-----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, IYu7it3Ayya+QPTj41RWOg6zIheFqUzULV91I1nQMGGTRdpIP2xqjhmmP2uoWxxd 4mEcC3BjPOX5exZJxdigtw== 0000898432-98-000845.txt : 19981229 0000898432-98-000845.hdr.sgml : 19981229 ACCESSION NUMBER: 0000898432-98-000845 CONFORMED SUBMISSION TYPE: N-2/A PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19981228 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-2/A SEC ACT: SEC FILE NUMBER: 333-67339 FILM NUMBER: 98776437 FILING VALUES: FORM TYPE: N-2/A SEC ACT: SEC FILE NUMBER: 811-05468 FILM NUMBER: 98776438 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-2/A 1 THE HIGH YIELD PLUS FUND, INC. As Filed With The Securities And Exchange Commission On December 28, 1998 Securities Act File No.: 333-67339 Investment Company Act File No. 811-5468 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-2 Registration Statement Under The Securities Act Of 1933 [X] Pre-Effective Amendment No. ____1_____ [X] Post-Effective Amendment No.___________ [ ] and/or Registration Statement Under The Investment Company Act Of 1940 [ ] Amendment No. __8____ [X] The High Yield Plus Fund, Inc. (Exact Name of Registrant as Specified in Charter) Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (Address of Principal Executive Office) (973) 367-7530 (Registrant's Telephone Number, including Area Code) David Connor, Esq. Prudential Investments Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 With Copies to: Stephanie A. Djinis, Esq. Kirkpatrick & Lockhart LLP 1800 Massachusetts Ave., N.W. Washington, D.C. 20036 Leonard B. Mackey, Jr., Esq. Rogers & Wells LLP 200 Park Avenue New York, NY 10166-0153 Approximate Date Of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement. If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box. [X] Calculation Of Registration Fee Under The Securities Act Of 1933 Proposed Proposed Title of Maximum Maximum Securities Being Amount Being Offering Price Aggregate Amount of Registered Registered Per Share(1) Offering Registration ---------- ---------- ------------ Price(1) Fee (2) -------- ------- Shares of Common Stock 3,796,342 $7.38 $28,017,004 $7,788.73 (1) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933. Based on the net asset value per share of common stock on November 11, 1998. (2) The full amount of the Registration Fee has been previously paid. EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effectiveness until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. THE HIGH YIELD PLUS FUND, INC. FORM N-2 CROSS REFERENCE SHEET ITEM NUMBER AND HEADING CAPTION IN PROSPECTUS PART A --------------------- ------ 1. Outside Front Cover Cover Page 2. Inside Front and Outside Back Cover Cover Page Page 3. Fee Table and Synopsis Fee Table: Summary 4. Financial Highlights Financial Highlights 5. Plan of Distribution Cover Page; Summary; The Offer 6. Selling Stockholders Not Applicable 7. Use of Proceeds Use of Proceeds 8. General Description of the Registrant Cover Page; Summary; The Fund; Investment Policies and Limitations; Risk Factors and Special Considerations; Financial Highlights; Information Regarding Senior Securities; Description of Common Stock; Description of Credit Agreement 9. Management Summary; The Adviser and The Administrator; Information Regarding Senior Securities; Management of the Fund; Description of Credit Agreement; Custodian, Transfer Agent, Dividend Disbursing Agent and Registrar 10. Capital Stock, Long-Term Debt and Description of Credit Agreement; Other Securities Information Regarding Senior Securities; Description of Common Stock; Federal Taxation; Investment Policies and Limitations; Dividends and Distributions: Dividend Reinvestment Plan; Financial Highlights 11. Defaults and Arrears on Senior Not Applicable Securities 12. Legal Proceedings Not Applicable 13. Table of Contents of the Statement of Not Applicable Additional Information PART B 14. Cover Page Not Applicable 15. Table of Contents Not Applicable 16. General Information and History Not Applicable 17. Investment Objective and Policies Cover Page; Summary; The Fund; Investment Policies; Limitations; Investment Restrictions; Risk Factors and Special Considerations 18. Management Management of the Fund 19. Control Persons and Principal Holders Management of the Fund of Securities 20. Investment Advisory and Other Services Summary; The Offer; The Fund, Management of the Fund; Custodian; Transfer Agent; Dividend Disbursing Agent and Registrar 21. Brokerage Allocation and Other Management of the Fund Practices 22. Tax Status The Offer; Federal Taxation 23. Financial Highlights Financial Highlights Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This Prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to notification under the securities laws of any such state. SUBJECT TO COMPLETION The High Yield Plus Fund, Inc. 3,796,342 Shares of Common Stock Issuable Upon Exercise of 3,796,342 Transferable Rights to Subscribe for Such Shares -------------------------- The High Yield Plus Fund, Inc. (the "Fund") is issuing to its shareholders of record ("Record Date Shareholders") as of the close of business on December 31, 1998 (the "Record Date") transferable rights ("Rights") entitling the holders thereof to subscribe for an aggregate of 3,796,342 shares of common stock of the Fund ("Shares"), par value $0.01 per Share (the "Offer"). YOU WILL RECEIVE ONE RIGHT FOR EACH THREE SHARES YOU HOLD ON THE RECORD DATE. The Rights entitle you to subscribe for Shares at the rate of one Share for every one Right held. The Rights further entitle you to subscribe, subject to certain limitations and subject to allotment, for any Shares not acquired by other shareholders in the primary subscription (the "Over-Subscription Privilege"). The Rights are transferable and will be listed for trading on the New York Stock Exchange under the symbol "HYP.RT." The Shares trade on the New York Stock Exchange under the symbol "HYP." The subscription price for each Share to be issued pursuant to the Offer will be the lower of (a) 97% of the net asset value per Share as of the close of business on the expiration date of the Offer or (b) 95% of the average of the last reported sales price of a Share on the New York Stock Exchange on the expiration date of the Offer and the four preceding business days (the "Subscription Price"). You will not know the actual Subscription Price at the time of exercise. You therefore will be required initially to pay for the Shares at the estimated Subscription Price of $______ per Share (based on the Fund's net asset value per Share on December 31, 1998) ("Estimated Subscription Price"). Once you subscribe for Shares and your payment is received, you will not be able to change your decision. The Fund announced its intention to make the Offer after the close of trading on the New York Stock Exchange on November 16, 1998. The net asset value per Share at the close of business on November 16, 1998 and December 31, 1998 was $7.49 and $____, respectively, and the closing market price per Share on the New York Stock Exchange on those dates was $8.625 and $____, respectively. The Offer will expire at 5:00 p.m., Eastern time, on February 2, 1999, unless extended by the Fund. If you do not fully exercise your Rights you should expect that you will, at the completion of the Offer, own a smaller proportional interest in the Fund than would otherwise be the case. The Fund is a diversified, closed-end management investment company registered under the Investment Company Act of 1940. The Fund's primary investment objective is to provide a high level of current income. A secondary objective is capital appreciation, but only when consistent with its primary objective. The Fund invests in a professionally managed, diversified portfolio made up primarily of lower rated "high yield, high risk" fixed income securities (commonly referred to as "junk bonds") and other types of high risk securities. Lower rated securities generally involve greater risks, including risk of default, volatility of price and risks to principal and income, than securities in higher rating categories. The Fund maintains a leveraged capital structure, through bank borrowings, which creates the opportunity for greater total returns, but also involves certain substantial additional risks. An investment in the Fund is not appropriate for all investors, and no assurance can be given that the Fund will achieve its investment objectives. See "The Fund" and "Risk Factors and Special Considerations" on page ___. Further information concerning the Fund and the securities in which it invests can be found in the Fund's registration statement, of which this Prospectus constitutes a part, on file with the Securities and Exchange Commission. These securities have not been approved or disapproved by the Securities and Exchange Commission nor has the Securities and Exchange Commission passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense. PER SHARE TOTAL --------- ----- Estimated Subscription Price $ $ Sales Load $ $ Estimated Proceeds to Fund $ $ This Prospectus sets forth concisely the information about the Fund that a prospective investor ought to know before investing. Investors are advised to read this Prospectus and to retain it for future reference. ALL QUESTIONS AND INQUIRIES RELATING TO THE OFFER SHOULD BE DIRECTED TO SHAREHOLDER COMMUNICATIONS CORPORATION TOLL FREE AT (800) 733-8481, EXT. 486. The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark, NJ 07102-4077, and its telephone number is (973) 367-XXXX. ---------------------- A.G. Edwards & Sons, Inc. The date of this Prospectus is January __, 1999 TABLE OF CONTENTS Page ---- SUMMARY......................................................................1 FINANCIAL HIGHLIGHTS.........................................................7 CAPITALIZATION AT SEPTEMBER 30, 1998.........................................9 INFORMATION REGARDING SENIOR SECURITIES......................................9 TRADING AND NET ASSET VALUE INFORMATION.....................................10 THE OFFER...................................................................10 USE OF PROCEEDS.............................................................24 THE FUND....................................................................24 INVESTMENT POLICIES AND LIMITATIONS.........................................26 INVESTMENT RESTRICTIONS.....................................................36 RISK FACTORS AND SPECIAL CONSIDERATIONS.....................................37 DIVIDENDS AND OTHER DISTRIBUTIONS: DIVIDEND REINVESTMENT PLAN...............42 MANAGEMENT OF THE FUND......................................................43 NET ASSET VALUE.............................................................49 FEDERAL TAXATION............................................................49 DESCRIPTION OF COMMON STOCK.................................................53 CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS.............54 DESCRIPTION OF CREDIT AGREEMENT.............................................55 CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR...............................................................56 LEGAL OPINIONS..............................................................56 REPORTS TO SHAREHOLDERS.....................................................56 EXPERTS.....................................................................57 FURTHER INFORMATION.........................................................57 FINANCIAL STATEMENTS........................................................F-1 REPORT OF INDEPENDENT ACCOUNTANTS...........................................F-34 APPENDIX A..................................................................A-1 APPENDIX B..................................................................B-1 SUMMARY The following summary is qualified in its entirety by the more detailed information included elsewhere in this Prospectus. PURPOSE OF THE OFFER The Board of Directors of the Fund has determined that it is in the best interests of the Fund and its shareholders to increase the number of outstanding Shares of the Fund and to increase the assets of the Fund available for investment. In reaching its decision, the Board noted that investment opportunities in the lower rated "high yield, high risk" fixed income securities market have broadened on a worldwide basis, and that many more investment opportunities for the Fund exist now than in the recent past. The Board concluded that an increase in the assets of the Fund would permit the Fund to take advantage of these additional investment opportunities, consistent with the Fund's investment objectives, while retaining investments believed to be attractive in the Fund's portfolio. The Board considered that the Offer: (1) May permit the Fund to increase the diversity of its portfolio (thereby potentially lowering overall risk) and may enhance the Fund's ability to buy and sell larger blocks of securities on better terms, and (2) May improve the Fund's ability to participate in investments, mainly U.S. dollar-based, on a global basis. The Board believes that the Offer would permit the Fund to accomplish these objectives while allowing existing shareholders an opportunity to purchase additional Shares at a price below market value without paying a brokerage commission. IMPORTANT TERMS OF THE OFFERING Estimated Subscription Price...................$ Shares outstanding at December 31, 1998........ Number of Rights issued........................ Number of Rights issued per existing Shares....1 Right for each 3 Shares held Subscription ratio.............................1 Right to buy 1 Share Maximum number of Shares to be issued.......... HOW TO EXERCISE RIGHTS . If your existing Shares are held in a brokerage account or by a custodian bank or trust company, contact your broker or financial adviser for additional instructions on how to participate in the Offer. . Complete, sign and date the enclosed subscription certificate. . Make your check or money order payable to "The High Yield Plus Fund, Inc." in the amount of $___________ for each Share you wish to buy, Including any Shares you wish to buy pursuant to the Over-Subscription Privilege. This payment may be more or less than the actual Subscription Price. Additional payment may be required when the actual Subscription Price is determined. . You should mail the subscription certificate and your payment in the enclosed envelope to State Street Bank and Trust Company in a manner that will ensure receipt prior to 5:00 p.m., Eastern time, on February 2, 1999, unless extended. Once you subscribe for Shares and your payment is received, you will not be able to change your decision. See "The Offer -- Method for Exercising Rights" and "The Offer -- Payment for Shares." IMPORTANT DATES TO REMEMBER . RECORD DATE DECEMBER 31, 1998 . FINAL DATE FOR SALES OF RIGHTS FEBRUARY 1, 1999 . EXPIRATION DATE (PAYMENT FOR SHARES FEBRUARY 2, 1999 (UNLESS AND NOTICES OF GUARANTEED DELIVERY EXTENDED) DUE) . DUE DATE FOR DELIVERY BY BROKERAGE FEBRUARY 5, 1999 (UNLESS FIRMS OR CUSTODIAN BANKS OF PAYMENT EXTENDED) AND SUBSCRIPTION CERTIFICATES TO SUBSCRIPTION AGENT PURSUANT TO NOTICE OF GUARANTEED DELIVERY . MAILING OF SHARES NOT LATER THAN FEBRUARY ___, 1999 (UNLESS EXTENDED) SHAREHOLDERS SHOULD DIRECT THEIR QUESTIONS TO THE INFORMATION AGENT: Shareholder Communications Corporation 17 State Street, 27th Floor New York, New York 10004 Toll Free: (800) 733-8481, ext. 486 TERMS OF THE OFFER The Fund is issuing Rights to its Record Date Shareholders. These Rights entitle you to subscribe for Shares at the rate of one Share for every one Right held by you. You will receive one Right for each three Shares you hold on the Record Date. For example, if you own 300 Shares, you will receive 100 Rights entitling you to purchase up to 100 additional Shares at the Subscription Price. You may exercise Rights at any time from the date of this Prospectus until 5:00 p.m., Eastern time, on February 2, 1999, unless extended. In addition, if you subscribe for the maximum number of Shares to which you are entitled, you may also subscribe for Shares that were not otherwise subscribed for by other shareholders. Shares acquired pursuant to the Over-Subscription Privilege are subject to allotment, which is more fully discussed below under "The Offer -- Over-Subscription Privilege" on page ___. -2- The Subscription Price per Share will be the lower of (a) 97% of the net asset value per Share as of the close of business on the expiration date of the Offer or (b) 95% of the average of the last reported sales price of a Share on the New York Stock Exchange on the expiration date of the Offer and the four preceding business days. The Rights are transferable and will trade on the New York Stock Exchange. See "The Offer -- Sale of Rights." THE FUND The Fund is a diversified, closed-end management investment company. The Fund's primary investment objective is to provide a high level of current income. Its secondary objective is capital appreciation, but only when consistent with its primary objective. The Fund invests in a portfolio comprised primarily of lower rated "high yield, high risk" fixed income securities (commonly referred to as "junk bonds") and other types of high risk securities. The Fund historically has maintained a leveraged capital structure, through the use of bank borrowings, which creates the opportunity for greater total returns. As discussed more fully in the body of this Prospectus, investment in the Fund involves a number of significant and substantial risks, including: (1) The possibility that the lower rated securities and other high risk securities in which the Fund primarily invests may be more likely to default and more volatile than other debt securities. (2) The Fund's leveraged capital structure, which will exaggerate any increases or decreases in the net asset value of Shares and in the yield on the Fund's portfolio. (3) The fluctuation of the Fund's net asset value in connection with changes in the value of its portfolio securities. (4) Risks associated with the Fund's investments in foreign securities and in certain restricted and illiquid securities. The Fund's leveraged capital structure involves certain substantial additional risks, including: (1) The exaggeration of any increases or decreases in the net asset value of Shares and in the yield on the Fund's portfolio. (2) The possibility that the increase in the Fund's expenses due to the borrowing may exceed the income from the securities purchased. No assurance can be given that the Fund will achieve its investment objectives. In addition, the rights offering involves the risk of an immediate dilution of the aggregate net asset value of your Shares if you do not fully exercise your Rights. -3- THE INVESTMENT ADVISER Wellington Management Company, LLP, with its principal offices at 75 State Street, Boston, Massachusetts, 02109, has served as the Fund's investment adviser since 1988, when the Fund was organized. As of September 30, 1998, Wellington Management: (1) Has discretionary authority over $187 billion of assets, including $79 billion of fixed income securities of which $6.6 billion represents "high-yield" investments. (2) Has provided investment advisory services to investment companies since 1933 and to investment counseling clients since 1960. Catherine Smith, Senior Vice President of Wellington Management, has managed the Fund since its inception in April of 1988. THE ADMINISTRATOR Prudential Investments Fund Management LLC is the administrator of the Fund. It provides meeting facilities for the Board of Directors and shareholders of the Fund and office facilities and personnel to assist the officers of the Fund in the performance of certain services. ------------------------- Before exercising your Rights pursuant to the Offer, you should consider the factors described in this Prospectus, including without limitation, the factors described under "The Fund," "Investment Objectives and Policies" and "Risk Factors and Special Considerations." These factors include the effects of the Offer, the effects of the Fund's use of bank borrowings, the significant and substantial risks involved in investing in lower rated high yield, high risk fixed income securities, the limitations on the ability of the Fund to pay dividends if it fails to meet certain asset coverage requirements, and the fact that Shares sometimes trade above or below their net asset value. -4- FEE TABLE AND EXAMPLE The following Fee Table and Example are intended to assist investors in understanding the costs and expenses that an investor in the Fund will bear directly or indirectly. FEE TABLE: SHAREHOLDER TRANSACTION EXPENSES Sales Load (as a percentage of the Subscription Price per Share) (1) 3.50% ANNUAL EXPENSES (as a percentage of average weekly net assets attributable to Shares)(2) Investment Advisory Fees...................................... 0.50% Administration Fees ....................................... 0.20% Interest...................................................... 1.93% Other Expenses................................................ 0.32% ------ Total Annual Expenses............................. 2.95% ======= (1) The Fund has agreed to pay A.G. Edwards & Sons, Inc. (the "Dealer-Manager") a fee for its financial advisory, marketing and soliciting services equal to (a) 3.50% of the Subscription Price per Share for Shares issued pursuant to the exercise of the Rights and the Over-Subscription Privilege, less (b) a $25,000 retainer fee paid to the Dealer-Manager by the Fund pursuant to a letter agreement between the Fund and the Dealer-Manager. The Dealer-Manager will reallow soliciting fees to broker-dealers who have entered into a Soliciting Dealer Agreement with the Dealer-Manager equal to 2.50% of the Subscription Price per Share for Shares issued pursuant to the exercise of the Rights and the Over-Subscription Privilege. The Fund has also agreed to reimburse the Dealer-Manager for its out-of-pocket costs and expenses relating to the Offer up to an aggregate of $50,000; provided, however, that if fewer than 1,900,000 Shares are issued upon the exercise of Rights in connection with the Offer, such reimbursement will be limited to a maximum of $25,000. In addition, the Fund has agreed to pay fees to the subscription agent and the information agent, estimated to be $40,000 and $30,000, respectively, for their services related to the Offer, excluding reimbursement for their out-of-pocket expenses. These fees and expenses will be borne by the Fund and indirectly by all of the Fund's shareholders, including those shareholders who do not exercise their Rights. (2) Amounts are based on estimated amounts for the Fund's current fiscal year after giving effect to anticipated net proceeds of the Offer, assuming that all of the Rights are exercised and assuming that the Fund is able to increase the amount it may borrow to the maximum amount then permissible under the Investment Company Act of 1940 ("1940 Act"). -5- EXAMPLE: CUMULATIVE EXPENSES PAID FOR THE PERIOD OF: 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- An investor would pay the following expenses on a $1,000 investment, assuming a 5% annual return throughout the periods.......... $30 $91 $155 $327 The Example set forth above assumes reinvestment of all dividends and other distributions at net asset value and an annual expense ratio of 2.95%. The Fee Table above and the assumption in the Example of a 5% annual return are required by Securities and Exchange Commission ("Commission") regulations applicable to all management investment companies. THE EXAMPLE AND FEE TABLE SHOULD NOT BE CONSIDERED AS A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN, WHICH MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE AND FEE TABLE. In addition, while the Example assumes reinvestment of all dividends and other distributions at net asset value, participants in the Fund's Dividend Reinvestment Plan may receive Shares purchased or issued at a price or value different from net asset value. See "Dividends and Other Distributions; Dividend Reinvestment Plan." -6- FINANCIAL HIGHLIGHTS The table below sets forth certain specified information for a Share outstanding throughout each period presented. The financial highlights for the fiscal years ended March 31, 1998 and 1997 have been audited by PricewaterhouseCoopers LLP, the Fund's independent accountants, whose reports thereon were unqualified. The financial highlights for the remaining periods (other than for the period ended September 30, 1998) have been audited by Deloitte & Touche LLP. The financial highlights for the period ended September 30, 1998 have not been audited. This information should be read in conjunction with the Financial Statements and Notes thereto included in the Fund's March 31, 1998 Annual Report and September 30, 1998 Semi-Annual Report and included in this Prospectus.
