07 1,400 924,000 Eagle Family Foods Inc., Sr. Sub. Notes B3 8.75 1/15/08 350 350,000
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 5 Portfolio of Investments as of March 31, 1998 THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------- - ------------------------------
Moody's Principal Rating Interest Maturity Amount Value Description (Unaudited) Rate Date (000) (Note 1) - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Food & Lodging (cont'd.) John Q. Hammons Hotels, First Mtge. Bonds B1 8.875% 2/15/04 $ 2,070 $ 2,095,875 - ------------ 4,134,625 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Gaming--3.5% Argosy Gaming Co., First Mtge. Notes B2 13.25 6/01/04 500 557,500 Fitzgeralds Gaming Corp., Sr. Sec. Notes B3 12.25 12/15/04 1,000 1,020,000 Hollywood Casino Corp., Sr. Sec. Notes B2 12.75 11/01/03 1,000 1,105,000 Lady Luck Gaming Corp., First Mtge. Notes B2 11.875 3/01/01 1,000 1,030,000 - ------------ 3,712,500 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Grocery Stores--1.6% Homeland Stores, Inc., Sr. Sub. Notes NR 10.00 8/01/03 1,000 940,000 Pathmark Stores, Inc., Sub. Notes Caa 11.625 6/15/02 750 744,375 - ------------ 1,684,375 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Health Care--4.3% Columbia/HCA Healthcare Corp., Notes Ba2 7.25 5/20/08 1,000 947,280 Owens & Minor Inc., Sr. Sub. Notes B1 10.875 6/01/06 1,000 1,117,000 Pharmerica Inc., Sr. Sub. Notes B2 8.375 4/01/08 625 628,125 Universal Hospital Svcs., Sr. Notes B3 10.25 3/01/08 1,750 1,798,125 - ------------ 4,490,530 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Home Builder & Real Estate--2.9% BF Saul Real Estate Investment Trust, Sr. Sec. Notes B3## 9.75 4/01/08 500 503,750 Kaufman & Broad Home Corp., Sr. Sub. Notes Ba3 9.625 11/15/06 500 532,500 Presley Companies, Sr. Notes B3 12.50 7/01/01 1,000 960,000 Standard Pacific Corp., Sr. Notes Ba2 8.50 6/15/07 750 765,000 Toll Corp., Sr. Sub. Notes Ba3 7.75 9/15/07 250 250,625 - ------------ 3,011,875 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Media & Communications--9.5% Allbritton Communications Co., Sr. Sub. Notes B3 8.875 2/01/08 350 353,500 Big Flower Press Holdings Inc., Sr. Sub. Notes B2 8.875 7/01/07 500 510,000 Chancellor Media Corp., Sr. Sub. Notes B2 9.375 10/01/04 500 530,000 Echostar DBS Corp., Sr. Sec. Notes Caa 12.50 7/01/02 900 1,019,250
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 6 Portfolio of Investments as of March 31, 1998 THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------- - ------------------------------
Moody's Principal Rating Interest Maturity Amount Value Description (Unaudited) Rate Date (000) (Note 1) - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Media & Communications (cont'd.) Fox/Liberty Networks L.L.C., Sr. Disc. Notes, Zero Coupon (until 8/15/02) B1 9.75% 8/15/07 $ 1,500 $ 1,020,000 Globo Comunicacoes e Participacoes S.A., Notes (Brazil) B1 10.50 12/20/06 1,250D 1,270,312 Innova S de R.L., Sr. Notes (Mexico) B2 12.875 4/01/07 1,000D 1,067,500 Jacor Communications, Inc., Sr. Sub. Notes B2 9.75 12/15/06 250 273,750 Sr. Sub. Notes B2 8.00 2/15/10 270 271,688 JCAC, Inc., Sr. Sub. Notes B2 10.125 6/15/06 250 274,375 Liberty Group Publishing Inc., Sr. Disc. Notes, Zero Coupon (until 2/1/03) Caa 11.625 2/01/09 415 254,188 Net Sat Servicos Ltda., Sr. Sec. Notes (Brazil) B2 12.75 8/05/04 285D 292,125 Sullivan Graphics Inc., Sr. Sub. Notes Caa 12.75 8/01/05 1,000 1,057,500 Tevecap S.A., Sr. Notes (Brazil) B2 12.625 11/26/04 1,250D 1,265,625 TV Azteca S.A. de CV, Gtd. Sr. Notes (Brazil) Ba3 10.50 2/15/07 500D 532,500 - ------------ 9,992,313 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Metals--4.8% Acindar Industria Argentina de Aceros S.A., Notes (Argentina) B2 11.25 2/15/04 750D 795,000 AK Steel Corp., Sr. Notes Ba2 9.125 12/15/06 500 535,625 Armco, Inc., Sr. Notes B2 9.00 9/15/07 250 260,625 Companhia Vale do Rio Doce, Notes (Brazil) NR 10.00 4/02/04 750D 768,750 CSN Iron S.A., Gtd. Notes (Brazil) B1 9.125 6/01/07 1,250D 1,170,313 GS Technologies Operating Co. Inc., Sr. Notes B2 12.25 10/01/05 350 393,750 Weirton Steel Corp., Sr. Notes B2 11.375 7/01/04 1,000 1,082,500 - ------------ 5,006,563 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Paper & Packaging--11.1% APP Int'l. Finance Co., Sec. Notes (Indonesia) Caa 11.75 10/01/05 750D 720,000 Aracruz Celulose S. A., (Brazil), Notes B1 10.375 1/31/02 1,035D 1,068,637 Notes B1 10.375 1/31/02 715D 738,238 Bahia Sul Celulose S.A., Notes (Brazil) NR 10.625 7/10/04 500D 497,500 Container Corp. of America, Sr. Notes B1 9.75 4/01/03 1,000 1,075,000 Sr. Notes, Ser. B B1 10.75 5/01/02 1,000 1,100,000 Doman Industries Ltd., Sr. Notes (Canada) B1 8.75 3/15/04 750D 747,187 Fonda Group Inc., Sr. Sub. Notes, Ser. B B3 9.50 3/01/07 750 735,000