Years Ended March 31, --------------------------------------------------------- (Dollar amounts in thousands, except per Share data) (Unaudited) 4/1/98 TO 1998 1997 1996 1995 1994 9/30/98 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of year $ 9.21 $ 8.54 $ 8.44 $ 7.85 $ 8.38 $ 8.48 ------- ------- ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS Net investment income .45 .84 .82 .84 .87 .90 Net realized and unrealized gain (loss) on investments (2.00) .67 .12 .59 (.54) (.15) ------- ------- ------- ------- --------- ----- Total from investment operations (1.55) 1.51 .94 1.43 .33 .75 ------- ------- ------- ------- --------- ----- LESS DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.42) (.84) (.82) (.84) (.86) (.85) Distributions in excess of net investment income .-- .-- (.02) .-- .-- .-- -------- ---------------- --------- --------- ------- Total dividends and distributions (.42) (.84) (.84) (.84) (.86) (.85) -------- -------- -------- -------- -------- -------- Net asset value, end of year(a) $ 7.24 $ 9.21 $ 8.54 $ 8.44 $ 7.85 $8.38 ======== ======== ======= ======= ======= ===== Market price per Share, end of $ 8.00 $ 9.125 $ 9.00 $ 8.75 $ 8.00 $8.375 year(a) ======== ======== ======= ======= ======= ====== TOTAL INVESTMENT RETURN(b): (7.81)% 11.25% 13.38% 20.80% 6.33% 3.90% ======= ====== ====== ====== ====== ====== RATIO/SUPPLEMENTAL DATA: Net assets, end of year $ 82,311 $104,558 $96,042 $94,091 $86,704 $91,698 Average net assets $106,099 $100,766 $95,946 $92,855 $87,734 $96,962 Ratio to average net assets: Expenses, before loan interest, commitment fees and nonrecurring expenses .99%(c) 1.07% 1.08% 1.01% 1.11% 1.12% Total expenses 2.84%(c) 2.44% 2.32% 2.29% 2.71% 2.01% Net investment income 9.65%(c) 9.41% 9.63% 10.18% 10.90% 10.15% Portfolio turnover rate 54% 112% 60% 60% 47% 100% Total debt outstanding at end of year $ 32,000 $30,000 $18,000 $17,000 $19,000 $28,000 Asset coverage per $1,000 of debt outstanding $ 3,744 $ 4,485 $ 6,336 $ 6,535 $ 5,563 $ 4,275
- -------------------------------------- -7-
Year Ended March 31, ----------------------------------------------------- (Dollar amounts in thousands, except per Share data) 4/22/88(d) 1993 1992 1991 1990 TO 3/31/89 ---- ---- ---- ---- ---------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of year $7.91 $6.80 $7.22 $8.90 $9.30 ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net investment income .89 .87 .99 1.12 .93 Net realized and unrealized gain (loss) on .52 1.11 (.41) (1.68) (.24) investments --- ---- ----- ------ ----- Total from investment operations 1.41 1.98 .58 (.56) .69 ---- ---- --- ----- --- LESS DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.84) (.87) (.99) (1.12) (.93) Distributions in excess of net investment -- -- (.01) -- (.10) income ----- ----- ----- ----- ----- Total dividends and distributions (.84) (.87) (1.00) (1.12) (1.03) Capital Charge resulting from the issuance of Fund Shares -- -- -- -- (. 06) ----- ----- ----- ----- ------ Net asset value, end of year(a) $8.48 $7.91 $6.80 $7.22 $8.90 ===== ===== ===== ===== ===== Market price per Share, end of year(a) $8.875 $7.75 $6.50 $7.00 $8.625 ====== ===== ===== ===== ====== TOTAL INVESTMENT RETURN(b): 27.02% 34.28% 9.14% (6.51)% (4.24)% ======= ====== ====== ======= ======= RATIO/SUPPLEMENTAL DATA: Net assets, end of year $92,422 $85,742 $73,656 $78,132 $96,259 Average net assets $88,142 $80,703 $70,661 $88,171 $98,447 Ratio to average net assets: Expenses, before loan interest, commitment fees and nonrecurring expenses 1.20% 1.28% 1.28% 1.30% 1.02%(c) Total expenses 2.03% 2.26% 2.21% 2.57% 1.44%(c) Net investment income 10.94% 11.69% 15.23% 13.68% 10.89%(c) Portfolio turnover rate 82% 46% 38% 32% 33% Total debt outstanding at end of year $15,000 $15,000 $ 6,000 $ 8,000 $12,000 Asset coverage per $1,000 of debt outstanding $ 7.161 $ 6,716 $13,276 $10,767 $ 9,022 - ----------------------
(a) Net asset value 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. (c) Annualized. (d) Commencement of investment operations. -8- CAPITALIZATION AT SEPTEMBER 30, 1998 TITLE OF CLASS AMOUNT AUTHORIZED Shares of Common Stock, par value $.01 100,000,000 Amount of outstanding borrowings $32,000,000 INFORMATION REGARDING SENIOR SECURITIES As discussed further below, the Fund has entered into a credit agreement dated as of October 31, 1993 and subsequently amended from time to time ("Credit Agreement") with BankBoston, N.A. ("BankBoston"), formerly known as First National Bank of Boston, pursuant to which BankBoston has agreed to make loans to the Fund from time to time. See "The Fund." The Fund's obligation to BankBoston under the Credit Agreement is considered a senior security under, and therefore is subject to special provisions of, the 1940 Act. See "Description of Credit Agreement." The following table shows certain information regarding the loans payable under the Credit Agreement (and under a predecessor agreement with another bank) as of the end of each fiscal year of the Fund since its inception. At Total Amount Asset Coverage March 31 Outstanding Per Unit (1) -------- -------------- -------------- (In Thousands) (In Thousands) Loans Payable 1989 $12,000 $9,022 1990 8,000 10,767 1991 6,000 13,276 1992 15,000 6,716 1993 15,000 7,161 1994 28,000 4,275 1995 19,000 5,563 1996 17,000 6,535 1997 18,000 6,336 1998 30,000 4,485 At 9/30/98 32,000 3,744 - ---------------- (1) Amount shown is per $1,000 of outstanding loans. Asset coverage per unit is calculated by subtracting the Fund's total liabilities, other than liabilities for outstanding loans, from its total assets and dividing such amount by the quotient of (a) the principal amount of outstanding loans, divided by (b) $1,000. -9- TRADING AND NET ASSET VALUE INFORMATION In the past, the Shares have traded at various times at either a premium or a discount in relation to net asset value. Although the Shares recently have been trading at a premium to net asset value, there can be no assurance that this premium will continue after the Offer or that the Shares will not again trade at a discount. Shares of other closed-end investment companies frequently trade at a discount from net asset value. See "Risk Factors and Special Considerations." The following table shows the high and low sales prices of the Shares on the New York Stock Exchange Composite Tape, quarterly trading volume on the New York Stock Exchange (the "Exchange"), the high and low net asset value per Share, and the quarter-end premium or discount at which the Shares were trading, for each fiscal quarter during the two most recent fiscal years and for the fiscal quarters ended December 31, 1998, September 30, 1998 and June 30, 1998. QUARTERLY TRADING PREMIUM VOLUME (DISCOUNT) MARKET PRICE (THOUSANDS NET ASSET VALUE TO NET QUARTER ENDED HIGH LOW OF SHARES) HIGH LOW ASSET VALUE June 30, 1996.......... 8-7/8 8-5/8 613 8.50 8.35 3.17 September 30, 1996..... 9 8-1/2 807 8.60 8.30 4.05 December 31, 1996...... 9-1/4 8-7/8 742 8.71 8.58 6.57 March 31, 1997......... 9-3/8 9 950 8.88 8.61 4.53 June 30, 1997.......... 9-3/8 8-3/4 716 8.91 8.49 4.05 September 30, 1997..... 9-7/16 9-1/8 789 9.03 8.85 4.28 December 31, 1997...... 9-11/16 9-1/6 689 9.12 8.83 7.30 March 31, 1998......... 9-15/16 9 1,312 9.22 8.93 (1.39) June 30, 1998.......... 9-1/8 8-7/8 1,109 9.30 8.85 1.69 September 30, 1998..... 9 7-1/2 1,231 8.93 7.17 8.17 December 31, 1998...... The net asset value per Share at the close of business on November 16, 1998 (the last trading date on which the Fund publicly reported its net asset value prior to the announcement of the Offer) and on December 31, 1998 (the last trading date prior to the date of this Prospectus on which the Fund publicly reported its net asset value) were $7.49 and $____, respectively, and the last reported sales prices of a Share on the Exchange on those dates were $8.625 and $_____, respectively. THE OFFER PURPOSE OF THE OFFER The Board of Directors of the Fund has determined that it is in the best interests of the Fund and its shareholders to increase the number of outstanding -10- Shares and to increase the assets of the Fund available for investment by making the Offer. In reaching its decision, the Board noted that investment opportunities in the lower rated "high yield, high risk" fixed income securities market have broadened on a worldwide basis, and that many more investment opportunities for the Fund exist now than in the recent past. The Board of Directors concluded that an increase in the assets of the Fund would permit the Fund to take advantage of these additional investment opportunities, consistent with the Fund's investment objectives, while retaining investments believed to be attractive in the Fund's portfolio. The Board considered that the Offer may permit the Fund to increase the diversity of its portfolio (thereby potentially lowering overall risk) and may enhance the Fund's ability to buy and sell larger blocks of securities on better terms. In addition, the Board considered that the Offer may improve the Fund's ability to participate in investments on a global basis, as the global high yield markets have significantly expanded over the past five years. The Board of Directors believes that the Offer would permit the Fund to accomplish these objectives while allowing existing shareholders an opportunity to purchase additional Shares at a price below market value without paying a brokerage commission. The Fund utilizes leverage to achieve its investment objectives by borrowing money pursuant to the Credit Agreement when Wellington Management Company, LLP (the "Adviser") believes such leverage is of potential benefit to shareholders. The Fund seeks to enhance returns to shareholders by borrowing at an interest rate lower than the rate the Fund earns on its investments. Leveraging will exaggerate any increases or decreases in the net asset value of Shares and in the yield on the Fund's portfolio. For a discussion of the anticipated impact of the Offer on the Fund's leverage, please refer to "Investment Policies and Limitations" and "Risk Factors and Special Considerations--Risk of Leverage." The Board of Directors believes that increasing the size of the Fund may lower its expenses as a percentage of average net assets because the Fund's fixed costs can be spread over a larger asset base. The Board of Directors also believes that a larger number of outstanding Shares and a larger number of shareholders could increase the level of market interest in the Fund and the liquidity of Shares on the Exchange. The distribution to shareholders of transferable Rights, which themselves may have a realizable value, will also afford nonparticipating shareholders the potential of receiving a cash payment upon sale of such Rights, in partial compensation for the dilution of their interest in the Fund that may result from the Offer. The Board of Directors also considered the impact of the Offer on the Fund's current monthly distributions. Based on the Adviser's assessment of current market conditions in the lower rated debt market and available leverage opportunities, the Board of Directors believes the Offer will not result in a decrease in the Fund's current level of dividends per Share. For a further discussion of the anticipated impact of the Offer on the Fund's dividends and other distributions, please refer to "Risk Factors and Special Considerations--Dividends and Other Distributions." In considering the Offer and its effect on the best interests of the Fund and its shareholders, the Board of Directors retained the Dealer-Manager to provide the Fund with financial advisory, marketing and soliciting services relating to the Offer, including the structure, timing and terms of the Offer. In addition to the foregoing, the Board of Directors considered, among other things, the benefits and drawbacks of conducting a transferable rights offering versus a non-transferable offering, the pricing structure of the Offer, the effect on the -11- Fund if the Offer is undersubscribed and the experience of the Dealer-Manager in conducting rights offerings. Since the fees of the Adviser and Prudential Investments Fund Management LLC (the "Administrator") are based on the Fund's net assets, the Adviser and the Administrator will benefit from an increase in the Fund's assets resulting from the Offer. See "The Adviser" and "The Administrator." The Fund may, in the future and at its discretion, choose to make additional rights offerings from time to time for a number of Shares and on terms which may or may not be similar to this Offer. Any such future rights offering will be made in accordance with the 1940 Act. TERMS OF THE OFFER The Fund is issuing to its Record Date Shareholders Rights entitling the holders thereof to subscribe for an aggregate of 3,796,342 Shares. Record Date Shareholders, where the context requires, shall include beneficial owners whose Shares are held of record by Cede & Co. ("Cede"), nominee for The Depository Trust Company ("DTC"), or by any other depository or nominee. In the case of Shares held of record by Cede or any other depository or nominee, beneficial owners for whom Cede or any other depository or nominee is the holder of record will be deemed to be the holders of the Rights that are issued to Cede or such other depository or nominee on their behalf. Each Record Date Shareholder will receive one Right for each three Shares beneficially owned on the Record Date, and the Rights entitle Record Date Shareholders and holders of Rights acquired during the Subscription Period to acquire one Share for each Right held. No fractional Shares will be issued. In addition, the Rights entitle each Record Date Shareholder to subscribe, pursuant to the Over-Subscription Privilege, for any Shares not acquired by exercise of Rights in the primary subscription. The right to acquire during the Subscription Period at the Subscription Price one Share for every Right held is hereinafter referred to as the "Primary Subscription." The Rights are transferable and persons who become holders of Rights who are not Record Date Shareholders ("Rights Holders") may also purchase Shares in the Primary Subscription and may subscribe, pursuant to the Over-Subscription Privilege, for any shares not acquired by exercise of Rights in the Primary Subscription. All Rights may be exercised until 5:00 p.m., Eastern time, on February 2, 1999 (the "Expiration Date"). (Record Date Shareholders and Rights Holders purchasing Shares in the Primary Subscription and pursuant to the Over-Subscription Privilege (as described below) are hereinafter referred to as "Exercising Rights Holders.") Shares not subscribed for in the Primary Subscription will be offered, by means of the Over-Subscription Privilege, to those Record Date Shareholders and Rights Holders who have exercised all Rights held by them (other than those Rights which cannot be exercised because they represent the right to acquire less than one Share) and who wish to acquire more than the number of Shares they are entitled to purchase pursuant to the exercise of their Rights. Shares acquired pursuant to the Over-Subscription Privilege are subject to allotment, as more fully discussed below under "Over-Subscription Privilege." For purposes of determining the maximum number of Shares a shareholder may acquire pursuant to the Offer, beneficial owners of Shares whose Shares are held of record by Cede, as nominee for DTC, or by any other depository or nominee will be deemed to be -12- the holders of the Rights that are issued to Cede or such other depository or nominee on their behalf. There is no minimum number of Rights which must be exercised in order for the Offer to close. The first regular dividend to be paid on Shares acquired upon exercise of Rights will be the first monthly dividend, the record date for which occurs after the issuance of such Shares following the Expiration Date. Except as described below, it is expected that the first dividend to be paid on Shares issued pursuant to the Offer will be paid on or about March 5, 1999. Prior to the Expiration Date, the Dealer-Manager may offer Shares acquired through its purchase and exercise of Rights at prices it sets from time to time. To the extent such Shares are issued prior to a dividend record date of the Fund that precedes the Expiration Date, such Shares will receive the dividend declared to the same extent as other Shares outstanding on such dividend record date, and thus the issuance of such Shares may have a dilutive effect on the income per Share available for such dividend. OVER-SUBSCRIPTION PRIVILEGE Shares not subscribed for in the Primary Subscription (the "Excess Shares") will be offered, by means of the Over-Subscription Privilege, to those Exercising Rights Holders who have exercised all exercisable Rights held by them (other than those Rights which cannot be exercised because they represent the right to acquire less than one Share) and who wish to acquire more than the number of Shares for which the Rights held by them are exercisable. Exercising Rights Holders should indicate, on the Subscription Certificate which they submit with respect to the exercise of the Rights held by them, how many Excess Shares they are willing to acquire pursuant to the Over-Subscription Privilege. If sufficient Excess Shares remain, all over-subscription requests by Exercising Rights Holders will be honored in full. If requests for Shares pursuant to the Over-Subscription Privilege exceed the Excess Shares available, the available Excess Shares will be allocated pro rata among Exercising Rights Holders who oversubscribe based on the number of Rights held by such Exercising Rights Holders. Banks, brokers, trustees and other nominee holders of Rights will be required to certify to the Subscription Agent (as defined herein), before any Over-Subscription Privilege may be exercised with respect to any particular beneficial owner, as to the aggregate number of Rights exercised pursuant to the Primary Subscription and the number of Shares subscribed for pursuant to the Over-Subscription Privilege by such beneficial owner and that such beneficial owner's Primary Subscription was exercised in full. Nominee Holder Over-Subscription Forms and Beneficial Owner Certification Forms will be distributed to banks, brokers, trustees and other nominee holders with the Subscription Certificates. The Fund will not offer or sell in connection with the Offer any Shares that are not subscribed for pursuant to the Primary Subscription or the Over-Subscription Privilege. SUBSCRIPTION PRICE -13- The Subscription Price for each Share to be issued pursuant to the Offer will be the lower of (a) 97% of the net asset value per Share as of the close of business on the Expiration Date or (b) 95% of the average of the last reported sales price of a Share on the New York Stock Exchange on the Expiration Date and the four preceding business days. Exercising Rights Holders will not know the actual Subscription Price at the time of exercise and will be required initially to pay for the Shares at the Estimated Subscription Price of $______ per Share (based on the Fund's net asset value per Share on December 31, 1998). The actual Subscription Price may be more than the Estimated Subscription Price. The Fund announced its intention to make the Offer after the close of trading on the Exchange on November 16, 1998. The net asset values per Share at the close of business on November 16, 1998 (the last trading date on which the Fund publicly reported its net asset value prior to the announcement) and on December 31, 1998 (the last trading date prior to the date of this Prospectus on which the Fund publicly reported its net asset value) were $7.49 and $____, respectively, and the last reported sales prices of a Share on the Exchange on those dates were $8.625 and $______, respectively. EXPIRATION OF THE OFFER The Offer will expire at 5:00 p.m., Eastern time, on February 2, 1999, unless extended by the Fund. The Rights will expire on the Expiration Date and thereafter may not be exercised. The Fund may make one or more extensions of the Offer, as discussed below, up to an aggregate of 45 days from the Expiration Date. Any extension of the Offer will be followed as promptly as practicable by announcement thereof. Such announcement will be issued no later than 9:00 a.m., Eastern time, on the next business day following the previously scheduled Expiration Date. Without limiting the manner in which the Fund may choose to make such announcement, the Fund will not, unless otherwise required by law, have any obligation to publish, advertise or otherwise communicate any such announcement other than by making a release to the Dow Jones News Service or such other means of announcement as the Fund deems appropriate. SUBSCRIPTION AGENT The subscription agent is State Street Bank and Trust Company (the "Subscription Agent"). The Subscription Agent will receive for its administrative, processing, invoicing and other services as subscription agent a fee estimated to be approximately $40,000, excluding reimbursement for its out-of-pocket expenses related to the Offer. The Subscription Agent is also the Fund's transfer agent, dividend-paying agent and registrar for the Shares. Questions regarding the Subscription Certificates should be directed to Shareholder Communications Corporation at 800-733-8481, ext. 486 (toll free); shareholders may also consult their brokers or nominees. Completed Subscription Certificates must be sent together with proper payment of the Estimated Subscription Price for all Shares subscribed for in the Primary Subscription and the Over-Subscription Privilege to the Subscription Agent by one of the methods described below. Alternatively, Notices of Guaranteed Delivery may be sent by brokerage firms and custodian banks and trust companies exercising Rights on behalf of Exercising Rights Holders whose Shares are held by such institutions by facsimile to (XXX) XXX-XXXX to be received by the Subscription Agent prior to 5:00 p.m., Eastern -14- time, on the Expiration Date. Facsimiles should be confirmed by telephone at (XXX) XXX-XXXX. The Fund will accept only properly completed and executed Subscription Certificates actually received at any of the addresses listed below, prior to 5:00 p.m., Eastern time, on the Expiration Date or by the close of business on the third business day after the Expiration Date following timely receipt of a Notice of Guaranteed Delivery. See "Payment for Shares" below. (1) BY FIRST CLASS MAIL: c/o Boston EquiServe P.O. Box __________ ________, Massachusetts _________ (2) BY OVERNIGHT COURIER: c/o Boston EquiServe 150 Royall Street Canton, Massachusetts 02021 (3) BY HAND: c/o Boston EquiServe 55 Broadway, 3rd Floor New York, New York 10006 DELIVERY TO AN ADDRESS OTHER THAN ONE OF THE ADDRESSES LISTED ABOVE WILL NOT CONSTITUTE VALID DELIVERY. METHOD FOR EXERCISING RIGHTS Rights are evidenced by Subscription Certificates that, except as described below under "Foreign Shareholders," will be mailed promptly following the Record Date to Record Date Shareholders or, if a shareholder's Shares are held by Cede or any other depository or nominee on their behalf, to Cede or such depository or nominee. Rights may be exercised by completing and signing the Subscription Certificate that accompanies this Prospectus and mailing it in the envelope provided, or otherwise delivering the completed and signed Subscription Certificate to the Subscription Agent, together with payment in full for the Shares to be purchased at the Estimated Subscription Price by the Expiration Date. Rights may also be exercised by contacting your broker, bank or trust company, which can arrange, on your behalf, to guarantee delivery of payment and delivery of a properly completed and executed Subscription Certificate pursuant to a Notice of Guaranteed Delivery by the close of business on February 5, 1999, the third business day after the Expiration Date. A fee may be charged by the broker, bank or trust company for this service. Fractional Shares will not be issued upon the exercise of Rights. Completed Subscription Certificates must be received by the Subscription Agent prior to 5:00 p.m., Eastern time, on the Expiration Date at one of the addresses set forth above (unless the guaranteed delivery procedures are complied with as described below under "Payment for Shares"). Exercising Rights Holders will have no right to rescind their subscriptions after receipt of their payment for Shares by the Subscription Agent. SHAREHOLDERS WHO ARE RECORD OWNERS. Shareholders who are record owners can choose between two options to exercise their Rights, as described below under "Payment for Shares." If time is of the essence, option (2) under "Payment for Shares" below will permit delivery of the Subscription Certificate and payment -15- after the Expiration Date, but such delivery of the Subscription Certificate must be accompanied by a Notice of Guaranteed Delivery from a financial institution meeting certain requirements. SHAREHOLDERS WHOSE SHARES ARE HELD BY A NOMINEE. Shareholders whose Shares are held by a nominee, such as a bank, broker or trustee, must contact that nominee to exercise their Rights. In such case, the nominee will complete the Subscription Certificate on behalf of the shareholder and arrange for proper payment by one of the methods described below under "Payment for Shares." NOMINEES. Nominees who hold Shares for the account of others should notify the beneficial owners of such Shares as soon as possible to ascertain such beneficial owners' intentions and to obtain instructions with respect to the Rights. If the beneficial owner so instructs, the nominee should complete the Subscription Certificate and submit it to the Subscription Agent with the proper payment as described below under "Payment for Shares." INFORMATION AGENT Any questions or requests for assistance concerning the method of subscribing for Shares or for additional copies of this Prospectus or Subscription Certificates or Notices of Guaranteed Delivery may be directed to Shareholder Communications Corporation (the "Information Agent") at its telephone number and address listed below: 17 State Street, 27th Floor New York, New York 10004 Tol1 Free: (800) 733-8481, ext. 486 Shareholders may also contact their brokers or nominees for information with respect to the Offer. The Information Agent will receive a fee estimated to be $30,000, excluding reimbursement for its out-of-pocket expenses related to the Offer. PAYMENT FOR SHARES Shareholders who wish to acquire Shares pursuant to the Offer may choose between the following methods of payment: (1) An Exercising Rights Holder may send the Subscription Certificate together with payment (based on Estimated Subscription Price) for the Shares acquired in the Primary Subscription and any additional Shares subscribed for pursuant to the Over-Subscription Privilege to the Subscription Agent. A subscription will be accepted when payment, together with a properly completed and executed Subscription Certificate, is received by the Subscription Agent's office at one of the addresses set forth above no later than 5:00 p.m., Eastern time, on the Expiration Date. The Subscription Agent will deposit all checks and money orders received by it for the purchase of Shares into a segregated interest-bearing account -16- (the interest from which will accrue to the benefit of the Fund) pending proration and distribution of Shares. A PAYMENT PURSUANT TO THIS METHOD MUST BE IN U.S. DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK OR BRANCH LOCATED IN THE UNITED STATES, MUST BE PAYABLE TO THE HIGH YIELD PLUS FUND, INC. AND MUST ACCOMPANY A PROPERLY COMPLETED AND EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED. EXERCISE BY THIS METHOD IS SUBJECT TO ACTUAL COLLECTION OF CHECKS BY 5:00 P.M., EASTERN TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, SHAREHOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF A CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER. (2) Alternatively, an Exercising Rights Holder may acquire Shares, and a subscription will be accepted by the Subscription Agent if, prior to 5:00 p.m., Eastern time, on the Expiration Date, the Subscription Agent has received a Notice of Guaranteed Delivery by facsimile (telecopy) or otherwise FROM A FINANCIAL INSTITUTION THAT IS A MEMBER OF THE SECURITIES TRANSFER AGENTS MEDALLION PROGRAM, THE STOCK EXCHANGE MEDALLION PROGRAM OR THE NEW YORK STOCK EXCHANGE MEDALLION SIGNATURE PROGRAM guaranteeing delivery of (i) payment of the Estimated Subscription Price for the Shares subscribed for in the Primary Subscription and any additional Shares subscribed for pursuant to the Over-Subscription Privilege, (ii) payment in full of any additional amount required to be paid if the actual Subscription Price is in excess of the Estimated Subscription Price, and (iii) a properly completed and executed Subscription Certificate. The Subscription Agent will not honor a Notice of Guaranteed Delivery unless a properly completed and executed Subscription Certificate and full payment for the Shares based on the Estimated Subscription Price is received by the Subscription Agent by the close of business on February 5, 1999, the third business day after the Expiration Date. On a date within eight business days following the Expiration Date (the "Confirmation Date"), the Subscription Agent will send to each Exercising Rights Holder (or, if Shares are held by Cede or any other depository or nominee, to Cede or such other depository or nominee) a confirmation showing (i) the number of Shares purchased pursuant to the Primary Subscription, (ii) the number of Shares, if any, acquired pursuant to the Over-Subscription Privilege, (iii) any excess to be refunded by the Fund to such Exercising Rights Holder as a result of payment for Shares pursuant to the Over-Subscription Privilege which the Exercising Rights Holder is not acquiring and (iv) any additional amount payable by such Exercising Rights Holder to the Fund or any excess to be -17- refunded by the Fund to such Exercising Rights Holder, in each case, based on the actual Subscription Price as determined on the Expiration Date. Any additional payment required from Exercising Rights Holders must be received by the Subscription Agent within seven business days after the Confirmation Date. Any excess payment to be refunded by the Fund to an Exercising Rights Holder will be mailed by the Subscription Agent as promptly as practicable. All payments by an Exercising Rights Holder must be in U.S. dollars by money order or check drawn on a bank or branch located in the United States and payable to THE HIGH YIELD PLUS FUND, INC. WHICHEVER OF THE TWO METHODS DESCRIBED ABOVE IS USED, ISSUANCE OF THE SHARES PURCHASED IS SUBJECT TO COLLECTION OF CHECKS AND ACTUAL PAYMENT. IF A HOLDER OF RIGHTS WHO SUBSCRIBES FOR SHARES PURSUANT TO THE PRIMARY SUBSCRIPTION OR OVER-SUBSCRIPTION PRIVILEGE DOES NOT MAKE PAYMENT OF ANY AMOUNTS DUE BY THE TENTH BUSINESS DAY AFTER THE CONFIRMATION DATE, THE SUBSCRIPTION AGENT RESERVES THE RIGHT TO TAKE ANY OR ALL OF THE FOLLOWING ACTIONS: (i) FIND OTHER EXERCISING RIGHTS HOLDERS TO PURCHASE SUCH SUBSCRIBED AND UNPAID FOR SHARES; (ii) APPLY ANY PAYMENT ACTUALLY RECEIVED BY IT TOWARD THE PURCHASE OF THE GREATEST WHOLE NUMBER OF SHARES WHICH COULD BE ACQUIRED BY SUCH HOLDER UPON EXERCISE OF THE PRIMARY SUBSCRIPTION AND/OR OVER-SUBSCRIPTION PRIVILEGE, AND/OR (iii) EXERCISE ANY AND ALL OTHER RIGHTS OR REMEDIES TO WHICH IT MAY BE ENTITLED, INCLUDING, WITHOUT LIMITATION, THE RIGHT TO SET OFF AGAINST PAYMENTS ACTUALLY RECEIVED BY IT WITH RESPECT TO SUCH SUBSCRIBED SHARES. THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE EXERCISING RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., EASTERN TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER. All questions concerning the timeliness, validity, form and eligibility of any exercise of Rights will be determined by the Fund, whose determinations will be final and binding. The Fund in its sole discretion may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such time as it may determine, or reject the purported exercise of any Right. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as the Subscription Agent determines in its sole discretion. -18- The Subscription Agent will not be under any duty to give notification of any defect or irregularity in connection with the submission of Subscription Certificates or incur any liability for failure to give such notification. EXERCISING RIGHTS HOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION AFTER RECEIPT OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT, EXCEPT AS PROVIDED BELOW UNDER "NOTICE OF NET ASSET VALUE DECLINE." SALE OF RIGHTS The Rights are transferable until the Expiration Date. The Rights will be listed for trading on the Exchange. The Fund will use its best efforts to ensure that an adequate trading market for the Rights will exist, although no assurance can be given that a market for the Rights will develop. It is anticipated that the Rights will trade on the Exchange on a when-issued basis commencing on or about January 5, 1999 until approximately January ___, 1999 and on a regular way basis thereafter, until and including February 1, 1999, the last business day prior to the Expiration Date. SALES THROUGH SUBSCRIPTION AGENT AND DEALER-MANAGER. Record Date Shareholders who do not wish to exercise any or all of their Rights may instruct the Subscription Agent to sell any unexercised Rights through or to the Dealer-Manager. Subscription Certificates representing the Rights to be sold by or to the Dealer-Manager must be received by the Subscription Agent on or before January 29, 1999 (or if the Offer is extended, by two business days prior to the Expiration Date). Upon the timely receipt by the Subscription Agent of appropriate instructions to sell Rights, the Subscription Agent will request the Dealer-Manager either to purchase or to use its best efforts to complete the sale and the Subscription Agent will remit the proceeds of sale, net of commissions, to the selling Record Date Shareholder. Any commissions on sales of Rights will be paid by the selling Record Date Shareholder. If the Rights can be sold, sales of such Rights will be deemed to have been effected at the weighted-average price received by the Dealer-Manager on the day such Rights are sold. The sale price of any Rights sold to the Dealer-Manager will be based upon the then current market price for the Rights, less amounts comparable to the usual and customary brokerage fees. The Dealer-Manager will also attempt to sell all Rights which remain unclaimed as a result of Subscription Certificates being returned by the postal authorities to the Subscription Agent as undeliverable as of the fourth business day prior to the Expiration Date. Such sales will be made net of commissions on behalf of the nonclaiming Record Date Shareholders. The Subscription Agent will hold the proceeds from those sales for the benefit of such nonclaiming Record Date Shareholders until such proceeds are either claimed or escheat. There can be no assurance that the Dealer-Manager will purchase or be able to complete the sale of any such Rights, and neither the Fund nor the Dealer-Manager has guaranteed any minimum sales price for the Rights. OTHER TRANSFERS. The Rights evidenced by a Subscription Certificate may be transferred in whole by endorsing the Subscription Certificate for transfer in accordance with the accompanying instructions. A portion of the Rights evidenced by a single Subscription Certificate (but not fractional Rights) may be transferred by delivering to the Subscription Agent a Subscription Certificate -19- properly endorsed for transfer, with instructions to register such portion of the Rights evidenced thereby in the name of the transferee and to issue a new Subscription Certificate to the transferee evidencing such transferred Rights. In such event, a new Subscription Certificate evidencing the balance of the Rights, if any, will be issued to the Record Date Shareholder or, if the Record Date Shareholder so instructs, to an additional transferee. The signature on the Subscription Certificate must correspond with the name as written upon the face of the Subscription Certificate in every particular, without alteration or enlargement, or any change whatsoever. A signature guarantee must be provided by an eligible financial institution as defined in Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended (the "1934 Act"), subject to the standards and procedures adopted by the Fund. Record Date Shareholders wishing to transfer all or a portion of their Rights should allow at least five business days for (i) the transfer instructions to be received and processed by the Subscription Agent; (ii) a new Subscription Certificate to be issued and transmitted to the transferee or transferees with respect to transferred Rights, and to the transferor with respect to retained Rights, if any; and (iii) the Rights evidenced by such new Subscription Certificate to be exercised or sold by the recipients thereof. Neither the Fund nor the Subscription Agent nor the Dealer-Manager shall have any liability to a transferee or transferor of Rights if Subscription Certificates are not received in time for exercise or sale prior to the Expiration Date. Except for the fees charged by the Subscription Agent, Information Agent and Dealer-Manager (which will be paid by the Fund), all commissions, fees and other expenses (including brokerage commissions and transfer taxes) incurred or charged in connection with the purchase, sale or exercise of Rights will be for the account of the transferor of the Rights, and none of such commissions, fees or expenses will be paid by the Fund, the Subscription Agent, the Information Agent or the Dealer-Manager. The Fund anticipates that the Rights will be eligible for transfer through, and that the exercise of the Primary Subscription (but not the Over-Subscription Privilege) may be effected through, the facilities of DTC (Rights exercised through DTC are referred to as "DTC Exercised Rights"). Record Date Shareholders of DTC Exercised Rights may exercise the Over-Subscription Privilege in respect of such DTC Exercised Rights by properly executing and delivering to the Subscription Agent, at or prior to 5:00 p.m., Eastern time, on the Expiration Date, a Nominee Holder Over-Subscription Exercise Form or a substantially similar form satisfactory to the Subscription Agent, together with payment of the Subscription Price for the number of Shares for which the Over-Subscription Privilege is to be exercised. DISTRIBUTION ARRANGEMENTS A.G. Edwards & Sons, Inc., which is a St. Louis, Missouri broker-dealer and member of the National Association of Securities Dealers, Inc., will act as the Dealer-Manager for the exercise of the Rights and the Over-Subscription Privilege. Under the terms and subject to the conditions contained in the Dealer-Manager Agreement dated on or about the date hereof (the "Dealer-Manager Agreement"), the Dealer-Manager will provide financial advisory and marketing services in connection with the Offer and will solicit the exercise of Rights and participation in the Over-Subscription Privilege. The Offer is not -20- contingent upon any number of Rights being exercised. The Fund has agreed to pay the Dealer-Manager a fee for its financial advisory, marketing and soliciting services equal to (a) 3.50% of the Subscription Price per Share for Shares issued pursuant to the exercise of the Rights and the Over-Subscription Privilege less (b) a $25,000 retainer fee paid to the Dealer-Manager by the Fund pursuant to a letter agreement between the Fund and the Dealer-Manager. The Dealer-Manager will reallow soliciting fees to broker-dealers who have entered into a Soliciting Dealer Agreement with the Dealer-Manager equal to 2.50% of the Subscription Price per Share for Shares issued pursuant to the exercise of the Rights and the Over-Subscription Privilege. In addition, the Fund may reimburse the Dealer-Manager up to an aggregate of $50,000 for its out-of-pocket costs and expenses incurred in connection with the Offer; provided, however, that if fewer than 1,900,000 Shares are issued upon the exercise of Rights in connection with the Offer, such reimbursement will be limited to a maximum of $25,000. The Fund has agreed to indemnify the Dealer-Manager or contribute to losses arising out of certain liabilities, including liabilities under the Securities Act under certain circumstances. The Dealer-Manager Agreement also provides that the Dealer-Manager will not be subject to any liability to the Fund in rendering the services contemplated by such Agreement except for any act of bad faith, willful misconduct or gross negligence of the Dealer-Manager or reckless disregard by the Dealer-Manager of its obligations and duties under such Agreement. The Fund has agreed not to offer or sell, or enter into any agreement to sell, any Shares, except (a) through the Dealer-Manager or (b) through the Dividend Reinvestment Plan, for a period of six months after the effective date of the Offering. DELIVERY OF SHARE CERTIFICATES Except as described herein, certificates representing Shares acquired in the Primary Subscription and representing Shares acquired pursuant to the Over-Subscription Privilege will be mailed promptly after the expiration of the Offer once full payment for such Shares has been received and cleared. Participants in the Fund's Dividend Reinvestment Plan (the "Plan") will have any Shares acquired in the Primary Subscription and pursuant to the Over-Subscription Privilege credited to their shareholder dividend reinvestment accounts in the Plan. Participants in the Plan wishing to exercise Rights for the Shares held in their accounts in the Plan must exercise such Rights in accordance with the procedures set forth above. Shareholders whose Shares are held of record by Cede or by any other depository or nominee on their behalf or their broker-dealer's behalf will have any Shares acquired in the Primary Subscription credited to the account of Cede or such other depository or nominee. Shares acquired pursuant to the Over-Subscription Privilege will be certificated and certificates representing such Shares will be sent directly to Cede or such other depository or nominee. Stock certificates will not be issued for Shares credited to Plan accounts. FOREIGN SHAREHOLDERS SUBSCRIPTION CERTIFICATES WILL NOT BE MAILED TO RECORD DATE SHAREHOLDERS WHOSE RECORD ADDRESSES ARE OUTSIDE THE UNITED STATES (the term "United States" -21- includes the states, the District of Columbia, and the territories and possessions of the United States) ("Foreign Record Date Shareholders"). Foreign Record Date Shareholders will be sent written notice of the Offer. The Rights to which such Subscription Certificates relate will be held by the Subscription Agent for such Foreign Record Date Shareholders' accounts until instructions are received to exercise or sell the Rights. If no instructions have been received by 5:00 p.m., Eastern time, on January 28, 1999, which is three business days prior to the Expiration Date, the Rights of those Foreign Record Date Shareholders will be transferred by the Subscription Agent to the Dealer-Manager, who will either purchase the Rights or use its best efforts to sell the Rights. The net proceeds, if any, from the sale of those Rights by or to the Dealer-Manager will be remitted to Foreign Record Date Shareholders. FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER The U.S. federal income tax consequences to holders of Shares with respect to the Offer will be as follows: 1. The distribution of Rights to Record Date Shareholders will not result in taxable income to them, nor will they realize taxable income as a result of the exercise of the Rights. No loss will be realized if Rights expire without being exercised. 2. The basis of a Right to a Record Date Shareholder who exercises or sells the Right will be (a) zero, if the Right's fair market value on the distribution date is less than 15% of the fair market value on that date of the Share with regard to which it is issued (unless the holder elects with respect to all Rights received, by filing a statement with his or her timely filed federal income tax return for the year in which the Rights are received, to allocate the basis of the Share between the Right and the Share based on their respective fair market values on that date), or (b) a portion of the basis in the Share based upon those respective fair market values, if the Right's fair market value on that date is 15% or more of the Share's fair market value on that date. The basis of a Right to a Record Date Shareholder who allows the Right to expire will be zero, and the basis to anyone who purchases a Right in the market will be its purchase price. 3. An Exercising Rights Holder's basis for determining gain or loss on the sale of a Share acquired on the exercise of Rights will be equal to the sum of the Record Date Shareholder's basis in the Rights, if any, plus the Subscription Price per Share. An Exercising Rights Holder's gain or loss recognized on the sale or exchange of such a Share will be capital gain or loss if the Share was then held as a capital asset and will be long-term capital gain or loss if the Share was held for more than one year. The Fund is required to withhold and remit to the U.S. Treasury 31% of reportable payments paid on an account if its holder provides the Fund with either an incorrect taxpayer identification number or no number at all or fails to certify that he or she is not subject to such withholding. -22- The foregoing is only a general summary of the material U.S. federal income tax consequences of the Offer under the U.S. Internal Revenue Code of 1986, as amended (the "Code"), and Treasury regulations presently in effect that are generally applicable to (1) Record Date Shareholders that are "United States persons" within the meaning of the Code and (2) any other Record Date Shareholder that would be subject to U.S. federal income tax on the sale or exchange of the Shares acquired on exercise of the Rights, and does not cover foreign, state or local taxes. The Code and those regulations are subject to change by legislative or administrative action, which may be retroactive. Record Date Shareholders and Exercising Rights Holders should consult their tax advisers regarding specific questions as to federal, state, local or foreign taxes. See "Federal Taxation." NOTICE OF NET ASSET VALUE DECLINE The Fund has, as required by the Commission's registration form, undertaken to suspend the Offer until it amends this Prospectus if, subsequent to the effective date of this Registration Statement, the Fund's net asset value declines more than 10% from its net asset value as of that date. In such event, the Expiration Date would be extended up to an aggregate of 45 days from the Expiration Date, and the Fund would notify Exercising Rights Holders of any such decline and thereby permit them to cancel their exercise of Rights. EMPLOYEE PLAN CONSIDERATIONS Shareholders that are tax-deferral arrangements, such as plans qualified under Code section 401(a) (including corporate savings plans, 401(k) plans, and Keogh plans of self-employed individuals), individual retirement accounts under Code section 408(a) ("IRAs"), Roth IRAs under Code section 408A, and custodial accounts under Code section 403(b) (collectively, "Retirement Plans"), should be aware that additional contributions of cash to a Retirement Plan (other than permitted rollover contributions or trustee-to-trustee transfers from another Retirement Plan) in order to exercise Rights, when taken together with contributions previously made, may result in, among other things, excise taxes for excess or nondeductible contributions or the Retirement Plan's loss of its tax-favored status. Furthermore, the sale or transfer of Rights may be treated as a distribution or result in other adverse tax consequences. In the case of Retirement Plans qualified under Code section 401(a) and certain other Retirement Plans, additional cash contributions could cause the maximum contribution limitations of Code section 415 or other qualification rules to be violated. Retirement Plans and other tax-exempt entities, including governmental plans, should also be aware that if they borrow in order to finance their exercise of Rights, they may become subject to the tax on unrelated business taxable income ("UBTI") under Code section 511. If any portion of an IRA or a Roth IRA is used as security for a loan, the portion so used is also treated as distributed to the IRA or Roth IRA owner, which may result in current income taxation and penalty taxes. The Employee Retirement Income Security Act of 1974, as amended ("ERISA"), contains fiduciary responsibility requirements, and ERISA and the Code contain prohibited transaction rules that may apply to the exercise of Rights by Retirement Plans. Retirement Plans that are not subject to ERISA (such -23- as governmental plans) may be subject to state law restrictions that could affect the decision to exercise or transfer Rights. Due to the complexity of these rules and the penalties for noncompliance, shareholders that are Retirement Plans should consult with their counsel and other advisers regarding the consequences of their exercise of Rights under ERISA, the Code, and, where applicable, state law. USE OF PROCEEDS Assuming all Shares offered hereby are sold at the Estimated Subscription Price of $____ per Share, the net proceeds of the Offer are estimated to be $_______ after payment of the Dealer-Manager's fees and the estimated offering expenses. These expenses will be borne by the Fund and will reduce the net asset value of the Fund's shares. The Adviser anticipates that investment of substantially all of such net proceeds in accordance with the Fund's investment objectives and policies will take up to sixty days from their receipt by the Fund, depending on market conditions and the availability of appropriate securities for purchase, but in no event is such investment expected to take longer than six months. Pending such investment, the proceeds will be held in high quality short-term money market instruments and U.S. Government securities (which term includes obligations of the U.S. Government, its agencies or instrumentalities). THE FUND The Fund is a diversified, closed-end management investment company registered under the 1940 Act. The Fund's primary investment objective is to provide a high level of current income. A secondary objective is capital appreciation, but only when consistent with its primary objective. An investment in the Fund may not be appropriate for all investors, and no assurance can be given that the Fund's investment objectives will be achieved. Under normal market conditions, at least 65% of the Fund's total assets are invested in high yield debt securities rated in the medium and lower categories by established rating agencies, consisting principally of securities rated BBB to C by Standard & Poor's Rating Group ("S&P") or Baa to C by Moody's Investors Service, Inc. ("Moody's") or non-rated high yield debt securities deemed by the Adviser to be of comparable quality. Securities rated BB or lower by S&P or Ba or lower by Moody's are commonly referred to as "high yield, high risk" securities or "junk bonds." Such securities generally are regarded by the Rating Agencies as significantly more speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation and more likely to default than higher quality debt securities. (See Appendix A for a description of Bond Ratings.) The Fund also may invest in high yield debt securities issued by foreign companies, as well as securities issued or guaranteed by foreign governments, quasi-governmental entities, governmental agencies, supranational entities and other governmental entities. No more than 20% of the Fund's total assets will be invested in non-U.S. dollar-denominated foreign debt or equity. However, no restriction exists on the Fund's exposure to U.S. dollar denominated foreign issues. The Fund also may invest in foreign securities issued or guaranteed by companies or governments located in countries whose economies or securities markets are not yet highly developed. Investment in lower rated securities and foreign securities involves special risks. See -24- "Investment Policies and Limitations" and "Risk Factors and Special Considerations." 