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 7 Portfolio of Investments as of March 31, 1998 THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------- - ------------------------------
Moody's Principal Rating Interest Maturity Amount Value Description (Unaudited) Rate Date (000) (Note 1) - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Paper & Packaging (cont'd.) Grupo Industrial Durango, S.A. de C.V., Notes B1 12.625% 8/01/03 $ 350 $ 397,688 Klabin Fabricadora de Papel e Celulose S.A., Gtd. Notes (Brazil) NR 11.00 8/12/04 1,000D 1,006,250 Pindo Deli Finance Mauritius Ltd., Gtd. Sr. Notes (Indonesia) Caa 10.75 10/01/07 1,250D 1,012,500 Repap New Brunswick, Inc., Sr. Sec. Notes (Canada) Caa 10.625 4/15/05 1,500D 1,515,000 S.D. Warren Co., Sr. Sub. Notes, Ser. B B1 12.00 12/15/04 350 390,250 Tembec Finance Corp., Sr. Notes (Canada) B1 9.875 9/30/05 500D 530,000 - ------------ 11,533,250 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Technology--4.6% Advanced Micro Devices, Inc., Sr. Sec. Notes Ba1 11.00 8/01/03 750 804,375 Concentric Network Corp., Notes NR 12.75 12/15/07 255@ 300,900 DecisionOne Corp., Sr. Sub. Notes B3 9.75 8/01/07 500 487,500 DecisionOne Holdings Corp., Sr. Disc. Deb., Zero Coupon (until 8/1/02) Caa 11.50 8/01/08 1,000@ 600,000 Fairchild Semiconductor Corp., Sr. Sub. Notes B2 10.125 3/15/07 500 522,500 Pierce Leahy Corp., Sr. Sub. Notes B3 9.125 7/15/07 500 525,000 Unisys Corp., Sr. Notes, Ser. B B1 12.00 4/15/03 500 565,000 Verio Inc., Sr. Notes NR 10.375 4/01/05 960 998,400 - ------------ 4,803,675 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Telecommunications--12.6% Advanced Radio Telecom Corp., Sr. Notes Caa## 14.00 2/15/07 850 935,000 American Communications Services, Sr. Disc. Notes, Zero Coupon (until 4/1/01) NR 12.75 4/01/06 750 596,250 American Mobile Satellite Corp., Notes NR 12.25 4/01/08 280@ 290,500 BTI Telecom Corp., Sr. Notes B2 10.50 9/15/07 890 927,825 Clearnet Communications, Inc., Sr. Disc. Notes, Zero Coupon (until 12/15/00) (Canada) B3 14.75 12/15/05 750D 620,625 GST Telecommunications, Inc., Sr. Sub. Notes, Zero Coupon (until 11/15/02) NR 12.75 11/15/07 635 768,350 Hyperion Telecommunications Inc., Sr. Disc. Notes, Zero Coupon (until 4/15/01) B3 13.00 4/15/03 350 269,500 Sr. Sec. Notes, Ser. B B3 12.25 9/01/04 715 807,950 Intermedia Communications Inc., Sr. Notes B2 8.50 1/15/08 150 157,125 Sr. Notes, Ser. B B2 8.875 11/01/07 350 371,875
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 8 Portfolio of Investments as of March 31, 1998 THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------- - ------------------------------
Moody's Principal Rating Interest Maturity Amount Value Description (Unaudited) Rate Date (000) (Note 1) - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Telecommunications (cont'd.) Iridium L.L.C./Iridium Capital Corp., Sr. Notes, Ser. C B3 11.25% 7/15/05 $ 1,000 $ 1,061,250 ITC Deltacom Inc., Sr. Notes B2 8.875 3/01/08 700 710,500 Korea Telecom (South Korea), Notes Ba1 7.50 6/01/06 500D 438,675 Notes Ba1 7.625 4/15/07 1,000D 878,690 McLeodUSA Inc., Sr. Notes B2 9.25 7/15/07 500 535,000 Sr. Notes B2 8.375 3/15/08 140 145,250 MGC Communications Inc., Sr. Sec. Notes, Ser. B Caa 13.00 10/01/04 500 517,500 MobileMedia Communications, Inc., Sr. Sub. Notes C 9.375 11/01/07 2,000** 230,000 Philippine Long Dist. Tel. Co., Notes (The Philippines) Ba2 7.85 3/06/07 1,750D 1,631,875 Winstar Communications, Inc., Sr. Disc. Notes, Zero Coupon (until 10/15/00) NR 14.00 10/15/05 1,500 1,260,000 - ------------ 13,153,740 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Textiles--0.2% Polysindo Int'l. Finance Co., Notes (Indonesia) Caa 11.375 6/15/06 350D 234,500 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Transportation--0.9% MRS Logistica S.A., Notes (Brazil) B1## 10.625 8/15/05 500D 490,000 Valujet Inc., Sr. Notes B3 10.25 4/15/01 500 475,000 - ------------ 965,000 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Utilities--0.5% Inversora Electrica de Buenos Aires S.A., Sr. Notes, Ser. B (Argentina) Ba1## 9.00 9/16/04 500D 496,250 - ------------ Total corporate bonds (cost $116,837,701) 118,948,685 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Foreign Government ObligationsD--7.2% Republic of Argentina, Global Bonds Ba3 11.00 10/09/06 1,750 1,946,875 Global Bonds Ba3 8.375 12/20/03 500 497,500 Global Bonds Ba3 11.375 1/30/17 500 565,625 Republic of Brazil, Ser. C B1 4.50 4/15/14 2,317 1,949,477 Republic of Colombia, Global Bonds Baa3 8.375 2/15/27 1,750 1,620,605 Republic of Venezuela, Bonds Ba2 9.25 9/15/27 1,000 907,500 - ------------ Total foreign government obligations (cost $6,786,157) 7,487,582