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 are otherwise not readily marketable, as well as in repurchase agreements maturing in more than seven days. However, no more than 10% of the Fund's total assets will be invested in any one private offering. Securities eligible for resale in accordance with Rule 144A under the Securities Act of 1933, as amended, that have legal or contractual restrictions on resale but are otherwise liquid ("Rule 144A Securities") are not subject to this 25% limitation. The Adviser monitors the liquidity of such restricted securities under the supervision of the Board of Directors. The Fund may invest in securities that are in the lower rating categories or non-rated securities, but only when the Adviser believes that the potential return from such investments remains attractive despite the risks involved. In addition to investing in such lower rated debt securities, the Fund also may invest in equity and other debt securities; hybrid securities having debt and equity characteristics; and certain options and futures contracts. The Fund is a closed-end investment company. Closed-end investment companies differ from open-end investment companies (commonly referred to as "mutual funds") in that closed-end investment companies do not issue securities that are redeemable at a shareholder's option, and they have a relatively fixed capital base, whereas open-end investment companies have a variable capital base since they issue securities that are redeemable at net asset value at any time at the option of the shareholder and typically engage in a continuous offering of their shares. Accordingly, open-end investment companies are subject to periodic asset in-flows and out-flows that can complicate portfolio management. Closed-end investment companies do not face the prospect of having to liquidate portfolio holdings to satisfy redemptions at the option of shareholders or having to maintain cash positions to meet the possibility of such redemptions. The Fund will, however, be required to have sufficient cash or cash equivalents to meet interest payments under the Credit Agreement described below. See "Description of Credit Agreement" and "Description of Shares of Common Stock." The Fund entered into the Credit Agreement with BankBoston, pursuant to which BankBoston has agreed to make loans to the Fund from time to time. From 1989 to 1993 the Fund was a party to a credit agreement with another bank. The maximum amount of BankBoston's current commitment to make loans under the Credit Agreement is $35 million. The Fund pays a commitment fee of 0.09% per annum of the unused portion of the $35 million available under the Credit Agreement to BankBoston. During each of the following fiscal years, the average amount outstanding under the Credit Agreement was as follows: 1998 1997 1996 1995 10/31/93 TO 3/31/94 ---- ---- ---- ---- ------------------- $21,027,397 $17,494,505 $16,095,628 $23,931,319 $20,387,765 The Credit Agreement requires the Fund to comply with certain asset coverage and investment limitations. See "Description of Credit Agreement." The Fund may seek to increase the amount it may borrow following completion of the rights offering to the maximum amount then permissible under the 1940 Act, but no formal -25- decision has been made and there can be no assurance as to the timing or utilization of such additional facilities. The Fund's use of leverage generally has increased the income yield of the Fund. In order to maintain the same degree of leverage currently utilized by the Fund, the Fund will need to increase the amount of its borrowings after the conclusion of the offering. If the Fund does not maintain the same degree of leverage after the offering, it is possible that the Fund's relative income yield would decrease. The Fund's income level, however, is subject to, but not limited to, the following factors: the yield on available investment opportunities, loss rates on existing issues held in the portfolio, reinvestment of interest payments and capital gains, and the yield difference between the cost of the borrowings and income on securities purchased for investment as well as the amount of overall borrowings and the interest thereon. The Fund was organized as a corporation under the laws of the State of Maryland on April 13, 1988 and commenced operations on April 22, 1988. The Fund's principal office is located at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. The Adviser is registered as an investment adviser with the Commission under the Investment Advisers Act of 1940, as amended. See "The Adviser." INVESTMENT POLICIES AND LIMITATIONS The Fund's investment objectives are fundamental policies and may not be changed without a vote of the holders of a majority of the Fund's outstanding voting securities. As defined by the 1940 Act, a majority of the Fund's outstanding voting securities is the lesser of (a) more than fifty percent of its outstanding voting securities or (b) sixty-seven percent or more of the voting securities present at a meeting at which more than fifty percent of the outstanding voting securities are present or represented by proxy. The other policies of the Fund, unless noted otherwise, are nonfundamental and may be changed by the Board of Directors. There is no assurance that the Fund will achieve its objectives. HIGH YIELD DEBT SECURITIES Securities ratings by Moody's and S&P represent the opinions of those agencies at the time of rating and as such are relative and subjective, and are not absolute, standards of quality. Although the Adviser will consider securities ratings when making investment decisions with respect to high yield debt securities, it will perform its own investment analysis to ensure, to the extent possible, that the planned investment is sound. The Adviser's analysis may include consideration of the issuer's experience and managerial strength, changing financial condition, borrowing requirements or debt maturity schedules and responsiveness to changes in business conditions and interest rates. The Adviser may also consider relative values based on anticipated cash flow, interest or dividend coverage, asset coverage and earnings prospects. Because of the greater number of investment considerations involved in investing in high yield debt securities, the achievement of the Fund's objectives depends more on the Adviser's research abilities than would be the case if it were investing primarily in securities in the higher rating categories. -26- High yield debt securities, including those in which the Fund may invest, are subject to greater risk of loss of principal and interest than higher rated securities, and are especially subject to adverse changes in general economic conditions, the industries in which the issuers are engaged and to changes in the financial condition of the issuers. High yield debt often is subordinated and unsecured. As a result, in the event of default, a holder may be precluded, either by the terms of the instrument or by virtue of its subordinated status, from recovering a portion or all of its investment on a timely basis. In addition, compared with more highly rated instruments, issuers of high yield debt securities typically have a more highly leveraged capital structure than issuers of higher rated securities. The Adviser believes that high yield debt securities, while subject to the risks described above, also offer the potential for attractive returns and intends to invest in those securities that, in the Adviser's opinion, offer meaningful risk-adjusted return potential. The Fund invests in securities issued by a wide range of companies in a number of industries in order to reduce portfolio sensitivity to any one company or industry. There is no guarantee of the success of the Fund's investment approach. Securities issued by foreign issuers may be subject to additional risks. See "Risk Factors and Special Considerations -- Foreign Securities." Changes in market interest rates will affect the value of the Fund's investments and its net asset value since, as with all debt securities, the prices of such investments generally increase when interest rates decline and decrease when interest rates rise. Although many high yield debt securities have been issued with maturities of approximately 7-12 years, the effective maturities of such securities purchased by the Fund may be more or less than that at the time of purchase. Prices of longer-term debt securities generally increase or decrease more sharply than those of shorter-term debt securities in response to interest rate changes. High yield debt securities may also be sensitive to equity market valuations, reflecting the outlook for general corporate health. A significant downturn in equity prices could potentially cause price depreciation in the high yield securities market. High yield debt securities for purposes of Fund policies primarily consist of the following: - -- STRAIGHT FIXED-INCOME DEBT SECURITIES. These include bonds and other debt obligations which bear a fixed or variable rate of interest payable at regular intervals and have a fixed or resettable maturity date. The particular terms of such securities vary and may include features such as call provisions and sinking funds. - -- ZERO-COUPON DEBT SECURITIES. These bear no interest obligation but are issued at a discount from their value at maturity. When held to maturity, their entire return equals the difference between their issue price and their maturity value. - -- ZERO-FIXED COUPON DEBT SECURITIES. These are zero-coupon debt securities that convert on a specified date to interest-bearing debt securities. Prices of non-cash-paying instruments may be more sensitive to changes in the issuer's financial condition, fluctuations in interest rates and market demand/supply imbalances than cash-paying securities with similar credit ratings. In addition, the non-cash interest income earned on such instruments is included in investment company taxable income, thereby increasing the minimum -27- required distributions to shareholders (without providing the corresponding cash flow with which to pay the distributions). See "Taxation." The Adviser will weigh these concerns against the expected total returns for such instruments. The Fund may invest in other high yield debt securities that may be developed in the future, based on the Adviser's determination that such securities have characteristics and ratings consistent with those described above and would further the Fund's investment objectives and policies. - -- RESTRICTED SECURITIES. 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, including repurchase agreements maturing in more than seven days. However, no more than 10% of the Fund's total assets will be invested in any one private offering. Securities eligible for resale in accordance with Rule 144A under the Securities Act that have legal or contractual restrictions on resale but are otherwise liquid are not subject to this limitation. The primary risk associated with restricted securities is that the Fund will not be able to dispose of a restricted security at the desired price at the time it wishes to make such disposition. In addition, such securities often sell at a discount from liquid and freely-tradeable securities of the same class or type, although they usually are purchased by the Fund at an equivalent discount which estimates the yield likely to be earned by the Fund during the period such securities are held by the Fund. Such securities may also be more difficult to price accurately. The Adviser monitors the liquidity of such restricted securities under the supervision of the Board of Directors. - -- FOREIGN SECURITIES. The Fund may invest in U.S. and non-U.S. dollar- denominated foreign high yield debt securities issued by foreign companies and issued or guaranteed by foreign governments, quasi-governmental entities, governmental agencies, supranational entities and other governmental entities. No more than 20% of the Fund's total assets will be invested in non-U.S. dollar-denominated foreign debt or equity. No restriction exists on the Fund's exposure to U.S. dollar-denominated foreign issues. OTHER INVESTMENTS OTHER DEBT SECURITIES. The Fund may invest in rated and non-rated debt securities other than the high yield debt securities discussed above. These other securities may include debt securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, and debt securities rated A or higher by Moody's or S&P, or non-rated securities deemed by the Adviser to be of comparable quality. When the Adviser believes the potential return outweighs the risks involved, the Fund also may invest in debt securities rated below C by S&P or C by Moody's (indicating that the security is in default and interest payments and/or principal payments are in arrears) or non-rated securities with similar characteristics; however, the Advisor does not anticipate investing more than 5% of the Fund's total assets in such securities. See Appendix A for a description of ratings. The Fund also may invest in alternate debt instruments including, but not limited to: - -- Convertible preferred stock and convertible bonds; -28- - -- Bonds accompanied by warrants or options for equity securities; and - -- Payment-in-kind securities, which pay dividends or interest in new securities of the issuer instead of cash. Investments in alternate debt instruments generally will be considered when the Adviser believes that the yield combined with the capital appreciation potential will equal or exceed returns available from straight fixed-income debt securities. EQUITY INVESTMENTS. As described above, the Fund may purchase equity securities, I.E., common or preferred stock. The Fund also may purchase common stock where the issuers are involved in recapitalizations or corporate restructurings, and the Adviser expects the common stock shortly will be exchanged for debt securities directly from the issuer on terms more attractive than subsequently available on the open market. In the event an opportunity to exchange the stock does not materialize as expected, the Fund would seek to dispose of the common stock in an orderly manner. The Fund also may invest in preferred stock (including that of foreign issuers subject to the applicable limits described above in "Foreign Securities") when the Adviser, weighing the security's status in the issuer's credit structure, believes the expected return is attractive relative to alternative investments. Notwithstanding the foregoing, when in the Adviser's opinion market conditions warrant a temporary defensive investment strategy, the Fund may invest without limit in high-quality money market instruments, including commercial paper of domestic and foreign corporations, certificates of deposit, bankers' acceptances and other obligations of banks, repurchase agreements and short-term obligations issued or guaranteed by the U.S. Government, its instrumentalities or agencies. The yield on these securities will tend to be lower than the yield on other securities purchased by the Fund in accordance with its investment objectives. Since the commencement of the Fund's investment operations on April 22, 1988, the Fund has sought to achieve its primary objective of providing a high level of current income to its shareholders. Through its performance during this period, the Fund has demonstrated that investing in high yield, high risk securities on a leveraged basis carries significant risks as well as the possibility of significant rewards through returns. The Fund's annual net asset value returns (including reinvested distributions) for each calendar year since its inception are as follows: 1988 (from April 30, 1988 through December 31, 1988): 6.4%; 1989: -2.4%; 1990: -9.3%; 1991: 42.2%; 1992: 18.4%; 1993: 22.8%; 1994: -5.1%; 1995: 22.5%; 1996: 12.7%; 1997: 13.0%; 1998 (year to date through September 30, 1998: -12.7%. Cumulative net asset value return (including reinvested distributions) for the period beginning on April 30, 1988 through September 30, 1998 was 151.5% (9.3% annualized). Cumulative total market price return for an investment in the Shares for the period beginning on April 30, 1988 and ending on September 30, 1998 was 73.3% (5.4% annualized). Past performance is no guarantee of future results. -29- The credit ratings of all bonds held by the Fund at September 30, 1998 are set forth below. This information reflects the composition of the Fund's assets at September 30, 1998 and is not necessarily representative of the Fund's holdings currently or at any time in the future. RATED BY RATED BY S&P MOODY'S -------- -------- BBB/Baa......................................... 1% 1% BB/Ba........................................... 23% 20% B/B............................................. 61% 62% CCC/Caa......................................... 7% 9% CC/Ca........................................... 1% 0% Nonrated........................................ 6% 7% --- --- Subtotal.................................. 99% 99% U.S. Governments, equities and others (including cash)..... 1% 1% ---- --- Total..................................... 100% 100% ----- ---- LEVERAGE AND BORROWING From time to time, at the Adviser's discretion, the Fund has obtained investment leverage through bank or other borrowing of up to 33-1/3% of the Fund's total assets (including the amount borrowed), less all liabilities and indebtedness other than the bank or other borrowing. This is equivalent to borrowing up to 50% of the value of the Fund's net assets. Subject to such limitations as may be specified in applicable margin regulations of the Board of Governors of the Federal Reserve System, the Fund may engage in such borrowing currently or in the future by issuing commercial paper or notes or other evidences of indebtedness, secured by pledge or otherwise, although to date it has not done so. The Fund has entered into the Credit Agreement pursuant to which BankBoston has agreed to make loans to the Fund, from time to time, in an aggregate amount not to exceed $35 million. See "Description of Credit Agreement." The Fund may seek to increase the amount it may borrow following completion of the rights offering to the maximum amount then permissible under the 1940 Act, but no formal decision has been made. The Fund will have asset coverage (as defined in the 1940 Act) of not less than 300% with respect to any borrowings for investment leverage purposes when made. This allows the Fund to borrow for investment leverage purposes an amount equal to as much as 50% of the value of its net assets. The Fund may not, however, repurchase any of its outstanding Shares or pay a dividend unless the Fund will have asset coverage of not less than 300% with respect to such borrowings upon completion of the repurchase or payment of the dividend. In addition to borrowings made as described above, the Fund may also borrow money for temporary or emergency purposes (E.G., clearance of transactions or payment of dividends to shareholders) in an amount not exceeding 5% of the value of the Fund's total assets (not including the amount borrowed). -30- WHEN-ISSUED AND DELAYED DELIVERY SECURITIES From time to time, the Fund may purchase securities on a when-issued or delayed delivery basis, I.E., delivery and payment can take place a month or more after the date of the transaction. The purchase price and the interest rate payable on the securities are fixed on the transaction date. The securities so purchased are subject to market fluctuation, and no interest accrues to the Fund until delivery and payment take place. At the time the Fund makes the commitment to purchase securities on a when-issued or delayed delivery basis, it will record the transaction and thereafter reflect the value of such securities in determining its net asset value each day. The Fund will make commitments for such when-issued transactions only with the intention of actually acquiring the securities. The Fund's custodian will maintain, in a separate account of the Fund, liquid debt securities from its portfolio, marked to market daily and having an aggregate value equal to or greater than such commitments. On delivery dates for such transactions, the Fund will meet its obligations from maturities for sales of the securities held in the separate account and/or from then available cash flow. If the Fund chose to dispose of the right to acquire a when-issued security prior to its acquisition, it could, as with the disposition of other portfolio obligations, incur a gain or loss due to market fluctuation. LENDING SECURITIES Consistent with applicable regulatory requirements, the Fund may lend up to 30% of its portfolio securities to brokers, dealers, banks or other recognized institutional borrowers of securities, provided that such loans are callable at any time by the Fund and are at all times secured by cash or equivalent collateral that is equal to at least the market value, determined daily, of the loaned securities. The advantage of such loans is that the Fund continues to receive the interest and dividends, if any, on the loaned securities, while at the same time earning a fee or interest from the borrower. A loan may be terminated by the borrower on one business day's notice or by the Fund at any time. If the borrower fails to maintain the requisite amount of collateral, the loan automatically terminates, and the Fund could use the collateral to replace the securities while holding the borrower liable for any excess of replacement cost over collateral. As with any extensions of credit, there are risks of delay in recovery and in some cases even loss of rights in the collateral should the borrower of the securities fail financially. However, these loans of portfolio securities will only be made to firms that the Adviser and the Board of Directors deem to be creditworthy. On termination of the loan, the borrower is required to return the securities to the Fund, and any gain or loss in the market price during the loan would inure to the Fund. The Fund has not engaged in any loans of portfolio securities since its inception. Since voting or consent rights which accompany loaned securities pass to the borrower, the Fund will follow the policy of calling the loan, in whole or in part as may be appropriate, to permit the exercise of such rights if the matters involved would have a material effect on the Fund's investment in the securities which are the subject of the loan. The Fund will pay reasonable finder's, administrative and custodial fees in connection with a loan of its securities and may share the interest earned on collateral with the borrower. -31- REPURCHASE AGREEMENTS The Fund may invest in repurchase agreements involving obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Pursuant to repurchase agreements, the Fund acquires underlying debt securities from a member bank of the Federal Reserve System or a Federal Reserve reporting dealer, subject to the obligation of the seller to repurchase, and the Fund to resell, the securities at an agreed upon price on an agreed upon date usually not more than seven days from the date of purchase. In effect, repurchase agreements are similar to loans extended by the Fund, secured by the underlying securities. The repurchase agreements entered into by the Fund will provide, and the Adviser will monitor the value of the collateral on a continuing basis to ensure, that the underlying collateral securities at all times will have a value at least equal to the resale price stated in the agreement. Under all repurchase agreements entered into by the Fund, the Fund's custodian or its agent must take possession of the underlying collateral. If the seller defaults, the Fund could suffer a loss on the sale of the underlying securities or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and is required to return the underlying securities to the seller's estate. The Adviser may enter into repurchase agreements on behalf of the Fund. Such repurchase agreements must conform to certain guidelines and procedures, designed to minimize the risk of loss to the Fund. OPTIONS AND FUTURES STRATEGIES Although it is not the Fund's intention to attempt to achieve its investment objectives through substantial use of these techniques, the Fund may seek to protect against the effect of changes in interest rates or equity market values that are adverse to the present or prospective position of the Fund, and to enhance returns, by employing certain hedging, yield enhancement and risk management techniques. These techniques may include the purchase and sale of options, futures and options on futures on debt or equity securities, aggregates of debt or equity securities or indices of prices thereof, and other financial indices. The Fund's ability to engage in these practices will be limited in accordance with the policies and certain legal considerations set forth below and may further be restricted by tax considerations (see "Taxation"). In addition, the ability of the Fund to engage in these strategies will be limited by a lack of exchange-traded or over-the-counter options and futures on the high yield debt securities in which the Fund will primarily invest. Since its inception, the Fund has only utilized these techniques on an occasional basis. OPTIONS ON SECURITIES. The Fund may purchase call and put options, and write covered call options, on debt and equity securities, aggregates of debt and equity securities or indices of prices thereof, and other financial indices. These may include options traded on U.S. securities exchanges and options traded in U.S. over-the-counter markets. The Fund may purchase call options on equity securities issued by the issuer of portfolio debt securities as a component in the creation of synthetic convertible bonds or synthetic bonds with warrants. The Fund also may purchase -32- call options on debt securities it intends to acquire in order to hedge against (and thereby benefit from) anticipated market appreciation in the price of the underlying securities at limited risk. The Fund may purchase put options on equity securities issued by the issuer of debt securities held by the Fund in order to hedge the Fund's exposure to declines in the value of such debt securities attributable to the credit of the issuer (rather than increasing interest rates). The Fund may also purchase put options on debt securities held by the Fund when the Fund believes that a defensive posture is warranted for all or a portion of its portfolio. The Fund may write call options on portfolio securities as a partial hedge (to the extent of the premium received less transaction costs) against a decline in the value of portfolio securities and in circumstances in which the Adviser anticipates that the price of the underlying securities will not increase above the exercise price of the option by an amount greater than the premium received (less transaction costs) by the Fund. The Fund may write only "covered" options. "Covered" means that so long as the Fund is obligated as the writer of a call option, it will own either the underlying securities, or an option to purchase the same underlying securities having an expiration date not earlier than the expiration date of the "covered" option and an exercise price equal to or less than the exercise price of the "covered" option, or will establish and maintain with its custodian for the term of the option a segregated account consisting of cash, or other liquid securities having a value equal to the fluctuating market value of the optioned securities. The Fund may wish to protect certain portfolio securities against a decline in market value at a time when put options on those particular securities are not available for purchase. The Fund may therefore purchase a put option on other carefully selected debt securities, the historical values of which have evidenced a high degree of positive correlation to the historical