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 9 Portfolio of Investments as of March 31, 1998 THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------- - ------------------------------
Moody's Rating Interest Expiration Value Description (Unaudited) Rate Date Shares (Note 1) - -------------------------------------------------- - -------------------------------------------------- - -------------------------- PREFERRED STOCKS--4.4% Chevy Chase Capital Corp., Noncumulative Exchangeable, Ser. A B1 10.375% -- 10,000 $ 536,250 Fairfield Mfg. Inc., Cumulative Exchangeable, PIK B3 11.25 -- 1,000 1,045,000 Fitzgeralds Gaming Corp., Cumulative Redeemable Ca 15.00 -- 10,000@ 340,000 Granite Broadcasting Corp., Cumulative Exchangeable, PIK B1## 12.75 - -- 566 647,820 IXC Communications Inc., Jr. Conv., PIK NR 12.50 -- 670 817,782 Lady Luck Gaming Corp., Ser. A NR 11.50 -- 7,000 273,000 SF Holdings Group Inc., Exchangeable, PIK NR 13.75 -- 110@ 1,006,500 - ------------ Total preferred stocks (cost $4,369,565) 4,666,352 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- WARRANTS* Warrants - ---------- Benedek Communications Corp. (cost $0; acquired 10/17/96) NR -- 7/1/07 5,500 11,000 MGC Communications, Inc. NR -- 10/1/20 500 17,500 - ------------ Total warrants (cost $17,500) 28,500 - -------------------------------------------------- - -------------------------------------------------- - -------------------------- Total Investments--125.4% (cost $128,010,923; Note 3) 131,131,119 Liabilities in excess of other assets--(25.4)% (26,572,747) - ------------ Net Assets--100% $104,558,372 - ------------ - ------------
- --------------- * --Non-income-producing security. ** --Represents issuer in default on interest payments; non-income- producing security. ## --S&P Equivalent to Moody's Rating. D --US$ Denominated Foreign Bonds. @ --Consists of more than 1 class of securities traded together as a unit; generally bonds with attached stock or warrants. NR --Not rated by Moody's or Standard & Poor's. PIK --Payment in Kind. L.L.C. --Limited Liability Corporation. L.L.L.P. --Limited Liability Limited Partnership. L.P. --Limited Partnership. F.R.N. --Floating Rate Note. - -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 10 Statement of Assets and Liabilities THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------- - ------------------------------ Assets March 31, 1998 Investments, at value (cost $128,010,923)..................................... ............................. $ 131,131,119 Cash.............................................. .................................................. ....... 2,699,939 Receivable for investments sold.............................................. .............................. 5,444,774 Interest and dividends receivable........................................ .................................. 2,910,517 Other assets............................................ .................................................. . 54,770 - -------------- Total assets............................................ ................................................ 142,241,119 - -------------- Liabilities Loan payable (Note 4)................................................ ...................................... 30,000,000 Payable for investments purchased......................................... ................................. 6,484,839 Dividends payable........................................... ............................................... 795,221 Loan interest payable (Note 4)................................................ ............................. 245,672 Accrued expenses.......................................... ................................................. 83,301 Advisory fee payable........................................... ............................................ 44,190 Administration fee payable........................................... ...................................... 17,676 Deferred directors' fees.............................................. ..................................... 11,848 - -------------- Total liabilities....................................... ................................................ 37,682,747 - -------------- Net Assets............................................ .................................................. ... $ 104,558,372 - -------------- - -------------- Net assets were comprised of: Common stock, at par............................................... ..................................... $ 113,485 Paid-in capital in excess of par............................................... ......................... 104,157,299 - -------------- 104,270,784 Undistributed net investment income............................................ ......................... 310,599 Accumulated net realized loss on investments....................................... ..................... (3,143,207 ) Net unrealized appreciation of investments....................................... ....................... 3,120,196 - -------------- Net assets, March 31, 1998.............................................. ................................ $ 104,558,372 - -------------- - -------------- Net asset value per share ($104,558,372 / 11,348,544 shares of common stock issued and outstanding)........ $9.21 - -------------- - --------------
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 11 THE HIGH YIELD PLUS FUND, INC. Statement of Operations - -------------------------------------------------- - ----------
Year Ended Net Investment Income March 31, 1998 Income Interest................................. $ 11,712,150 Dividends................................ 225,226 --- - ----------- 11,937,376 --- - ----------- Expenses Investment advisory fee.................. 505,151 Administration fee....................... 202,061 Custodian's fees and expenses............ 106,000 Legal fees and expenses.................. 75,000 Reports to shareholders.................. 57,000 Transfer agent's fees and expenses....... 39,000 Audit fee................................ 27,000 Insurance expense........................ 25,000 Listing fee.............................. 25,000 Directors' fees and expenses............. 12,000 Miscellaneous............................ 10,650 --- - ----------- Total operating expenses.............. 1,083,862 Loan interest expense (Note 4)........... 1,374,351 --- - ----------- Total expenses........................ 2,458,213 --- - ----------- Net investment income....................... 9,479,163 --- - ----------- Realized and Unrealized Gain on Investments Net realized gain on investment transactions............................. 5,009,438 Net change in unrealized appreciation of investments.............................. 2,649,914 --- - ----------- Net gain on investments..................... 7,659,352 --- - ----------- Net Increase in Net Assets Resulting from Operations................... $ 17,138,515 --- - ----------- --- - -----------
THE HIGH YIELD PLUS FUND, INC. Statement of Cash Flows - -------------------------------------------------- - ----------
Year Ended Increase (Decrease) in Cash March 31, 1998 Cash flows used for operating activities Interest and dividends received (excluding discount amortization of $615,950)...... $ 11,106,041 Operating expenses paid.................... (823,577) Loan interest and commitment fee paid...... (1,515,806) Maturities of short-term portfolio investments, net........................ 1,350,000 Purchases of long-term portfolio investments............................. (139,142,949) Proceeds from disposition of long-term portfolio investments................... 128,334,987 Deferred expenses and other assets......... 5,678 -- - ------------ Net cash used for operating activities..... (685,626) -- - ------------ Cash provided from financing activities Net increase in notes payable.............. 12,000,000 Cash dividends paid (excluding reinvestment of dividends of $876,479)............... (8,614,779) -- - ------------ Net cash provided from financing activities.............................. 3,385,221 -- - ------------ Net increase in cash....................... 2,699,595 Cash at beginning of year.................. 344 -- - ------------ Cash at end of year........................ $ 2,699,939 -- - ------------ -- - ------------ Reconciliation of Net Increase in Net Assets to Net Cash used for Operating Activities Net increase in net assets resulting from operations................................. $ 17,138,515 -- - ------------ Increase in investments....................... (10,955,944) Net realized gain on investment transactions............................... (5,009,438) Net change in unrealized appreciation of investments................................ (2,649,914) Increase in receivable for investments sold... (4,484,405) Increase in interest and dividends receivable................................. (215,385) Decrease in deferred expenses and other assets..................................... 5,678 Increase in payable for investments purchased.................................. 5,366,437 Increase in accrued expenses and other liabilities................................ 118,830 -- - ------------ Total adjustments.......................... (17,824,141) -- - ------------ Net cash used for operating activities..... $ (685,626) -- - ------------ -- - ------------
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 12 THE HIGH YIELD PLUS FUND, INC. Statement of Changes in Net Assets - -------------------------------------------------- - ----------
Year Ended March 31, Increase (Decrease) --------------- - -------------- in Net Assets 1998 1997 ------------ - ----------- Operations Net investment income........ $ 9,479,163 $ 9,238,631 Net realized gain on investment transactions... 5,009,438 2,559,619 Net change in unrealized appreciation/depreciation of investments............ 2,649,914 (1,353,218) ------------ - ----------- Net increase in net assets resulting from operations................ 17,138,515 10,445,032 Dividends from net investment income....................... (9,479,163) (9,238,631) Distributions in excess of net investment income............ (19,779) (170,811) Value of Fund shares issued to shareholders in reinvestment of dividends................. 876,479 915,455 ------------ - ----------- Total increase.................. 8,516,052 1,951,045 Net Assets Beginning of year............... 96,042,320 94,091,275 ------------ - ----------- End of year..................... $104,558,372 $96,042,320 ------------ - ----------- ------------ - -----------
THE HIGH YIELD PLUS FUND, INC. Notes to Financial Statements - -------------------------------------------------- - ---------- The High Yield Plus Fund, Inc. (the 'Fund') was organized in Maryland on February 3, 1988, as a diversified, closed-end management investment company. The Fund had no transactions until April 4, 1988, when it sold 11,000 shares of common stock for $102,300 to Wellington Management Company, LLP (the 'Investment Adviser'). Investment operations commenced on April 22, 1988. The Fund's primary objective is to provide a high level of current income to shareholders. The Fund seeks to achieve this objective through investment in publicly or privately offered high yield debt 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 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: Portfolio securities that are actively traded in the over-the-counter market, including listed securities for which the primary market is believed to be over-the-counter, are valued at the closing bid price or in the absence of such price, as determined in good faith by the Board of Directors of the Fund. 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 closing bid price. Securities for which no trades have taken place that day and unlisted securities for which market quotations are readily available are valued at the latest bid price. 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. Cash Flow Information: The Fund invests in securities and pays dividends from net investment income and distributions from net realized gains 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 - -------------------------------------------------- - ------------------------------ See Notes to Financial Statements 13 Notes to Financial Statements THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------- - ------------------------------ presented in the Statement of Cash Flows. Accounting practices that do not affect reporting activities on a cash basis include carrying investments at value and amortizing discounts on debt obligations. Cash, as used in the Statement of Cash Flows, is the amount reported as 'Cash' in the Statement of Assets and Liabilities. Securities Transactions and Net Investment Income: Security transactions are recorded on the trade date. Realized gains and losses from securities transactions are calculated on the identified cost basis. Interest income, which is comprised of three elements; stated coupon rate, original issue discount and market discount, is recorded on an 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. 