values of such portfolio securities. If the Adviser's judgment is correct, changes in the value of the put options should substantially offset changes in the value of the portfolio securities being hedged. But the correlation between the two values may not be as close in these transactions as in transactions in which the Fund purchases a put option on an underlying security it owns. If the value of the securities underlying the put options decreases less than the value of the Fund's portfolio securities, the put options may not provide complete protection against a decline in the value of the Fund's portfolio securities below the level sought to be protected by the put option. The Fund may similarly wish to hedge against appreciation in the value of debt securities that it intends to acquire at a time when call options on such securities are not available. The Fund may, therefore, purchase call options on other carefully selected debt securities the historical values of which have evidenced a high degree of positive correlation to the historical values of the debt securities that the Fund intends to acquire. In such circumstances the Fund will be subject to risks analogous to those summarized immediately above in the event that the correlation between the value of call options so purchased and the value of the securities intended to be acquired by the Fund is not as close as anticipated and the value of the securities underlying the call options, increases less than the value of the securities to be acquired by the Fund. -33- The Fund may also purchase put and call options, and write call options on securities indices rather than individual securities in order to hedge the Fund's exposure to systemic market risk (the risk of price fluctuations affecting the market as a whole or a market sector), as opposed to the risk of increases or decreases in the value of a particular security. The use of such options also involves correlation risk analogous to those described in the preceding two paragraphs. The Fund will not purchase an option on a security if, as a result, the value of all outstanding options purchased by the Fund exceeds 5% of the value of the Fund's total assets. The Fund will not write covered call options on portfolio securities representing more than 25% of the value of its total assets. For a further description of certain characteristics of options on securities and associated risks, see Appendix B. FUTURES AND OPTIONS THEREON. The Fund will enter into futures contracts and options thereon only for certain BONA FIDE hedging and risk management purposes. The Fund may purchase and sell various financial futures contracts (including interest rate futures contracts and stock index futures contracts) as well as options thereon. For a description of these instruments, see Appendix B. The Fund may sell interest rate futures contacts when it is expected that interest rates may rise to protect the Fund against a decrease in the value of debt securities which the Fund holds. Similarly, the Fund may purchase interest rate futures contracts when it is expected that interest rates may decline to protect the Fund against increases in the price of debt securities (caused by declining interest rates) which the Fund intends to acquire. To the extent the Fund enters into future contracts for this purpose, it will maintain in a segregated account with the Fund's custodian assets sufficient to cover the Fund's obligations with respect to such futures contracts, in an amount equal to the difference between the fluctuating market value of such futures contracts and the aggregate value of the initial margin deposited by the Fund with its custodian with respect to such futures contracts. As discussed above, the Fund intends to invest primarily in a variety of high yield debt securities. Futures contracts on such debt securities are not currently permitted to be traded under applicable law. Accordingly, the Fund may only hedge its exposure to changes in the value of debt securities which it owns or intends to acquire as a result of changes in interest rates by selling or purchasing, as the case may be, futures contracts on government securities and other debt securities which, in the Adviser's judgment, have substantial positive correlation in value to the debt securities which the Fund holds or intends to acquire. There can be no assurance, however, that changes in the value of such futures contracts will exhibit a high degree of positive correlation to the value of such securities. Indeed, many high yield debt securities may trade primarily on the basis of the credit of the issuer and may be relatively interest rate insensitive. Accordingly, the value of such securities may increase or decrease at a greater rate than the futures contracts entered into by the Fund, which may result in losses to the Fund greater than the losses which the Fund would have incurred but for the attempt to so hedge its interest rate risk exposure. -34- Because, as described above, many high yield debt securities trade, like equity securities, on the basis of the credit of the issuer, it is possible that marketwide declines in the value of equity securities will adversely affect the value of the Fund's portfolio securities. In order to hedge the Fund's exposure to such risk in circumstances where the Adviser anticipates general equity market declines, the Fund may sell stock index futures contracts which, in the Adviser's judgment, have a substantial positive correlation in value to portfolio securities of the Fund. In such circumstances, there is the risk that the Adviser's judgment may be incorrect -- resulting in losses to the Fund on its stock index futures positions which may or may not be offset by increases in the value of the Fund's portfolio -- and the additional risk that there is not a substantial positive correlation between the change in value of the Fund's portfolio and the change in the value of the stock indices underlying the Fund's short futures positions. The Fund also may purchase call options on financial futures contracts to hedge against an increase in the price of securities it intends to acquire due to declining interest rates or increasing equity market values. The purchase of a call option on a futures contract is similar in some respects to the purchase of a call option on an individual security. Depending on the pricing of the option compared to either the price of the futures contract upon which it is based or the price of the underlying securities, it may or may not be less risky than ownership of the futures contract or underlying securities. The Fund also may purchase put options on financial futures contracts to hedge the Fund's portfolio against the risk of rising interest rates or declining equity market values and consequent reduction in the value of portfolio securities. The purchase of a put option on a futures contract is similar to the purchase of a put option on portfolio securities. The Fund will engage in transactions in financial futures contracts and options thereon only in each case in accordance with the rules and regulations of the Commodity Futures Trading Commission, an agency of the U.S. Government (the "CFTC"), for hedging purposes only and not for speculative purposes. There are no limitations on the Fund's use of futures contracts and options on futures contracts beyond the restrictions set forth above and the economic limitations that are implicit in the use of futures and options on futures within these restrictions. As CFTC regulations and interpretative positions change, the Fund reserves the right to engage in additional transactions and/or commit more of its assets to transactions in futures and options thereon, as permitted thereunder. For a further description of certain characteristics of futures contracts and options thereon and associated risks, see Appendix B. PORTFOLIO TURNOVER Under normal market conditions the Fund anticipates that its portfolio turnover rate will not exceed 100%. However, the Fund may sell portfolio securities without regard to the length of time that they have been held in order to take advantage of new investment opportunities or yield differentials, or because the Fund desires to preserve gains or limit losses due to changing economic -35- conditions or the financial condition of the issuer. A higher rate of turnover may result in increased transaction costs to the Fund. The portfolio turnover rate is computed by dividing the lesser of the amount of the securities purchased or securities sold (excluding securities whose maturities at acquisition were one year or less) by the average monthly value of securities owned during the year. A 100% turnover rate would occur, for example, if all of the securities held in the Fund's portfolio were sold and replaced within one year. Since inception, the Fund's portfolio turnover rate has ranged from 32% to 112%. Turnover may fluctuate due to market activity and levels of new high yield issuance. INVESTMENT RESTRICTIONS The Fund has adopted the following restrictions as fundamental policies. Fundamental policies may not be changed without the approval of a majority of the Fund's outstanding voting securities as defined above. If a percentage restriction on investment or use of assets set forth below is adhered to at the time a transaction is effected, later changes in percentage resulting from changing values of portfolio securities or amount of total assets will not be considered a violation of any of the following restrictions. The Fund may not: (1) Issue senior securities or borrow money except as described above under "Leverage and Borrowing." Collateral arrangements with respect to options, futures contracts and options on futures contracts, and collateral arrangements with respect to initial and variation margin are not considered by the Fund to be the issuance of a senior security. (2) Act as an underwriter except insofar as the Fund may technically be deemed an underwriter under the Securities Act in selling a restricted security. (3) Invest more than 25% of the market or other fair value of its total assets in securities of issuers in any one industry. For this purpose the gas, water, electric and telephone utilities each will be considered separate industries, and "industry" does not include the U.S. Government. (4) As to 75% of its total assets invest more than 5% of the market or other fair value of its total assets in the securities of any one issuer (other than securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities) or purchase more than 10% of the voting securities, or more than 10% of any class of securities, of any one issuer. For purposes of this restriction, all outstanding debt securities of an issuer are considered as one class, and all preferred stocks of an issuer are considered as one class. (5) Purchase or sell real estate or interests in real estate, interests in oil, gas or mineral leases, commodities or commodity futures contracts, except that the Fund may purchase and sell futures contracts, options on futures contracts and securities secured by real estate or interests therein or issued by companies that invest therein. (6) Invest for the purpose of exercising control or management of an issuer. -36- (7) Purchase securities issued by a registered investment company, except when such purchase, though not made in the open market, is part of a plan of merger or consolidation; provided that the Fund may purchase securities issued by investment companies in accordance with applicable limits under the 1940 Act in the open market where no commission or profit to a sponsor or dealer results from such purchase other than the customary broker's commission, and provided further that the Fund shall not purchase securities issued by any open-end investment company. (8) Sell any security which the Fund does not own unless by virtue of its ownership of other securities it has at the time of sale a right to obtain without payment of further consideration securities equivalent in kind and amount to the securities sold and provided that if such right is conditional, the sale is made upon the same conditions, and further provided that the Fund may engage in options and futures transactions as described above under "Options and Futures Strategies." RISK FACTORS AND SPECIAL CONSIDERATIONS An investment in the Fund is subject to a number of risks and special considerations, including the following: DILUTION You may experience an immediate dilution of the aggregate net asset value of your Shares if you do not fully exercise your Rights pursuant to the Offer. This is because the Subscription Price per Share will likely be less than the Fund's net asset value per Share on the Expiration Date, and the number of Shares outstanding after the Offer is likely to increase in a greater percentage than the increase in the size of the Fund's assets. In addition, if you do not fully exercise your Rights you should expect that you will, at the completion of the Offer, own a smaller proportional interest in the Fund than would otherwise be the case. Such dilution could be substantial. For example, assuming that all Rights are exercised at the Estimated Subscription Price of $_______, expenses associated with the Offer were $________, and the Fund's net asset value otherwise remained constant, the Fund's net asset value per Share on such date would be reduced by approximately $_______ per Share. Your ability to transfer your Rights allows you to receive cash for such Rights should you choose not to exercise them. However, it is not certain that a market for the Rights will develop, and no assurance can be given as to the value, if any, that such Rights will have. RISK OF LEVERAGE Generally, the Fund borrows money to purchase securities: (1) When yields on available investments exceed interest rates and other expenses of related borrowing, or (2) When unusual market conditions otherwise make it advantageous for the Fund to increase its investment capacity. -37- Although borrowing by the Fund creates an opportunity for greater total returns, it involves special risks and other considerations. For example: (1) Leveraging will exaggerate any increases or decreases in the net asset value of Shares and in the yield on the Fund's portfolio. (2) While the Fund will have a fixed debt to repay, the investments may decrease or increase in value during the time the borrowing is outstanding. (3) Borrowing will create interest expenses for the Fund which may or may not exceed the income from the securities purchased. (4) If the income from the securities purchased with borrowed funds is not sufficient to cover the cost of borrowing, the net income of the Fund would be less than if borrowing were not used. Therefore, the amount available for distribution to shareholders as dividends would be reduced. (5) Under its current agreement, the Fund pays a commitment fee of 0.09% per annum of the unused portion of the $35 million available under the Credit Agreement to maintain the line of credit. In an extreme case, if the Fund's current investment income were not sufficient to meet interest payments on loans made under its credit agreement, the Fund could be forced to liquidate certain of its investments at unfavorable prices, thereby potentially reducing the net asset value attributable to the Shares. If the Fund had to sell assets at unfavorable prices in order to maintain compliance with the 1940 Act, the Fund's income or net asset value per Share might be more severely reduced than otherwise. If the issuers of securities held by the Fund default on their payment obligations, and such defaults depress the market value of the Fund's portfolio, the Fund's use of leverage may amplify this reduction in market value. Loans under the Credit Agreement or other forms of leverage may constitute a substantial lien and burden on the Shares by reason of their prior claim against the income of the Fund and against the net assets of the Fund in liquidation. Federal securities law generally does not allow the Fund to make distributions to shareholders while any senior security representing indebtedness is outstanding, unless certain requirements are satisfied. It is generally expected that the Fund will not normally be precluded from making such distributions. The following table illustrates the effect of loans made under the Credit Agreement on a shareholder's return, assuming a Fund portfolio of approximately $79.5 million, the annual returns set forth in such table, approximately $31 million of debt outstanding and an annual rate of interest of 6.23% payable on the debt: Assumed Return on Portfolio (Net of -10% -5% 0% 5% 10% -38- Expenses Except Interest) Corresponding Return to -16.33% -9.38% -2.43% 4.52% 11.47% Shareholder............. The purpose of the foregoing table is to assist the investor in understanding the effects of leverage. The figures in the table are hypothetical and the actual returns to a holder of the Shares may be greater or less than those appearing in the table. RESTRICTED AND ILLIQUID SECURITIES The Fund may invest a large portion of its assets in certain restricted securities. To the extent that, for a period of time, qualified institutional buyers cease purchasing such restricted securities, the Fund's continued investment in such securities may have the effect of increasing the level of illiquidity in its investment portfolio. DISCOUNT FROM NET ASSET VALUE Shares of closed-end investment companies frequently trade at a market price which is less than the value of the net assets of the funds. In some cases, however, shares of closed-end funds may trade above net asset value. Since the commencement of the Fund's operations, the Shares have traded at various times in the market above, at and below net asset value. In addition, the net asset value of the Fund will change with changes in the value of its portfolio securities. When interest rates decline, the value of the Fund's portfolio can be expected to rise. Conversely, when interest rates rise, the value of a fixed-income portfolio can be expected to decline. FOREIGN SECURITIES Investments in foreign securities involve certain risks, including: (1) Political or economic instability in the country in which the issuer is domiciled; (2) The difficulty of predicting international trade patterns; and (3) The possible imposition of exchange controls. Such risks are heightened because: (1) There may be less publicly available information about a foreign company than about a domestic company. (2) Foreign companies generally are not subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to domestic companies. (3) Transactions costs may be higher on foreign securities. (4) There is generally less governmental regulation of securities exchanges, brokers and listed companies abroad than in the United States. -39- (5) With respect to certain foreign countries, there is a possibility of expropriation, nationalization, confiscatory taxation or diplomatic developments which could affect investment in those countries. (6) In the event of a default of any foreign debt obligations, the Fund may not be able to obtain or to enforce a judgment against the issuers of such securities. (7) Interest income from foreign securities issued in local markets may be subject to withholding taxes imposed by governments in those markets. Changes in foreign exchange rates may reduce the U.S. dollar value of the Fund's foreign investments, to the extent that such investments are denominated in foreign currencies. The above risks may be more acute with respect to the Fund's investments in emerging market countries: (1) These countries typically have economic and political systems that are relatively less mature, and often less stable, than those of developed countries. (2) These countries may restrict investment by foreigners. (3) Emerging markets securities may be less liquid, and their prices may be more volatile, because of the possibility of low or no trading volume in these securities. LOWER RATED INVESTMENTS The Fund is designed for long-term investors. Investors should not rely on the Fund for their short-term financial needs. The value of the lower quality securities in which the Fund invests will be affected by: (1) interest rate levels; (2) general economic conditions; (3) specific industry conditions; and (4) the creditworthiness of the individual issuer. The Fund will rely on the Adviser's judgment, analysis and experience in evaluating the creditworthiness of an issuer. In this evaluation, the Adviser will take into consideration, among other things: (1) the issuer's financial resources; (2) the issuer's sensitivity to economic conditions and trends; (3) the issuer's operating history; (4) the quality of the issuer's management; and (5) regulatory matters. Relative to other debt securities, the values of lower rated debt securities may be more volatile because: (1) an economic downturn may more significantly impact their potential for default; or -40- (2) the secondary market for such securities may at times be less liquid or respond more adversely to negative publicity or investor perceptions, making it more difficult to value or dispose of the securities. Lower-rated investments involve certain risks and other considerations. For example: (1) The trading market for lower rated securities is generally less liquid than the market for higher rated securities. (2) In a period of rising interest rates, the inability of issuers of debt obligations to pay such obligations could exacerbate any decline in the Fund's net asset value. (3) If an issuer of a security containing a redemption or call provision exercises either provision in a declining interest rate market, the Fund would be likely to replace the security with a lower-yielding investment. This could result in a decreased return for shareholders. (4) An economic downturn or an increase in interest rates could have a negative effect on the lower rated debt market and on the market value of such securities held by the Fund. (5) The credit ratings issued by credit rating services may not fully reflect the true risks of an investment. The net asset value of the Fund fluctuates as the general levels of interest rates fluctuate. The yields and prices of lower rated securities in which the Fund may invest may tend to fluctuate more than those for higher rated debt securities. ADDITIONAL RISK CONSIDERATIONS The Fund may not achieve its investment objectives. The Fund's non-fundamental investment policies may be changed without shareholder approval. Investment in the Fund should not be considered a complete investment program and may not be appropriate for all investors. Investors should carefully consider their ability to assume these risks before making an investment in the Fund. DIVIDENDS AND OTHER DISTRIBUTIONS: DIVIDEND REINVESTMENT PLAN It is the Fund's current policy, which may be changed by the Board of Directors, to make monthly distributions to shareholders of net investment income and to distribute net realized short- and long-term capital gains and gains from foreign currency transactions at least once each fiscal year. The effective rates of return to investors in the Fund will depend upon several factors, including (a) interest rates, (b) maturities and (c) other terms of securities held by the Fund. -41- Pursuant to the Dividend Reinvestment Plan ("Plan"), shareholders may elect to have all distributions of dividends and gains automatically reinvested by State Street Bank and Trust Company ("Plan Agent") in Shares pursuant to the Plan. Shareholders who do not participate in the Plan will receive all distributions in cash paid by check in U.S. dollars mailed directly to the shareholder of record (or if the Shares are held in street or other nominee name, then to the nominee) by State Street Bank and Trust Company as dividend disbursing agent. The Plan Agent serves as agent for the shareholders in administering the Plan. After the Fund declares a dividend or a capital gain distribution, the participants in the Plan receive the equivalent in Shares valued at the lower of market price or net asset value determined as of the time of purchase (generally, the payment date of the dividend or other distribution). Whenever the market price of the Shares on the payment date equals or exceeds their net asset value, participants are issued Shares at the higher of net asset value or 95% of the market price. This discount reflects savings in underwriting and other costs that the Fund otherwise would incur to raise additional capital. The Fund will not issue Shares under the Plan below net asset value. If net asset value exceeds the market price of Shares on the valuation date or if the Fund declares a dividend or other distribution payable only in cash (I.E., if the Board of Directors precludes reinvestment in newly-issued Shares for that purpose), the Plan Agent will, as agent for the participants, receive the cash payment and use it to buy Shares in the open market, on the Exchange or elsewhere, for the participants' accounts. 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 other distribution had been paid in Shares issued by the Fund. Participants in the Plan may withdraw from the Plan upon written notice to the Plan Agent. When a participant withdraws from the Plan or upon termination of the Plan as provided below, certificates for whole Shares credited to the participant's account under the Plan will be issued and a cash payment will be made for any fraction of a Share credited to the account. The Plan Agent maintains each shareholder account in the Plan and furnishes monthly written confirmations of all transactions in the account, including information needed by shareholders for personal and tax records. Shares in the account of each Plan participant are held by the Plan Agent in non-certificated form in the name of the participant, and each shareholder's proxy includes those Shares held pursuant to the Plan. In the case of shareholders, such as banks, brokers or nominees, that hold Shares for others who are the beneficial owners, the Plan Agent administers the Plan on the basis of the number of Shares certified from time to time by the record shareholders as representing the total amount registered in the respective record shareholder's name and held for the account of beneficial owners who participate in the Plan. 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 other distributions are paid by the Fund. There are no brokerage commissions charged -42- with respect to Shares issued directly by the Fund. However, each participant pays a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases of Shares under the Plan. The automatic reinvestment of dividends or distributions will not relieve participants of any federal income tax that may be payable thereon. Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate the Plan as applied to any dividend or distribution paid subsequent to written notice of the change sent to all shareholders of the Fund at least 90 days before the record date for the distribution. The Plan also may be amended or terminated by the Plan Agent by at least 90 days' written notice to all shareholders of the Fund. All correspondence concerning the Plan should be directed to the Plan Agent at P.O. Box 351, Boston, Massachusetts 02101. MANAGEMENT OF THE FUND BOARD OF DIRECTORS The management of the Fund, including general supervision of the duties performed by the Adviser and the Administrator, is the responsibility of the Board of Directors. The Directors and officers of the Fund, their addresses and their principal occupations for at least the past five years are set forth below. POSITION WITH PRINCIPAL OCCUPATION(S) NAME AND ADDRESS AGE FUND DURING PAST FIVE YEARS - ---------------- --- -------- ----------------------- Eugene C. Dorsey 71 Director Retired President, Chief Executive Gateway Center Three Officer and Trustee, Gannett 100 Mulberry Street Foundation (now Freedom Forum); Newark, NJ 07102-4077 former Publisher, four Gannett newspapers and Vice President of Gannett Co., Inc.; past Chairman, Independent Sector, Washington, D.C. (largest national coalition of philanthropic organizations). Thomas T. Mooney* 56 President, President, Greater Rochester Metro Gateway Center Three Treasurer Chamber of Commerce; former 100 Mulberry Street and Rochester City Manager. Newark, NJ 07102-4077 Director __________________________ * Indicates "interested person" of the Fund as defined in the Investment Company Act of 1940. -43- POSITION WITH PRINCIPAL OCCUPATION(S) NAME AND ADDRESS AGE FUND DURING PAST FIVE YEARS - ---------------- --- -------- ----------------------- Douglas H. McCorkindale 59 Director Vice Chairman (since March 1984) Gateway Center Three and President (since September 100 Mulberry Street 1997), Gannett Co., Inc. Newark, NJ 07102-4077 Arthur J. Brown 49 Secretary Partner, Kirkpatrick & Lockhart 1800 Massachusetts Ave., LLP (law firm). N.W. Washington, DC 20036 Stephanie A. Djinis 34 Assistant Partner, Kirkpatrick & Lockhart 1800 Massachusetts Ave., Secretary LLP. N.W. Washington, DC 20036 DIRECTORS' FEES For the fiscal year ended March 31, 1998, and the calendar year ended December 31, 1997, the Directors received the following compensation for serving as Directors(a): Total Compensation From Aggregate Compensation Fund Complex For The From Fund For The Year Calendar Year Ended DIRECTOR Ended March 31, 1998 December 31, 1997(b) - -------- ---------------------- ----------------------- Eugene C. Dorsey(c) $4,250 $21,000 Thomas T. Mooney $4,250 $21,000 Douglas H. McCorkindale $4,250 $21,000 (a) The Fund does not currently provide pension or retirement plan benefits to the Directors. (b) The Fund Complex is comprised of four investment companies, to which aggregate compensation relates. (c) All compensation from the Fund and Fund Complex for the calendar year ended December 31, 1997 represents deferred compensation. Mr. Dorsey received aggregate compensation for that period from the Fund and the Fund Complex, including accrued interest, in the amounts of approximately $4,389 and $24,287, respectively. OWNERSHIP OF THE FUND At December 31, 1998, the officers and Directors of the Fund as a group owned less than 1% of the outstanding Shares. At December 31, 1998, DTC, 7 Hanover Square, New York, New York 10004, owned of record _________ Shares representing ______% of outstanding Shares. -44- THE ADVISER Wellington Management Company, LLP, with its principal offices at 75 State Street, Boston, Massachusetts 02109, has served as the Fund's investment adviser since the Fund's inception. The Adviser is a Massachusetts limited liability partnership of which Robert W. Doran, Duncan M. McFarland and John R. Ryan are Managing Partners. The Adviser is a registered investment adviser and professional investment counseling firm which provides investment services to investment companies, employee benefit plans, endowment funds, foundations and other institutions and individuals. As of September 30, 1998, the Adviser had investment management authority over approximately $187 billion of assets, including $79 billion of fixed income securities of which approximately $6.6 billion represented "high yield" securities. The Adviser and its predecessor organizations have provided investment advisory services to investment companies since 1933 and to investment counseling clients since 1960. Catherine A. Smith, a Senior Vice President of the Adviser, is responsible for the day-to-day management of the Fund's portfolio. Ms. Smith has served as the Fund's portfolio manager since the Fund's inception in April, 1988. In addition to managing the Fund, Ms. Smith serves as the portfolio manager of in several other high yield bond portfolios, including The New America High Income Fund, Inc., a closed-end management investment company. After receiving her Bachelor of Arts degree from Harvard College in 1983, Ms. Smith worked as a securities analyst for Fred Alger Management, Inc. in New York and subsequently joined Wellington Management in 1985. Ms. Smith is a CFA and a member of the Boston Security Analysts Society. Pursuant to an Investment Advisory Agreement dated April 15, 1988, the Adviser manages the investment and reinvestment of the Fund's assets and continuously reviews, supervises and administers the Fund's investment program. The Adviser determines in its discretion the securities to be purchased or sold, subject to the ultimate supervision and direction of the Fund's Board of Directors. The Adviser also has discretion to determine when and to what extent to expand the Fund's investment capacity, by borrowing as described above in the section captioned "Investment Objectives and Policies -- Leverage and Borrowing." As compensation for its services, the Adviser receives from the Fund a monthly fee at an annual rate of 0.50% of the Fund's average weekly net asset value. The Adviser bears all expenses of its employees and overhead incurred in connection with its duties under the Investment Advisory Agreement. The Investment Advisory Agreement was approved by the Fund's shareholders on April 13, 1988. Continuance of the Investment Advisory Agreement most recently was approved by the Fund's Board of Directors, including a majority of the directors who are not parties to the Agreement or "interested persons" of any such party ("independent directors"), on May 12, 1998. It may continue thereafter from year to year if specifically approved at least annually by the Fund's Board of Directors or by a vote of the holders of a majority of the Fund's outstanding voting securities. In either event, the Investment Advisory Agreement must also be approved annually by vote of a majority of the independent directors, cast in person at a meeting called for that purpose. The Investment Advisory Agreement may be terminated by either party at any time without penalty upon 60 days' written notice, and will automatically terminate in the event of its assignment. Termination will not affect the right of the -45- Adviser to receive payments of any unpaid compensation earned prior to termination. The Adviser will not be liable for any error of judgment or for any loss suffered by the Fund in connection with the performance of its obligations under the Investment Advisory Agreement, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of, or from reckless disregard by it of its obligations and duties under, such Agreement, or damages resulting from a breach of fiduciary duty with respect to receipt of compensation for services. The services of the Adviser to the Fund are not deemed to be exclusive, and nothing in the Investment Advisory Agreement prevents the Adviser, or any affiliate thereof, from providing similar services to other investment companies and other clients (whether or not their investment objectives and policies are similar to those of the Fund) or from engaging in other activities. Subject to policy established by the Board of Directors of the Fund, the Adviser is responsible for arranging for the execution of the Fund's portfolio transactions and the allocation of brokerage transactions. In executing portfolio transactions the Adviser seeks to obtain the best net results for the Fund, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm involved. The Fund may invest in securities traded in the over-the-counter markets and deal directly with the dealers who make markets in the securities involved, unless a better price or execution could be obtained by using a broker. Fixed-income securities are traded principally in the over-the-counter market on a net basis through dealers acting for their own account and not as brokers. The cost of securities purchased from underwriters includes an underwriter's commission or concession, and the prices at which securities are purchased from and sold to dealers include a dealer's mark-up or mark-down. While the Adviser generally will seek reasonably competitive commission rates, payment of the lowest commission is not necessarily consistent with best results in particular transactions. In placing orders with brokers and dealers, the Adviser will attempt to obtain the best net price and the most favorable execution for orders; however, the Adviser may, in its discretion, purchase and sell portfolio securities through brokers and dealers who provide the Adviser or the Fund with research, analysis, advice and similar services. The research services provided by broker-dealers may be useful to the Adviser in serving other clients, but they can also be useful in serving the Fund. Not all of such services may be used by the Adviser in connection with the Fund. The Adviser may, in return for research and analysis, pay brokers a higher commission than may be charged by other brokers, provided that the Adviser determines in good faith that such commission is reasonable in terms either of that particular transaction or of the overall responsibility of the Adviser to the Fund and its other clients and that the total commission paid by the Fund will be reasonable in relation to the benefits to the Fund over the long term. Information and research received from such brokers and dealers will be in addition to, and not in lieu of, the services required to be performed by the Adviser under its Investment Advisory Agreement with the Fund, and the advisory fee that the Fund pays to the Adviser will not be reduced as a consequence of the Adviser's receipt of brokerage and research services. -46- The term "brokerage and research services" includes advice as to the value of securities, the advisability of investing in, purchasing, or selling securities, and the availability of securities or of purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts; and effecting securities transactions and performing functions incidental thereto such as clearance and settlement. The Adviser's investment management personnel evaluate the quality of research provided by brokers or dealers. The Adviser sometimes uses evaluations resulting from this effort as a consideration in the selection of brokers or dealers to execute portfolio transactions. However, the Adviser is unable to quantify the amounts of commission that might be paid as a result of such research because certain transactions might be effected through brokers which provide research but which would be selected principally because of their execution capabilities. Investment decisions for the Fund and for other investment accounts managed by the Adviser are made independently of each other in the light of differing considerations for the various accounts. However, the same investment decision may occasionally be made for two or more such accounts. In such cases, simultaneous transactions are inevitable. Purchases or sales are then averaged as to price and allocated to accounts according to a formula deemed equitable to each account. While in some cases this practice could have a detrimental effect upon the price or value of the security as far as the Fund is concerned, in other cases it is believed to be beneficial to the Fund. The Fund has no obligation to deal with any broker or group of brokers in the execution of transactions. The Fund contemplates that, consistent with the policy of obtaining the best net results, the Fund may use Prudential Securities Incorporated ("Prudential Securities"), an affiliate of the Administrator, for brokerage transactions. In addition, the Fund has adopted procedures which permit the Adviser to purchase securities for the Fund from underwriting syndicates in which Prudential Securities is a syndicate manager or member, so long as certain conditions are met. THE ADMINISTRATOR The Administrator acts as the administrator of the Fund pursuant to an Administration Agreement with the Fund dated April 15, 1988 ("Administration Agreement"). Under the terms of the Administration Agreement, the Administrator provides meeting facilities for the Board of Directors and shareholders of the Fund and office facilities and personnel to assist the officers of the Fund in the performance of the following services: overseeing the determination and publication of the Fund's net asset value; overseeing maintenance of books and records of the Fund required by Rule 31a-1(b)(4) under the 1940 Act; arranging for bank or other borrowing for the Fund, pursuant to the Adviser's determination of the timing, amount and terms of any such borrowing; preparing the Fund's federal, state and local income tax returns; preparing financial information for the Fund's proxy statements and quarterly and annual reports to shareholders; preparing the Fund's periodic financial reports to the Commission; and coordinating responses to shareholder inquiries relating to the Fund. -47- Under the Administration Agreement, the Fund pays the Administrator a monthly fee at the annual rate of 0.20% of the Fund's average net assets, based on the average weekly net asset value. The Administration Agreement was approved by the Fund's shareholders on April 13, 1988. Continuance of the Administration Agreement was most recently approved by the Fund's Board of Directors, including a majority of the independent directors, on May 12, 1998. It may continue thereafter from year to year if specifically approved at least annually by the Fund's Board of Directors or by a vote of a majority of the Fund's outstanding voting securities. In either event, the Administration Agreement must also be approved annually by vote of a majority of the independent directors, cast in person at a meeting called for that purpose. Because the Adviser's and the Administrator's fees are based on the average weekly net assets of the Fund, the Adviser and the Administrator will benefit from any increase in the Fund's net assets resulting from the Offer. It is not possible to state precisely the amount of additional compensation the Adviser or the Administrator will receive as a result of the Offer because it is not known how many Shares will be subscribed for and because the proceeds of the Offer will be invested in additional portfolio securities which will fluctuate in value. However, based on the estimated proceeds from the Offer assuming all the Rights are exercised in full for the Estimated Subscription Price of $______ per Share, the Adviser would receive additional annual advisory fees of approximately $______, and the Administrator would receive additional annual administration fees of approximately $________, as a result of the increase in average weekly net assets under management over the Fund's current assets under management, assuming no fluctuations in the value of Fund portfolio securities. YEAR 2000 RISKS Like other investment companies and financial and business organizations around the world, the Fund will be adversely affected if the computer systems used by the Adviser and the Fund's other service providers do not properly process and calculate date-related information and data from and after January 1, 2000. This is commonly known as the "Year 2000 Problem." The inability to properly process and calculate date-related information after January 1, 2000 could have a negative impact on handling securities trades, payment of interest and dividends, pricing and account services. The Fund is taking steps that it believes are reasonably designed to address the Year 2000 Problem with respect to the computer systems it uses and to obtain satisfactory assurances that comparable steps are being taken by each of the Fund's major service providers. The Fund does not expect to incur any significant costs in order to address the Year 2000 Problem. However, at this time there can be no assurances that these steps will be sufficient to avoid any adverse impact on the Fund. NET ASSET VALUE The net asset value of Shares is computed weekly on the last day of each week on which the Exchange is open for trading. This determination is made as of the close of the Exchange by deducting the amount of the liabilities of the Fund from the value of its assets and dividing the difference by the number of its -48- Shares outstanding. Fixed-income securities (other than short-term obligations, but including listed issues) may be valued by one or more independent pricing services approved by the Board of Directors that utilize both dealer-supplied valuations and electronic data processing techniques that take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, without exclusive reliance upon exchange or over-the-counter prices. Securities (other than fixed-income securities) for which the principal market is one or more securities exchanges will be valued at the last reported sale price prior to the determination (or if there has been no current sale, at the closing bid price) on the primary exchange on which such securities are traded. If a securities exchange is not the principal market for a security such security will be valued, if market quotations are readily available, at the closing bid prices in the over-the-counter market. Portfolio securities for which there are no such valuations, including restricted securities that are not liquid, are valued at fair value as determined in good faith by or at the direction of the Board of Directors. Short-term investments which mature in less than 60 days will be valued at amortized cost. FEDERAL TAXATION The following discussion is based on the advice of Kirkpatrick & Lockhart LLP, Washington, D.C. See "Legal Matters." GENERAL The Fund has elected to be, and qualifies for treatment as, a regulated investment company ("RIC") under Subchapter M of the Code. To qualify, the Fund must, among other things, (a) derive at least 90% of its gross income each taxable year from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of securities or foreign currencies, or other income (including gains from options or futures contracts) derived from its business of investing in securities or those currencies ("Income Requirement"); and (b) diversify its holdings so that, at the end of each quarter of its taxable year, (i) at least 50% of the value of its total assets is represented by cash, U.S. Government securities, securities of other RICs and other securities, with such other securities limited, in respect of any one issuer, to an amount that does not exceed 5% of the value of its assets and that does not represent more than 10% of the issuer's outstanding voting securities and (ii) not more than 25% of the value of its total assets is invested in the securities (other than U.S. Government securities or the securities of other RICs) of any one issuer. For each taxable year that the Fund qualifies as a RIC, it will not be subject to federal income tax on that part of its investment company taxable income (consisting generally of net investment income, net short-term capital gain and net realized gains from certain foreign currency transactions) and net capital gain (the excess of net long-term capital gain over net short-term capital loss) that it distributes to its shareholders, if it distributes at least 90% of its investment company taxable income for that year ("Distribution Requirement"). The Fund intends to distribute substantially all of its investment company taxable income each taxable year. -49- The Fund also currently intends to distribute all realized net capital gain annually. If, however, the Board of Directors determines for any taxable year to retain all or a portion of the Fund's net capital gain, that decision will not affect the Fund's ability to qualify as a RIC but will subject the Fund to a tax of 35% of the amount retained. In that event, the Fund expects to designate the retained amount as undistributed capital gains in a notice to its shareholders, who (i) will be required to include their proportionate shares of the undistributed amount in their gross income as long-term capital gains and (ii) will be entitled to credit their proportionate shares of the 35% tax paid by the Fund against their federal income tax liabilities. For federal income tax purposes, the tax basis of Shares owned by a Fund shareholder will be increased by an amount equal to 65% of the amount of undistributed capital gains included in the shareholder's gross income. The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to the extent it fails to distribute by the end of any calendar year substantially all of its ordinary income for that year and capital gain net income for the one-year period ending on October 31 of that year, plus certain other amounts. The Fund intends to make sufficient distributions to avoid application of the Excise Tax. For this and other purposes, a distribution will be treated as paid by the Fund and received by the shareholders on December 31 of a calendar year if it is declared by the Fund in that month of that year, payable to shareholders of record on a date in that month and paid by the Fund at any time through the end of the following January. Any such distribution thus will be taxable to shareholders in the year the distribution is declared, rather than the year in which the distribution is received. DISTRIBUTIONS Dividends from the Fund's investment company taxable income will be taxable to its shareholders as ordinary income, whether paid in cash or reinvested in Shares. Distributions of the Fund's net capital gain and undistributed capital gains, if any, will be taxable to the shareholders as long-term capital gain, regardless of how long they have held their Shares. Dividends are not expected to be, and capital gain distributions will not be, eligible for the dividends-received deduction allowed to corporations. A participant in the Dividend Reinvestment Plan who receives a distribution that is reinvested in Shares will be treated as having received a taxable distribution and will have a basis for those Shares equal to their fair market value on the distribution date. Shareholders will be notified annually as to the federal income tax status of distributions to them. Investors should be careful to consider the tax implications of buying Shares just prior to a distribution. The price of Shares purchased at that time may reflect the amount of the forthcoming distribution. Those purchasing just prior to the record date for a distribution will receive the distribution, which nevertheless will be taxable to them. SALES OF SHARES On a sale of Shares, a shareholder will realize taxable gain or loss depending upon the amount realized on the sale and the shareholder's basis for the Shares. That gain or loss will be treated as capital gain or loss if the shareholder held the Shares as capital assets and will be long-term capital gain or loss if the Shares were held for more than one year. Any such loss will be disallowed to -50- the extent the Shares that were disposed of are replaced (such as pursuant to the Dividend Reinvestment Plan) within a period of 61 days beginning 30 days before and ending 30 days after the date of disposition. In such a case, the basis of the acquired Shares will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on the sale of Shares held for six months or less will be treated as long-term, instead of short-term, capital loss to the extent of any capital gain distributions received by the shareholder on those Shares or any undistributed capital gains designated with respect thereto. ORIGINAL ISSUE DISCOUNT The Fund may purchase debt securities (such as zero-coupon debt securities and zero-fixed-coupon debt securities; see "Investment Policies and Limitations -- High Yield Debt Securities") that have original issue discount, which generally is included in income ratably over the term of the security. The discount that accrues each year on those securities thus will increase the Fund's investment company taxable income, thereby increasing the amount that must be distributed to satisfy the Distribution Requirement, without providing the cash with which to make the distribution. Accordingly, the Fund may have to dispose of other securities, thereby realizing gain or loss at a time when it otherwise might not want to do so, to provide the cash necessary to make distributions to shareholders. ISSUES RELATING TO HEDGING INSTRUMENTS The use of hedging strategies, such as writing (selling) and purchasing options and futures contracts, involves complex rules that will determine for federal income tax purposes the amount, character and timing of recognition of the gains and losses the Fund realizes in connection therewith. Gain from the disposition of foreign currencies (except certain gains that may be excluded by future regulations), and gains from options and futures contracts derived by the Fund with respect to its business of investing in securities or foreign currencies, will be treated as qualifying income under the Income Requirement. Regulated futures contracts and options that are subject to section 1256 of the Code (collectively "Section 1256 contracts") and are held by the Fund at the end of each taxable year will be required to be "marked-to-market" for federal income tax purposes (that is, treated as having been sold at that time at market value). Any unrealized gain or loss required to be recognized and reported for tax purposes under this mark-to-market rule will be added to any realized gains and losses recognized on Section 1256 contracts actually sold by the Fund during the year, and the resulting gain or loss will be treated (without regard to the holding period) as 60% long-term capital gain or loss and 40% short-term capital gain or loss. These rules may operate to increase the amount that must be distributed by the Fund to satisfy the Distribution Requirement, which