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 declare and pay dividends of net investment income monthly and make distributions at least annually of any net capital gains. 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 agreements with the Investment Adviser and with Prudential Investments Fund Management LLC (the 'Administrator'). The Investment Adviser makes investment decisions on behalf of the Fund; the Administrator provides occupancy and certain clerical and accounting services to the Fund. The Fund bears all other costs and expenses. The investment advisory agreement provides for the Investment Adviser to receive a fee, computed weekly and payable monthly at an annual rate of .50% of the Fund's average weekly net assets. The administration agreement provides for the Administrator to receive a fee, computed weekly and payable monthly at an annual rate of .20% of the Fund's average weekly net assets. - -------------------------------------------------- - ---------- Note 3. Portfolio Securities Purchases and sales of investment securities, other than short-term investments, for the year ended March 31, 1998, were $144,503,792 and $132,812,163, respectively. During the year ended March 31, 1998, the Fund entered into $1,716,750 of securities transactions on a principal basis with Prudential Securities Incorporated, an affiliate of the Administrator. The cost basis of investments for federal income tax purposes is substantially the same as for financial reporting purposes and, accordingly, as of March 31, 1998, net unrealized appreciation for federal income tax purposes was $3,120,196 (gross unrealized appreciation--$5,238,705; gross unrealized depreciation--$2,118,509). For federal income tax purposes, the Fund has a capital loss carryforward as of March 31, 1998 of approximately $3,143,000 of which $1,337,000 expires in 2003 and $1,806,000 expires in 2004. Such carryforward is after utilization of approximately $5,010,000 of net taxable gains realized and recognized during the year ended March 31, 1998. Accordingly, no capital gains distributions are expected to be paid to shareholders until net gains have been realized in excess of such carryforward. - -------------------------------------------------- - ---------- Note 4. Borrowings The Fund has a credit agreement with an unaffiliated lender. The maximum commitment under this agreement is $30,000,000. Interest on any such borrowings is based on market rates and is payable at maturity. The average daily balance outstanding during the year ended March 31, 1998 was $21,027,397 at a weighted average interest rate of 6.54%. The maximum face amount of borrowings outstanding at any month end during the year ended March 31, 1998 was $30,000,000. The current borrowings of $30,000,000 (at a weighted average interest rate of 6.28%) mature throughout the period from April 3, 1998 to September 28, 1998. The Fund has paid commitment fees at an annual rate of .10 of 1% on any unused portion of the credit facility. Commitment fees are included in 'Loan Interest' as reported on the Statement of Assets and Liabilities and on the Statement of Operations. - -------------------------------------------------- - ---------- Note 5. Capital There are 100 million shares of $.01 par value common stock authorized. During the fiscal years ended March 31, 1998 and 1997, the Fund issued 98,012 and 106,725 shares in connection with reinvestment of dividends, respectively. - -------------------------------------------------- - ---------- Note 6. Dividends On February 11, 1998 the Board of Directors of the Fund declared dividends of $0.07 per share payable on April 9 and May 8, 1998 to shareholders of record on March 31 and April 30, 1998, respectively. - -------------------------------------------------- - ------------------------------ 14 Financial Highlights THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------- - ------------------------------