amount will be taxable to the shareholders as ordinary income, and to increase the net capital gain recognized to the Fund, without in either case increasing the cash available to the Fund. The Fund may elect to exclude certain transactions from the provisions of Section 1256, although doing so may have the effect of increasing the relative proportion of net short-term capital gain (taxable as ordinary income) and/or increasing the amount of dividends that must be distributed to meet the Distribution Requirement and avoid the imposition of the Excise Tax. -51- Generally, the hedging transactions undertaken by the Fund may result in "straddles" for federal income tax purposes. Because application of the straddle rules may affect the character of gains or losses, defer the recognition of losses and/or accelerate the recognition of gains from the affected straddle positions and require the capitalization of interest expense associated therewith, the amount that must be distributed to shareholders (and the character of the distribution as ordinary income or long-term capital gain) may be increased or decreased substantially as compared to a fund that did not engage in such hedging transactions. BACKUP WITHHOLDING The Fund is required to withhold federal income tax at the rate of 31% on all dividends, capital gain distributions and repurchase proceeds payable to any individuals and certain other noncorporate shareholders who fail to provide the Fund with their correct taxpayer identification number or (with respect to dividends and capital gain distributions) who otherwise are subject to backup withholding. FOREIGN WITHHOLDING TAXES Income received by the Fund from sources within foreign countries, and gains realized on foreign securities, may be subject to withholding and other taxes imposed by such countries, which would reduce the Fund's yield and/or total return. Tax conventions between certain countries and the United States may reduce or eliminate such taxes, and many foreign countries do not impose taxes on capital gains from investments by foreign investors. It is impossible to determine the rate of foreign tax in advance, because the amount of the Fund's assets to be invested in various countries is not known. If, as is expected, the Fund does not have more than 50% of its assets invested in the securities of foreign corporations at the close of its taxable year, it will not be entitled to "pass through" to its shareholders the amount of foreign taxes it paid. FOREIGN SHAREHOLDERS U.S. federal income taxation of a shareholder who, as to the United States, is a non-resident alien individual, foreign trust or estate, foreign corporation or foreign partnership depends on whether the income from the Fund is "effectively connected" with a U.S. trade or business carried on by the shareholder. Ordinarily, income from the Fund will not be treated as so "effectively connected." In such case, dividends will be subject to U.S. withholding tax of 30% (or lower treaty rate). Foreign shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in Shares, including the effect of any applicable tax treaties. OTHER TAXATION The foregoing is only a summary of some of the important federal tax considerations affecting the Fund and its shareholders. Distributions also may be subject to state, local and foreign taxes, depending on each shareholder's particular situation. Prospective shareholders thus are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Fund. -52- DESCRIPTION OF COMMON STOCK GENERAL The Fund has 100,000,000 authorized Shares, par value $0.01. Shares, as issued, are fully paid and nonassessable. All Shares are equal as to dividends, assets and voting privileges and have no pre-emptive, conversion or redemption provisions. Shareholders are entitled to one vote per share and do not have cumulative voting rights. The Shares are listed on the Exchange under the symbol "HYP." DIVIDENDS AND OTHER DISTRIBUTIONS The Fund may not declare dividends or other distributions or purchase or redeem any Shares if, at the time of the declaration, purchase or redemption, as applicable (and after giving effect thereto), asset coverage with respect to the loans made under the Credit Agreement, would be less than 300% (or such higher percentage as may in the future be required by law) or asset coverage with respect to any senior securities of a class which is stock would be less than 200% (or such higher percentage as may in the future be required by law). LIQUIDATION RIGHTS Upon a liquidation, dissolution or winding up of the Fund (whether voluntary or involuntary), the holders of the Shares will be entitled to participate equally in the remaining assets of the Fund. Neither a sale, lease or exchange of all or substantially all of the property and assets of the Fund nor a consolidation or merger of the Fund with or into any other corporation or business trust will be deemed to be a liquidation, dissolution or winding up of the Fund. VOTING Holders of Shares have voting rights of one vote per Share. The Fund is required by the rules of the Exchange to hold annual meetings of shareholders. The most recent annual meeting of shareholders was held on August 27, 1998. The next annual meeting of shareholders is expected to be scheduled for August, 1999. CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS Certain "antitakeover" provisions in its Articles of Incorporation and By-Laws could limit the ability of others to acquire control of the Fund, to cause it to engage in certain transactions or to modify its structure. These provisions will make it more difficult to change management of the Fund than if they had not been included in the Fund's Articles of Incorporation and By-Laws, and could have the effect of depriving shareholders of an opportunity to sell their Shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of the Fund in a tender offer or similar transaction. However, they are designed to encourage persons seeking control of the Fund to negotiate with its management regarding the price to be paid and facilitating -53- the continuity of the Fund's management, investment objectives and policies. The Board of Directors is divided into three classes, each having a term of three years: each year the term of one class expires. Directors may be removed from office only for cause and then only by the affirmative vote or consent of the holders of at least 80% of the Shares. In addition, the affirmative vote or consent of the holders of 66 2/3% or more of the Shares is required to authorize the conversion of the Fund from a closed-end to an open-end investment company, or generally to authorize any of the following transactions with a person or entity that is directly or indirectly the beneficial owner of 5% or more of the outstanding Shares; (i) merger or consolidation of the Fund with or into any other corporation; (ii) issuance of any securities of the Fund to any such person or entity for cash; (iii) sale, lease or exchange of all or any substantial part of the assets of the Fund to any such entity or person (except assets having an aggregate fair market value of less than $1,000,000); or (iv) sale, lease or exchange to the Fund, in exchange for securities of the Fund, of any assets of any such entity or person (except assets having an aggregate fair market value of less than $1,000,000). Only a simple majority vote of shareholders is required to approve any of the above transactions, except for conversion of the Fund to an open-end investment company, if a majority of the Board of Directors, including a majority of the disinterested directors, approves the transaction. A "super-majority" vote of the holders of at least 80% of the Shares is required to amend By-Law provisions concerning terms and removal of directors; a "super-majority" vote of the holders of at least 66 2/3% of the Shares is required to amend the Fund's Articles of Incorporation with regard to the rest of the foregoing provisions. The "super-majority" voting provisions with respect to these transactions are more stringent then are required by the 1940 Act or (except with respect to mergers, consolidations or sales, leases or exchanges of all or any substantial part of the assets of the Fund) the Maryland General Corporation Law. The Board of Directors has considered all of these provisions of the Fund's Articles of Incorporation and By-Laws and has determined that such provisions are in the best interests of the Fund's shareholders. DESCRIPTION OF CREDIT AGREEMENT GENERAL The Fund entered into a Credit Agreement dated as of October 31, 1993, and subsequently amended from time to time, with BankBoston, pursuant to which BankBoston has agreed to make loans to the Fund from time to time. The Fund had $32,000,000 in loans outstanding under the Credit Agreement on September 30, 1998, at an average annual interest rate of 6.23%. The Fund's obligation to BankBoston under the Credit Agreement is considered a senior security under the 1940 Act, and the issuance of any subsequent senior securities will be subject to compliance with the 1940 Act, including Section 18 thereof. Any such subsequent senior securities may have certain terms, including, but not limited to, those relating to interest rate, redemptions, repurchases and maturity which differ from the terms of the Credit Agreement. The following summary of certain terms of the Credit Agreement is qualified in its entirety by reference to all provisions of the Credit Agreement, including the definitions therein of certain -54- terms. A copy of the Credit Agreement is filed as an exhibit to the Fund's Registration Statement on Form N-2, of which this Prospectus forms a part. The Fund may seek to increase the amount it may borrow following completion of the rights offering to the maximum amount then permissible under the 1940 Act but no formal decision has been made and there can be no assurance as to the timing or utilization of such additional facilities. INTEREST The outstanding principal amount of each loan under the Credit Agreement bears interest until maturity at (i) the greater of (a) the annual rate of interest announced from time to time by BankBoston as its "Base Rate" and (b) the Federal Fund Effective Rate (as defined in the Credit Agreement plus 1/2 of 1% annually, or (ii) the Adjusted Eurodollar Rate (as defined in the Credit Agreement) plus 0.50% annually, or (iii) the applicable Money Market Rate (as defined in the Credit Agreement), as selected by the Fund. COMMITMENT FEE In exchange for BankBoston's commitment to make loans to the Fund from time to time, the Fund pays to BankBoston a Commitment Fee of 0.09% per annum of the unused portion of the $35 million available under the Credit Agreement. PREPAYMENTS Certain of the loans made from time to time under the Credit Agreement may be repaid by the Fund prior to maturity upon the payment of all of the unpaid interest accrued to such date on the amount of the principal of the loan being prepaid. Loans under the Credit Agreement may also be declared immediately due and payable by BankBoston or, in certain circumstances, may become immediately due and payable without such declaration. All prepayments of loans made under the Credit Agreement (except a prepayment in full) will be made in an amount of $100,000 or an integral multiple thereof. RESTRICTIVE COVENANTS Under the 1940 Act and the Credit Agreement, the Fund may not declare dividends or other distributions on the Shares or purchase any Shares if, at the time of the declaration or purchase, as applicable (and after giving effect thereto), asset coverage with respect to the loans made under the Credit Agreement, would be less than 300% (or such higher percentage as may in the future be required by law). Under the Code, the Fund must, among other things, distribute at least 90% of its investment company taxable income each year to maintain its qualification for tax treatment as a RIC. The foregoing limitations on dividends, other distributions and purchases may under certain circumstances impair the Fund's ability to maintain such qualification. See "Federal Taxation." The asset coverage of a class of senior securities representing indebtedness, such as loans under the Credit Agreement, is defined as the ratio of (i) the total assets of the Fund, less all liabilities and indebtedness not represented -55- by senior securities, to (ii) the aggregate amount of senior securities representing indebtedness of the Fund. The Credit Agreement contains a covenant limiting the Fund's ability to create or permit to exist any lien or encumbrance upon any of its property or assets in favor of any person or entity other than BankBoston, other than such liens as are necessary in connection with the Fund's directors' and officers' errors and omission liability insurance policy or liens in connection with authorized futures transactions and collateral arrangements with respect to options and futures contracts or other authorized investments. CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR The Fund's securities and cash are held by State Street Bank and Trust Company, whose principal business address is One Heritage Drive, North Quincy, Massachusetts 02171, as custodian under a custodian contract. State Street Bank and Trust Company serves as dividend disbursing agent, as agent under the Plan and as transfer agent and registrar for the Shares. LEGAL OPINIONS The validity of the Shares offered hereby has been passed on for the Fund by Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington, D.C. 20036. Certain matters have been passed on for the Dealer-Manager by Rogers & Wells LLP, 200 Park Avenue, New York, New York 10166-0153. REPORTS TO SHAREHOLDERS The Fund will send unaudited semiannual and audited annual reports to its shareholders, including a list of investments held. EXPERTS The financial statements, insofar as they relate to the fiscal years ended March 31, 1998 and 1997, included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The address of PricewaterhouseCoopers LLP is 1177 Avenue of the Americas, New York, New York 10036. The financial statements, insofar as they relate to the remaining periods (other than the period ended September 30, 1998), included in this Prospectus have been so included in reliance on the report of Deloitte & Touche LLP, the Fund's previous independent accountants. -56- FURTHER INFORMATION The Fund has filed with the Commission, Washington, D.C., 20549, a Registration Statement under the Securities Act with respect to the Shares offered hereby. Further information concerning these securities and the Fund may be found in the Registration Statement, of which this Prospectus constitutes a part, on file with the Commission. The Registration Statement may be inspected without charge at the Commission's office in Washington, D.C., and copies of all or any part thereof may be obtained from such office after payment of the fees prescribed by the Commission. The Fund is subject to the informational requirements of the 1934 Act and the 1940 Act, and in accordance therewith files reports and other information with the Commission. Such reports, proxy and information statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, Washington, D.C. 20549 and the Commission's regional offices, including offices at Seven World Trade Center, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports and other information concerning the Fund may also be inspected at the offices of the Exchange. The Commission maintains a Web site (http://www.sec.gov) that contains material incorporated by reference into this Prospectus, and reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. In addition, reports, proxy and information statements and other information concerning the Fund can be inspected at the offices of the Exchange, 20 Broad Street, New York, New York 10005. -57-
PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1998 (UNAUDITED) THE HIGH YIELD PLUS FUND, INC. PRINCIPAL MOODY'S INTEREST MATURITY AMOUNT VALUE DESCRIPTION RATING RATE DATE (000) (NOTE 1) - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- LONG-TERM INVESTMENTS--134.6% CORPORATE BONDS--123.4% - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- AEROSPACE/DEFENSE--3.8% Argo-Tech Corp., Sr. Sub. Notes B3 8.625% 10/01/07 $ 500 $ 472,500 K&F Industries, Inc., Sr. Sub. Notes, Ser. B B3 9.25 10/15/07 500 490,000 L-3 Communications Corp., Sr. Sub. Notes B2 8.50 5/15/08 750 761,250 Moog, Inc., Sr. Sub. Notes, Ser. B B1 10.00 5/01/06 1,340 1,366,800 ------------ 3,090,550 - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- AUTOMOTIVE--4.6% Accuride Corp., Sr. Sub. Notes B2 9.25 2/01/08 750 720,000 Federal-Mogul Corp., Sr. Notes Ba2 8.80 4/15/07 500 546,955 Sr. Notes Ba2 7.875 7/01/10 500 512,390 Johnstown America Industries, Inc., Sr. Sub. Notes B3 11.75 8/15/05 1,500 1,545,000 Key Plastics, Inc., Sr. Sub. Notes, Ser. B B3 10.25 3/15/07 500 482,500 ------------ 3,806,845 - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- BASIC INDUSTRIES-MANUFACTURING--3.6% Gaylord Container Corp., Sr. Notes B3 9.375 6/15/07 1,000 810,000 International Wire Group, Inc., Sr. Sub. Notes B3 11.75 6/01/05 500 512,500 Neenah Corp., Sr. Sub. Notes, Ser. B B3 11.125 5/01/07 750 759,375 UNICCO Service Co./UNICCO Fin. Corp. Sr. Sub. Notes, Ser. B B3 9.875 10/15/07 1,000 920,000 ------------ 3,001,875 - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- BUILDING & RELATED INDUSTRIES--3.1% Associated Materials, Inc., Sr. Sub. Notes B2 9.25 3/01/08 500 475,000 Falcon Building Prod., Inc., Sr. Sub. Disc. Notes Zero Coupon (until 6/15/02) B3 10.50 6/15/07 350 192,500 Sr. Sub. Notes B3 9.50 6/15/07 1,000 840,000 Nortek, Inc., Sr. Notes B1 8.875 8/01/08 750 725,625 Sr. Notes, Ser. B B1 9.25 3/15/07 350 351,750 ------------ 2,584,875 - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- CABLE--5.9% Adelphia Communications Corp., Sr. Notes B2 8.375 2/01/08 365 370,475 Sr. Notes, Ser. B B2 9.875 3/01/07 500 540,000 - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- See Notes to Financial Statements. F-1 PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1998 (UNAUDITED) THE HIGH YIELD PLUS FUND, INC. - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- PRINCIPAL MOODY'S INTEREST MATURITY AMOUNT VALUE DESCRIPTION RATING RATE DATE (000) (NOTE 1) - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- CABLE (CONT'D.) Century Communications Corp., Sr. Disc. Notes Ba3 Zero 3/15/03 $ 225 $ 157,500 Classic Cable Inc. B3 9.875% 8/01/08 280 284,900 Classic Communications Inc., Sr. Disc. Notes Zero Coupon (until 8/1/03) NR 13.25 8/01/09 890 498,400 Falcon Holding Group L.P., Sr. Deb., Ser. B B2 8.375 4/15/10 350 353,500 Sr. Disc. Deb., Ser. B Zero Coupon (until 4/15/03) B2 9.285 4/15/10 500 337,500 Frontiervision Holdings L.P., Sr. Disc. Notes, Zero Coupon (until 2/15/02) B## 11.875 9/15/07 1,000 817,500 Multicanal S.A., Sr. Notes Ba3 10.50 2/01/07 500 340,000 Sr. Notes NR 10.50 4/15/18 230 142,600 Rifkin Acquisition Partners L.L.L.P., Sr. Sub. Notes B3 11.125 1/15/06 500 540,000 Rogers Communications Inc., Sr. Notes B2 8.875 7/15/07 440 433,400 ------------ 4,815,775 - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- CHEMICALS--3.8% PCI Chemicals Canada Inc., Sr. Sec. Notes, Ser. B (Canada) B2 9.25 10/15/07 500+ 400,000 Phillipp Brothers Chemicals Inc., Sr. Sub. Notes B3 9.875 6/01/08 680 646,000 Pioneer Americas Acquisition Corp., Sr. Sec. Notes, Ser. B B2 9.25 6/15/07 500 412,500 Sovereign Specialty Chemicals, Sr. Sub. Notes, Ser. B B3 9.50 8/01/07 1,000 965,000 Texas Petrochemicals Corp., Sr. Sub. Notes B3 11.125 7/01/06 750 690,000 ----------- 3,113,500 - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- CONSUMER GOODS & SERVICES--2.3% Chattem Inc., Sr. Sub. Notes B2 8.875 4/01/08 500 485,000 Muzak L.P., Muzak Capital, Sr. Notes Ba3 10.00 10/01/03 500 505,000 Pierce Leahy Corp., Sr. Sub. Notes B3 9.125 7/15/07 500 510,000 Revlon Worldwide, Sr. Disc. Notes, Ser. B Ba2 Zero 3/15/01 500 383,750 ----------- 1,883,750 - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- CONTAINERS--3.0% BWay Corp., Sr. Sub. Notes, Ser. B B2 10.25 4/15/07 750 787,500 Silgan Holdings, Inc., Sr. Sub. Deb. B1 9.00 6/01/09 1,500 1,485,000 Sub. Deb., PIK NR 13.25 7/15/06 200 220,282 ----------- 2,492,782 - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- See Notes to Financial Statements. F-2 PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1998 (UNAUDITED) THE HIGH YIELD PLUS FUND, INC. - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- PRINCIPAL MOODY'S INTEREST MATURITY AMOUNT VALUE DESCRIPTION RATING RATE DATE (000) (NOTE 1) - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- ENERGY & RELATED GOODS & SERVICES--10.0% Abraxas Petroleum Corp., Sr. Notes, Ser. B B2 11.50% 11/01/04 $ 1,500 $ 1,215,000 Costilla Energy Inc., Sr. Notes B2 10.25 10/01/06 500 435,000 Cross Timbers Oil Co., Sr. Sub. Notes, Ser. B B2 9.25 4/01/07 750 690,000 Dailey International, Inc., Sr. Notes B2 9.50 2/15/08 500 300,000 Energy Corp. Amererica, Sr. Sub. Notes, Ser. A B2 9.50 5/15/07 750 693,750 Frontier Oil Corp., Sr. Notes NR 9.125 2/15/06 750 697,500 Kelley Oil and Gas Corp., Sr. Sub. Notes, Ser. B B3 10.375 10/15/06 355 301,750 P&L Coal Holdings Corp., Sr. Notes Ba3 8.875 5/15/08 500 508,750 Petroleos Mexicanos, Gtd. Sr. Notes (Mexico) Ba2 8.85 9/15/07 500+ 400,000 Plains Resources, Inc., Sr. Sub. Notes B2 10.25 3/15/06 1,180 1,191,800 RAM Energy, Inc., Sr. Notes B3 11.50 2/15/08 1,750 1,452,500 Tatneft Finance, Gtd. Bonds (Russia) B2 9.00 10/29/02 1,000+ 100,000 Transportadora de Gas del Sur, S.A., Notes (Argentina) Ba3 10.25 4/25/01 250+ 237,500 ------------ 8,223,550 - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- ENTERTAINMENT--0.9% Loews Cineplex Entertainment Corp., Sr. Sub. Notes B3 8.875 8/01/08 750 740,625 - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- FINANCIAL SERVICES--9.4% Bangkok Bank Public Co., Deb. (Thailand) NR 7.25 9/15/05 1,000+ 480,000 Emergent Group Inc., Sr. Notes, Ser. B B3 10.75 9/15/04 895 411,700 First Nationwide Holdings, Inc., Sr. Notes Ba3 12.50 4/15/03 750 840,000 FirstFed Financial Corp., Notes B2 11.75 10/01/04 500 515,000 Guangdong Enterprises Hldgs., Ltd., (China) Sr. Notes Baa3 8.875 5/22/07 250+ 112,500 Sr. Notes Baa3 8.875 5/22/07 900+ 405,000 Hawthorne Financial Corp., Sr. Notes NR 12.50 12/31/04 1,250 1,250,000 Olympic Financial, Ltd., Sr. Notes NR 11.50 3/15/07 1,500@ 1,083,000 Resource America, Inc., Sr. Notes B- 12.00 8/01/04 965 800,950 Thai Farmers Bank Ltd., Sub. Notes (Thailand) NR 8.25 8/21/16 1,500+ 675,000 Western Financial Svgs. Bank, F.S.B., Sub. Cap. Deb. B1 8.875 8/01/07 1,500 1,200,000 ------------ 7,773,150 - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- FOOD & LODGING--4.0% Aurora Foods Inc., Sr. Sub. Notes, Ser. D B1 9.875 2/15/07 230 246,100 Sr. Sub. Notes, Ser. D B1 8.75 7/01/08 245 252,350 - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- See Notes to Financial Statements. F-3 PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1998 (UNAUDITED) THE HIGH YIELD PLUS FUND, INC. - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- PRINCIPAL MOODY'S INTEREST MATURITY AMOUNT VALUE DESCRIPTION RATING RATE DATE (000) (NOTE 1) - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- FOOD & LODGING (CONT'D.) Del Monte Foods Co., Sr. Disc. Notes, Zero Coupon (until 12/15/02) B- 12.50% 12/15/07 $ 2,500 1,425,000 John Q. Hammons Hotels, First Mtge. Bonds B1 8.875 2/15/04 $ 1,500 1,357,500 ---------- 3,280,950 - ------------------------------------------------------- ------------- ------------- ------------ -- ------------- - -------------- GAMING--2.1% Fitzgeralds Gaming Corp., Sr. Sec. Notes B3 12.25 12/15/04 500 350,000 Hollywood Casino Corp., Sr. Sec. Notes B2 12.75 11/01/03 350 362,250 Lady Luck Gaming Corp., First Mtge. Notes B2 11.875 3/01/01 1,000 1,012,500 ---------- 1,724,750 - ------------------------------------------------------- ------------- ------------- ------------ -- ------------- - -------------- GENERAL INDUSTRIAL--2.1% Cathay International Ltd., Sr. Notes Ba3 13.00 4/15/08 750 450,000 Wesco Distribution, Inc., Sr. Sub. Notes B2 9.125 6/01/08 1,350 1,299,375 ---------- 1,749,375 - ------------------------------------------------------- ------------- ------------- ------------ -- ------------- - -------------- GROCERY STORES--1.7% Disco S.A., Notes NR 9.875 5/15/08 750 465,000 Homeland Stores, Inc., Sr. Notes NR 10.00 8/01/03 500 447,500 Pathmark Stores, Inc., Sub. Notes Caa 11.625 6/15/02 500 473,750 ---------- 1,386,250 - ------------------------------------------------------- ------------- ------------- ------------ -- ------------- - -------------- HEALTH CARE--4.8% Beverly Enterprises, Inc., Sr. Notes Ba3 9.00 2/15/06 70 70,175 Columbia/HCA Healthcare Corp., Notes Ba2 7.25 5/20/08 1,000 969,630 Mediq, Inc., Sr. Sub. Notes B3 11.00 6/01/08 930 874,200 Universal Hospital Svcs., Sr. Sub. Notes B3 10.25 3/01/08 1,750 1,575,000 Sr. Sub. Notes B2 8.375 4/01/08 500 450,000 ---------- 3,939,005 - ------------------------------------------------------- ------------- ------------- ------------ -- ------------- - -------------- HOME BUILDER & REAL ESTATE--5.1% Beazer Homes USA, Inc., Sr. Notes B1 8.875 4/01/08 750 697,500 Kaufman & Broad Home Corp., Sr. Sub. Notes Ba3 9.625 11/15/06 750 776,250 Presley Companies, Sr. Notes Caa 12.50 7/01/01 1,000 850,000 Ryland Group, Inc., Sr. Sub. Notes B+ 8.25 4/01/08 750 676,875 - ------------------------------------------------------- ------------- ------------- ------------ -- ------------- - -------------- See Notes to Financial Statements. F-4 PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1998 (UNAUDITED) THE HIGH YIELD PLUS FUND, INC. - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- PRINCIPAL MOODY'S INTEREST MATURITY AMOUNT VALUE DESCRIPTION RATING RATE DATE (000) (NOTE 1) - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- HOME BUILDER & REAL ESTATE (CONT'D.) Standard Pacific Corp., Sr. Notes Ba2 8.50% 6/15/07 $ 750 $ 727,500 U.S. Home Corp., Sr. Sub. Notes B1 8.88 8/15/07 500 495,000 ---------- 4,223,125 - ------------------------------------------------------- ------------- ------------- ------------ -- ------------ -- -------------- INDUSTRIALS--2.3% Clark Refining & Marketing, Inc., Sr. Notes Ba3 8.625 8/15/08 915 841,800 Westpoint Stevens, Inc., Sr. Notes BB## 7.875 6/15/08 1,000 1,017,500 ---------- 1,859,300 - ------------------------------------------------------- ------------- ------------- ------------ -- ------------ -- -------------- MEDIA & COMMUNICATIONS--8.5% Echostar DBS Corp., Sr. Sec. Notes B-## 12.50 7/01/02 750 791,250 Fox/Liberty Networks L.L.C., Sr. Disc. Notes, Zero Coupon (until 8/15/02) B1 9.75 8/15/07 1,500 982,500 Sr. Notes B1 8.875 8/15/07 15 14,700 Globo Comunicacoes e Participacoes