Year Ended March 31, - -------------------------------------------------- - ------ 1998 1997 1996 1995 1994 - -------- ------- ------- ------- - - ------ PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year........................ $ 8.54 $ 8.44 $ 7.85 $ 8.38 $ 8.48 - -------- ------- ------- ------- - - ------ Income from investment operations Net investment income..................................... .84 .82 .84 .87 .90 Net realized and unrealized gain (loss) on investments.... .67 .12 .59 (.54) (.15) - -------- ------- ------- ------- - - ------ Total from investment operations....................... 1.51 .94 1.43 .33 .75 - -------- ------- ------- ------- - - ------ Less dividends and distributions Dividends from net investment income...................... (.84) (.82) (.84) (.86) (.85) Distributions in excess of net investment income.......... -- (.02) -- - -- -- - -------- ------- ------- ------- - - ------ Total dividends........................................ (.84) (.84) (.84) (.86) (.85) - -------- ------- ------- ------- - - ------ Net asset value, end of year(a)........................... $ 9.21 $ 8.54 $ 8.44 $ 7.85 $ 8.38 - -------- ------- ------- ------- - - ------ - -------- ------- ------- ------- - - ------ Market price per share, end of year(a).................... $ 9.125 $ 9.00 $ 8.75 $ 8.00 $ 8.375 - -------- ------- ------- ------- - - ------ - -------- ------- ------- ------- - - ------ TOTAL INVESTMENT RETURN(b):............................... 11.25% 13.38% 20.80% 6.33% 3.90% - -------- ------- ------- ------- - - ------ - -------- ------- ------- ------- - - ------ RATIO/SUPPLEMENTAL DATA: Net assets, end of year (000 omitted)..................... $104,558 $96,042 $94,091 $86,704 $91,698 Average net assets (000 omitted).......................... $100,766 $95,946 $92,855 $87,734 $96,962 Ratio to average net assets: Expenses, before loan interest, commitment fees and nonrecurring expenses............................... 1.07% 1.08% 1.01% 1.11% 1.12% Total expenses......................................... 2.44% 2.32% 2.29% 2.71% 2.01% Net investment income.................................. 9.41% 9.63% 10.18% 10.90% 10.15% Portfolio turnover rate................................... 112% 60% 60% 47% 100% Total debt outstanding at end of year (000 omitted)....... $ 30,000 $18,000 $17,000 $19,000 $28,000 Asset coverage per $1,000 of debt outstanding............. $ 4,485 $ 6,336 $ 6,535 $ 5,563 $ 4,275
- --------------- (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 value on the first day and a sale at the current market value on the last day of each year reported. Dividends and distributions are assumed for purposes of this calculation to be reinvested at prices obtained under the dividend reinvestment plan. This calculation does not reflect brokerage commissions. Contained above is selected data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data for the years indicated. This information has been determined based upon information provided in the financial statements and market price data for the Fund's shares. - -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 15 Report of Independent Accountants THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------- - ------------------------------ To the Board of Directors and Shareholders of The High Yield Plus 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 Plus Fund, Inc. (the 'Fund') at March 31, 1998, the results of its operations and its cash flows for the year then ended and the changes in its net assets and the financial highlights for each of the two years in the period then ended in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as 'financial statements') are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 1998 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. The accompanying financial highlights for each of the three years in the period ended March 31, 1996 were audited by other independent accountants, whose opinion dated May 9, 1996 was unqualified. PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, New York May 14, 1998 - -------------------------------------------------- - ------------------------------ 16 Federal Income Tax Information (Unaudited) THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------- - ------------------------------ We are required by the Internal Revenue Code to advise you within 60 days of the Fund's fiscal year end (March 31, 1998) that 2.23% of the dividends paid in the fiscal year ended March 31, 1998 qualified for the corporate dividends received deduction available to corporate taxpayers. Other Information (Unaudited) THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------- - ------------------------------ Dividend Reinvestment Plan. Shareholders may elect to have all distributions of dividends and capital gains automatically reinvested in Fund shares (Shares) pursuant to the Fund's Dividend Reinvestment Plan (the Plan). Shareholders who do not participate in the Plan will receive all distributions in cash paid by check in United States dollars mailed directly to the shareholders of record (or if the shares are held in street or other nominee name, then to the nominee) by the custodian, as dividend disbursing agent. Shareholders who wish to participate in the Plan should contact the Fund at (800) 451-6788. State Street Bank and Trust Co. (the Plan Agent) serves as agent for the shareholders in administering the Plan. After the Fund declares a dividend or capital gains distribution, if (1) the market price is lower than net asset value, the participants in the Plan will receive the equivalent in Shares valued at the market price determined as of the time of purchase (generally, following the payment date of the dividend or distribution); or if (2) the market price of Shares on the payment date of the dividend or distribution is equal to or exceeds their net asset value, participants will be issued Shares at the higher of net asset value or 95% of the market price. If net asset value exceeds the market price of Shares on the valuation date or the Fund declares a dividend or other distribution payable only in cash, the Plan Agent will, as agent for the participants, receive the cash payment and use it to buy Shares in the open market. If, before the Plan Agent has completed its purchases, the market price exceeds the net asset value per share, the average per share purchase price paid by the Plan Agent may exceed the net asset value per share, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued by the Fund. The Fund will not issue Shares under the Plan below net asset value. There is no charge to participants for reinvesting dividends or capital gain distributions, except for certain brokerage commissions, as described below. The Plan Agent's fees for the handling of the reinvestment of dividends and distributions will be paid by the Fund. There will be no brokerage commissions charged with respect to shares issued directly by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of dividends and distributions. The automatic reinvestment of dividends and distributions will not relieve participants of any federal income tax that may be payable on such dividends or distributions. The Fund reserves the right to amend or terminate the Plan upon 90 days' written notice to shareholders of the Fund. Participants in the Plan may withdraw from the Plan upon written notice to the Plan Agent and will receive certificates for whole Shares and cash for fractional Shares. All correspondence concerning the Plan should be directed to the Plan Agent, State Street Bank & Trust Company, P.O. Box 8200, Boston, MA 02266-8200. Investment Policies. Based on the evolution of the high yield market over the past several years, the Fund has adopted certain non-fundamental changes to its investment policies. The Fund may invest up to 25% of its total assets in securities that are restricted as to disposition under the federal securities laws or otherwise not readily marketable. Given the dramatic increase in the number of securities issued under Rule 144A of the Securities Act of 1933, securities eligible for resale but are otherwise liquid are no longer subject to this limitation. In addition, given recent developments in the high yield market, the Fund amended its investment policy regarding investment in foreign securities to allow the Fund to invest up to 20% of its total assets in non-U.S. dollar denominated high yield foreign debt securities. - -------------------------------------------------- - ------------------------------ 17 Directors Eugene C. Dorsey Douglas H. McCorkindale Thomas T. Mooney Investment Adviser Wellington Management Company, LLP 75 State Street Boston, MA 02109 Administrator Prudential Investments Fund Management LLC Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 Custodian and Transfer Agent State Street Bank and Trust Company One Heritage Drive North Quincy, MA 02171 Independent Accountants Price Waterhouse LLP 1177 Avenue of the Americas New York, NY 10036 Legal Counsel Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, N.W. Washington, D.C. 20036 Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that the Fund may purchase, from time to time, shares of its common stock at market prices. The views expressed in this report and the information about the Fund's portfolio holdings are for the period covered by this report and are subject to change thereafter. 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 Plus Fund, Inc. Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 For information call toll-free (800) 451-6788 429906100 -----END PRIVACY-ENHANCED MESSAGE-----