S.A., Notes, (Brazil) NR 10.50 12/20/06 1,750+ 875,000 Granite Broadcasting Corp., Sr. Sub. Notes B3 8.875 5/15/08 340 317,900 Innova S de R.L., Sr. Notes (Mexico) B2 12.875 4/01/07 1,500+ 825,000 Jacor Communications, Inc., Sr. Sub. Notes B2 9.75 12/15/06 250 270,625 Primedia, Inc., Sr. Notes Ba3 7.625 4/01/08 405 388,800 Sullivan Graphics, Inc., Sr. Sub. Notes Caa 12.75 8/01/05 1,000 1,015,000 Sun Media Corp., Sr. Sub. Notes B2 9.50 5/15/07 500 512,500 Tevecap S.A., Sr. Notes (Brazil) B2 12.625 11/26/04 800+ 336,000 TV Azteca S.A. de CV, Gtd., Sr. Notes (Brazil) Ba3 10.50 2/15/07 1,000+ 680,000 ---------- 7,009,275 - ------------------------------------------------------- ------------- ------------- ------------ -- ------------ -- -------------- METALS--5.9% Ameristeel Corp., Sr. Notes Ba3 8.75 4/15/08 285 265,050 Bayou Steel Corp., First Mtge. Notes B1 9.50 5/15/08 1,000 862,500 Companhia Vale do Rio Doce, Notes (Brazil) NR 10.00 4/02/04 750+ 585,000 CSN Iron S.A., Gtd. Notes (Brazil) B2 9.125 6/01/07 1,250+ 706,250 Iron Medium Term Note Inc., Delaware, Sr. Sub. Notes B3 8.75 9/30/09 350 346,500 Pohang Iron & Steel Co. Ltd., Sr. Notes Bal 7.125 7/15/04 1,000 756,690 Sr. Notes Bal 7.375 5/15/05 500 371,520 - ------------------------------------------------------- ------------- ------------- ------------ -- ------------ -- -------------- See Notes to Financial Statements. F-5 PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1998 (UNAUDITED) THE HIGH YIELD PLUS FUND, INC. - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- PRINCIPAL MOODY'S INTEREST MATURITY AMOUNT VALUE DESCRIPTION RATING RATE DATE (000) (NOTE 1) - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- METALS (CONT'D.) Weirton Steel Corp., Sr. Notes B2 11.375% 7/01/04 $ 1,000 $ 930,000 ---------- 4,823,510 - ------------------------------------------------------- ------------ ------------- ------------ --- ------------ -- -------------- PAPER & PACKAGING--10.4% American Pad & Paper Company, Delaware, Sr. Sub. Notes, Ser. B CCC+## 13.00 11/15/05 1,385 761,750 APP Int'l. Finance Co., Sec. Notes (Indonesia) B2 3.50 4/30/03 870+ 330,600 Sec. Notes (Indonesia) B2 11.75 10/01/05 750+ 465,000 Aracruz Celulose S.A. (Brazil), Notes B2 10.375 1/31/02 1,035+ 859,050 Notes B2 10.375 1/31/02 715+ 593,450 Sr. Sub. Notes B2 10.25 10/01/06 375+ 326,250 Bahia Sul Celulose S.A. (Brazil) NR 10.625 7/10/04 500+ 325,000 Buckeye Technologies, Inc., Sr. Sub. Notes Ba3 8.00 10/15/10 465 444,075 Container Corp. of America, Sr. Notes B1 9.75 4/01/03 1,000 1,010,000 Sr. Notes, Ser. B. B2 10.75 5/01/02 1,000 1,025,000 Doman Industries Ltd., Sr. Notes (Canada) B1 8.75 3/15/04 750+ 525,000 Klabin Fabricadora de Papel e Celulose S.A., Gtd. Notes (Brazil) NR 11.00 8/12/04 1,000+ 820,000 Pindo Deli Finance Mauritius Ltd., Gtd. Sr. Notes (Indonesia) NR 10.75 10/01/07 1,750+ 735,000 Repap New Brunswick, Inc., Sr. Sec. Notes (Canada) Caa 10.625 4/15/05 500+ 300,000 ---------- 8,520,175 - ------------------------------------------------------- ------------ ------------- ------------ --- ------------ -- -------------- TECHNOLOGY--5.6% Advanced Micro Devices, Inc., Sr. Sec. Notes Ba3 11.00 8/01/03 500 505,000 Concentric Network Corp., Sr. Notes NR 12.75 12/15/07 255@ 235,875 DecisionOne Holdings Corp., Sr. Disc. Deb., Zero Coupon (until 8/1/02) NR 11.50 8/01/08 1,000@ 375,000 Sr. Sub. Notes, B3 9.75 8/01/07 500 325,000 Fisher Scientific International, Inc., Sr. Sub. Notes B3 9.00 2/01/08 750 720,000 Samsung Electronics America, Inc., Gtd. Notes Ba1 9.75 5/01/03 1,750 1,277,500 Telecommunications Tech Company L.L.C., Sr. Sub. Note B3 9.75 5/15/08 795 715,500 Verio Inc., Sr. Notes B3 10.375 4/01/05 500 490,000 ---------- 4,643,875 - ------------------------------------------------------- ------------ ------------- ------------ --- ------------ -- -------------- See Notes to Financial Statements. F-6 PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1998 (UNAUDITED) THE HIGH YIELD PLUS FUND, INC. - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- PRINCIPAL MOODY'S INTEREST MATURITY AMOUNT VALUE DESCRIPTION RATING RATE DATE (000) (NOTE 1) - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- TELECOMMUNICATIONS--19.0% Advanced Radio Telecom Corp., Sr. Notes Caa## 14.00% 2/15/07 $ 325 $ 286,000 American Mobile Satellite, Inc., Sr. Notes NR 12.25 4/01/08 750@ 431,250 BTI Telecom Corp., Sr. Notes B3 10.50 9/15/07 1,750 1,470,000 Century Communications Corp., Sr. Disc. Notes Ba3 11.25 1/15/08 1,750 831,250 Clearnet Communications, Inc., Sr. Disc. Notes, Zero Coupon (until 12/15/00) (Canada) B3 14.75 12/15/05 750+ 630,000 E Spire Communications Insurance, Sr. Disc. Notes Zero Coupon (until 4/1/01) NR 12.75 4/01/06 500 375,000 GST Network Funding, Inc., Sr. Disc. Notes, Zero Coupon (until 5/1/03) NR 13.25 5/01/08 1,765 838,375 GST Telecommunications, Inc., Sr. Sub. Notes, Zero Coupon (until 11/15/02) NR 12.75 11/15/07 500 475,000 Hyperion Telecommunications, Inc., Sr. Disc. Notes, Zero Coupon (until 4/15/01) B3 13.00 4/15/03 265 184,175 Sr. Sec. Notes, Ser. B B3 12.25 9/01/04 715 700,700 ICO Global Commerce, Sr. Notes CCC+## 15.00 8/01/05 410 319,800 Intermedia Communications, Inc., Sr. Notes B2 8.60 6/01/08 1,000 990,000 Sr. Notes, Ser. B B2 8.875 11/01/07 350 351,750 Iridium LLC/Cap. Corp., Gtd. Sr. Notes, Ser. D B3 10.875 7/15/05 300 238,500 Sr. Notes NR 11.25 7/15/05 1,000 805,000 ITC Deltacom, Inc., Sr. Notes B2 8.875 3/01/08 350 353,500 IXC Communications, Inc., Sr. Sub. Notes B3 9.00 4/15/08 750 745,312 Korea Telecom, Notes Ba1 7.50 6/01/06 500+ 342,895 Notes Ba1 7.625 4/15/07 1,000+ 691,990 McLeod USA Inc., Sr. Notes B2 9.25 7/15/07 250 256,250 MGC Communications Inc., Sr. Sec. Notes, Ser. B Caa 13.00 10/01/04 500 385,000 MobileMedia Communications, Inc., Sr. Sub. Notes C 9.375 11/01/07 1,000** 170,000 Philippine Long Dist. Tel. Co., Notes (The Philippines) Ba2 7.85 3/06/07 750+ 559,238 PsiNet Inc., Sr. Notes B3 10.00 2/15/05 500 502,500 SK Telecom Ltd., Notes Ba1 7.75 4/29/04 1,000 755,180 Time Warner Telecom L.L.C., Sr. Notes B2 9.75 7/15/08 500 505,000 - ------------------------------------------------------- ------------ ------------- ------------- -- ------------ -- -------------- See Notes to Financial Statements. F-7 PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1998 (UNAUDITED) THE HIGH YIELD PLUS FUND, INC. - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- PRINCIPAL MOODY'S INTEREST MATURITY AMOUNT VALUE DESCRIPTION RATING RATE DATE (000) (NOTE 1) - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- TELECOMMUNICATIONS (CONT'D.) Winstar Communications, Inc. Sr. Disc. Notes, Zero Coupon (until 10/15/00) NR 14.00% 10/15/05 $ 1,750 $ 1,137,500 Sr. Sub. Notes NR 11.00 3/15/08 500 350,000 ---------- 15,681,165 - ------------------------------------------------------- ------------ ------------- ------------- -- ------------ -- -------------- TRANSPORTATION--1.5% MRS Logisticasa S.A., Notes (Brazil) NR 10.625 8/15/05 500+ 240,000 Valujet, Inc., Sr. Notes B3 10.25 4/15/01 1,250 1,000,000 ----------- 1,240,000 ----------- Total corporate bonds (cost $119,483,711) 101,608,032 - ------------------------------------------------------- ------------ ------------- ------------- -- ------------ -- -------------- FOREIGN GOVERNMENT OBLIGATIONS+--5.4% Republic of Argentina, Bonds Ba3 11.00 10/09/06 1,750 1,662,500 Republic of Brazil, Bonds, Ser. C B1 4.50 4/15/14 1,471 923,132 Republic of Korea, Bonds BB+## 8.875 4/15/08 1,500 1,312,170 Republic of Venezuela, Bonds NR 9.25 9/15/27 500 261,500 Republic of Venezuela, Global Bonds B2 9.25 9/15/27 500 287,500 ---------- Total foreign government obligations (cost $5,275,155) 4,446,802 - ------------------------------------------------------- ------------ ------------- ------------- -- ------------ -- -------------- COMMON STOCKS*--0.3% SHARES Fitzgeralds Gaming Corp. -- -- -- 10,000 220,000 Sinking Fund Holding Group -- -- -- 4,070 8,140 ---------- Total common stocks (cost $320,000) 228,140 - ------------------------------------------------------- ------------ ------------- ------------- -- ------------ -- -------------- PREFERRED STOCKS--5.4% Concentric Network Corp. NR 13.75 -- 690 603,750 Fairfield Mfg., Inc., Exchangeable, PIK NR 11.25 -- 1,000 960,000 Granite Broadcasting Corp., Cumulative Exchangeable, PIK NR 12.75 -- 372 376,036 IXC Communications, Inc., Jr. Pfd. Exchangeable Ser. CCC+## 12.50 -- 10,002 346,183 - ------------------------------------------------------- ------------ ------------- ------------- -- ------------ -- -------------- See Notes to Financial Statements. F-8 PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1998 (UNAUDITED) THE HIGH YIELD PLUS FUND, INC. - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- MOODY'S INTEREST EXPIRATION VALUE DESCRIPTION RATING RATE DATE SHARES (NOTE 1) - ------------------------------------------------------- ------------- ------------- ------------ --------------- ----------------- PREFERRED STOCKS (CONT'D.) Lady Luck Gaming Corp., Ser. A NR 11.50% -- 7,000 $ 238,000 Sinking Fund Holdings Group, Inc., Exchangeable PIK NR 13.75% -- 110 792,000 Superior Nat'l. Cap. Tr. NR 12.25 -- 1,135 1,112,300 --------- Total preferred stocks (cost $4,882,179) 4,428,269 - ------------------------------------------------------- ------------ ------------- ------------- -- ------------ -- -------------- WARRANTS*--0.1% WARRANTS -------- American Mobile Satellite Corp. NR -- 4/1/08 280 1,319 Benedek Communications Corp. NR -- 7/1/07 5,500 11,000 Concentric Network Corp. NR -- 1/1/09 255 22,950 MGC Communications, Inc. NR -- 10/1/20 500 24,000 ------ Total warrants (cost $17,500) 59,269 ----------- Total long-term investments (cost $129,978,545) 110,770,512 - ------------------------------------------------------- ------------ ------------- ------------- -- ------------ -- -------------- SHORT-TERM INVESTMENT--1.1% - ------------------------------------------------------- ------------ ------------- ------------- -- ------------ -- -------------- PRINCIPAL AMOUNT REPURCHASE AGREEMENT--1.1% (000) --------- Paribas Corp., dated 9/30/98, due in the amount of $904,139 (cost $904,000; collateralized by $821,000 U.S. Treasury Notes 6.50%, 8/15/05, approximate value including accrued interest $930,296) NR 5.54 10/01/98 $ 904 904,000 ----------- TOTAL INVESTMENTS--135.7% (cost $130,882,545; Note 3) 111,674,512 Other assets in excess of liabilities--(35.7)% (29,363,304) Net Assets--100% $ 82,311,208 ============ - ------------------------------------------------------- * --Non-income-producing security. ** --Represents issuer in default on interest payments; non-income-producing security. ## --S&P Equivalent to Moody's Rating. + --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. - ------------------------------------------------------------------------------------------------------------------- -------------- See Notes to Financial Statements. F-9
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) THE HIGH YIELD PLUS FUND, INC. ================================================================================ ASSETS SEPTEMBER 30, 1998 ------------------ Investments, at value (cost $130,882,545) ................... $111,674,512 Cash......................................................... 853 Interest and dividends receivable............................ 3,330,341 Receivable for investments sold.............................. 1,541,089 Other assets................................................. 45,250 ----------- Total assets............................................ 116,592,045 ----------- LIABILITIES Loan payable (Note 4)........................................ 32,000,000 Payable for investments purchased............................ 987,090 Dividends payable............................................ 825,190 Loan interest payable (Note 4)............................... 285,652 Accrued expenses............................................. 120,989 Advisory fee payable......................................... 33,670 Deferred directors' fees..................................... 14,658 Administration fee payable................................... 13,588 ---------- Total liabilities....................................... 34,280,837 ---------- NET ASSETS................................................... $82,311,208 =========== Net assets were comprised of: Common stock, at par.................................... $ 113,674 Paid-in capital in excess of par........................ 104,313,386 ----------- 104,427,060 Undistributed net investment income..................... 647,061 Accumulated net realized loss on investments............ (3,554,880) Net unrealized depreciation of investments.............. (19,208,033) ------------- Net assets, September 30, 1998.......................... $ 82,311,208 ============ Net asset value per share ($82,311,208 / 11,367,373 shares of common stock issued and outstanding) ............. $ 7.24 ============ - --------------------------------------------------------------- ---------------- See Notes to Financial Statements. F-10
THE HIGH YIELD PLUS FUND, INC. THE HIGH YIELD PLUS FUND, INC. STATEMENT OF OPERATIONS (UNAUDITED) STATEMENT OF CASH FLOWS (UNAUDITED) ================================================================================================================================ SIX MONTHS SIX MONTHS ENDED ENDED NET INVESTMENT INCOME SEPTEMBER 30, 1998 INCREASE (DECREASE) IN CASH SEPTEMBER 30, 1998 ------------------ ------------------ Income Cash flows provided from operating activities Interest and dividends received Interest....................... $ 6,516,843 (excluding discount amortization of $670,630)................................. $ 5,551,837 Dividends...................... 125,448 Operating expenses paid................. (1,442,643) ------------- 6,642,291 Loan interest and commitment fee paid... (1,020,045) ------------- Maturities of short-term portfolio Expenses investments, net..................... (904,000) Investment advisory fee........ 247,864 Purchases of long-term portfolio investments.......................... (73,079,560) Administration fee............. 99,146 Proceeds from disposition of long-term portfolio investments............... 70,972,193 Custodian's fees and expenses.. 57,000 Deferred expenses and other assets...... (9,520) -------------- Legal fees and expenses........ 35,000 Net cash provided from operating activities.......................... 68,262 -------------- Reports to shareholders........ 22,000 Cash used for financing activities Transfer agent's fees and Net increase in notes payable........... 2,000,000 expenses................... 19,000 Insurance expense.............. 15,000 Cash dividends paid (excluding reinvestment of dividends of $156,275)... (4,767,348) --------------- Audit fee and expenses......... 13,500 Net cash used for financing activities.. (2,767,348) --------------- Listing fee.................... 10,000 Net decrease in cash.................... (2,699,086) Directors' fees and expenses... 9,000 Cash at beginning of period............. 2,699,939 -------------- Miscellaneous.................. 938 Cash at end of period................... $ 853 ------------- ============== Total operating expenses.. 528,448 Loan interest expense (Note 4). 980,065 RECONCILIATION OF NET DECREASE IN NET ASSETS ------------- TO NET CASH PROVIDED FROM OPERATING ACTIVITIES Total expenses.............. 1,508,513 ------------- Net investment income............... 5,133,779 Net decrease in net assets resulting from ------------- operations.......................... $ (17,606,122) -------------- Increase in investments...................... (3,283,294) REALIZED AND UNREALIZED Net realized loss on investment transactions. 411,673 LOSS ON INVESTMENTS Net change in unrealized depreciation of investments.............................. 22,328,228 Net realized loss on investment Decrease in receivable for investments sold.. 3,903,685 transactions.................... (411,673) Net change in unrealized depreciation Increase in interest and dividends receivable (419,824) of investments.................. (22,328,229) -------------- Net loss on investments............. (22,739,902) Decrease in deferred expenses and other assets 9,520 -------------- Decrease in payable for investments purchased (5,497,749) NET DECREASE IN NET ASSETS Increase in accrued expenses and other RESULTING FROM OPERATIONS........... $(17,606,123) liabilities.............................. 222,145 ============= -------------- Total adjustments.................... 17,674,384 -------------- Net cash provided from operating activities............................... $ 68,262 ============== - --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. F-11
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED) THE HIGH YIELD PLUS FUND, INC. ======================================================= ============================================================ SIX MONTHS ENDED YEAR ENDED INCREASE (DECREASE) IN NET ASSETS SEPTEMBER 30, 1998 MARCH 31, 1998 ------------------ -------------- Operations Net investment income......................... $ 5,133,779 $ 9,479,163 Net realized gain (loss) on investment transactions............................... (411,673) 5,009,438 Net change in unrealized appreciation/ depreciation of investments................ (22,328,228) 2,649,914 -------------- ------------ Net increase (decrease) in net assets resulting from operations.................. (17,606,122) 17,138,515 Dividends from net investment income............... (4,797,317) (9,479,163) Distributions in excess of net investment income... -- (19,779) Value of Fund shares issued to shareholders in reinvestment of dividends................. 156,275 876,479 ------------- ------------ Total increase (decrease).......................... (22,247,164) 8,516,052 NET ASSETS Beginning of period................................ 104,558,372 96,042,320 ----------- ------------ End of period(a)................................... $ 82,311,208 $104,558,372 ============ ============ - ------------ (a) Includes undistributed net investment income of.......................... $ 647,061 $ 310,599 ------------- ------------- - ------------------------------------------------------- ------------------------------ -----------------------------
See Notes to Financial Statements. F-12 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) THE HIGH YIELD PLUS FUND, INC. ================================================================================ 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 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. - -------------------------------------------------------------------------------- See Notes to Financial Statements. F-13 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) THE HIGH YIELD PLUS FUND, INC. ================================================================================ 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 six months ended September 30, 1998, were $68,725,884 and $67,041,302, respectively. During the six months ended September 30, 1998, the Fund entered into $533,688 of securities transactions on a principal basis with Prudential Securities Incorporated, an affiliate of the Administrator. The federal income tax basis of the Fund's investments, as of September 30, 1998, was $130,882,544 and, accordingly, net unrealized depreciation for federal income tax purposes was $19,364,231 (gross unrealized appreciation - $751,829; gross unrealized depreciation - ($20,116,060)). 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. 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 $35,000,000. Interest on any such borrowings is based on market rates and is payable at maturity. The average daily balance outstanding during the six months ended September 30, 1998 was $32,000,000 at a weighted average interest rate of 6.37%. The maximum face amount of borrowings outstanding at any month-end during the six months ended September 30, 1998 was $32,000,000. The current borrowings of $32,000,000 (at a weighted average interest rate of 6.23%) mature throughout the period from October 8, 1998 to March 29, 1999. The Fund has paid commitment fees at an annual rate of .09 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 six months ended September 30, 1998 and the fiscal year ended March 31, 1998, the Fund issued 18,829 and 98,012 shares in connection with reinvestment of dividends, respectively. - -------------------------------------------------------------------------------- See Notes to Financial Statements. F-14 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) THE HIGH YIELD PLUS FUND, INC. NOTE 6. DIVIDENDS On August 7, 1998 the Board of Directors of the Fund declared dividends of $0.0725 per share payable on October 9, November 13 and December 11 to shareholders of record on September 30, October 30 and November 30, respectively. - -------------------------------------------------------------------------------- See Notes to Financial Statements. F-15
FINANCIAL HIGHLIGHTS (unaudited) THE HIGH YIELD PLUS FUND, INC. ========================================================================================================================== Six Months Ended September 30, Year Ended March 31, ----------------------------------------------------- 1998 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE: - --------------------------------------- Net asset value, beginning of period $ 9.21 $ 8.54 $ 8.44 $ 7.85 $ 8.38 $ 8.48 -------- -------- -------- -------- -------- -------- - --------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------- Net investment income .45 .84 .82 .84 .87 .90 Net realized and unrealized gain (loss) on investments (2.00) .67 .12 .59 (.54) (.15) -------- -------- -------- -------- --------- ----- Total from investment operations (1.55) 1.51 .94 1.43 .33 .75 -------- -------- -------- -------- --------- ----- - --------------------------------------- LESS DIVIDENDS AND DISTRIBUTIONS - --------------------------------------- Dividends from net investment income (.42) (.84) (.82) (.84) (.86) (.85) Distributions in excess of net investment income .-- .-- (.02) .-- .-- .-- -------- -------- -------- --------- --------- -------- Total dividends (.42) (.84) (.84) (.84) (.86) (.85) -------- -------- -------- -------- -------- -------- Net asset value, end of period(a) $ 7.24 $ 9.21 $ 8.54 $ 8.44 $ 7.85 $ 8.38 ======== ======== ======= ======= ======= ======= Market price per share, end of period(a) $ 8.00 $ 9.125 $ 9.00 $ 8.75 $ 8.00 $ 8.375 ======== ======== ======= ======= ======= ======== - --------------------------------------- TOTAL INVESTMENT RETURN(b): (7.81)% 11.25% 13.38% 20.80% 6.33% 3.90% ======= ====== ====== ====== ====== ====== - --------------------------------------- RATIO/SUPPLEMENTAL DATA: - --------------------------------------- Net assets, end of period (000 omitted) $ 82,311 $104,558 $96,042 $94,091 $86,704 $91,698 Average net assets (000 omitted) $106,099 $100,766 $95,946 $92,855 $87,734 $96,962 Ratio to average net assets: Expenses, before loan interest, commitment fees and nonrecurring expenses .99%(c) 1.07% 1.08% 1.01% 1.11% 1.12% Total expenses 2.84%(c) 2.44% 2.32% 2.29% 2.71% 2.01% Net investment income 9.65%(c) 9.41% 9.63% 10.18% 10.90% 10.15% Portfolio turnover rate 54% 112% 60% 60% 47% 100% Total debt outstanding at end of period (000 omitted) $32,000 $30,000 $18,000 $17,000 $19,000 $28,000 Asset coverage per $1,000 of debt outstanding $ 3,744 $ 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. (c) Annualized. 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 period indicated. This information has been determined based upon information provided in the financial statements and market price data for the Fund's shares. F-16 SUPPLEMENTAL PROXY INFORMATION (UNAUDITED) THE HIGH YIELD PLUS FUND, INC. ================================================================================ The annual meeting of shareholders of The High Yield Plus Fund, Inc. was held on August 27, 1998 at the offices of Prudential Investments Fund Management LLC, 751 Broad Street, Newark, New Jersey. The meeting was held for the following purposes: (1) To elect the following director to serve as follows: DIRECTOR CLASS TERM EXPIRING -------- ----- ---- -------- Eugene C. Dorsey 1 3 years 2001 Directors whose term of office continued beyond this meeting are Douglas H. McCorkindale and Thomas T. Mooney. (2) To ratify the selection of PricewaterhouseCoopers LLP as independent public accountants for the year ending March 31, 1999. The results of the proxy solicitation on the above matters were as follows:
DIRECTOR/AUDITOR VOTES FOR VOTES AGAINST VOTES WITHHELD ABSTENTIONS (1) Eugene C. Dorsey 9,535,054 --- 146,875 --- (2) PricewaterhouseCoopers LLP 9,578,622 28,736 --- 74,571
- -------------------------------------------------------------------------------- F-17 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. - -------------------------------------------------------------------------------- F-18
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. B3 11.75 8/15/05 1,500 1,676,250 Sub. Notes 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 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 1,000+ 707,500 Diamond Holdings, PLC, Sr. Notes (United Kingdom) B3 9.125 2/01/08 240+ 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 - ------------------------------------------------------------------------------------------------------------------------------------ See Notes to Financial Statements. F-19 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) - ------------------------------------------------------------------------------------------------------------------------------------ CHEMICALS--4.5% Acetex Corp., Sr. Sec. Notes (Canada) B1 9.75% 10/01/03 $ 750+ $ 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 10/15/07 250+ 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 - ------------------------------------------------------------------------------------------------------------------------------------ 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 1,500+ 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 10/29/02 750+ 682,500 Transportadora de Gas del Sur, S.A., Notes (Argentina) Ba3 10.25 4/25/01 250+ 260,937 Wainoco Oil Corp., Sr. Notes B1 9.125 2/15/06 750 753,750 ----------- 11,527,362 - ------------------------------------------------------------------------------------------------------------------------------------ See Notes to Financial Statements. F-20 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) - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL SERVICES--13.1% Bangkok Bank Public Co., Deb. (Thailand) Ba1 7.25% 9/15/05 $ 1,000+ $ 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 5/22/07 250+ 224,182 Sr. Notes Baa3 8.875 5/22/07 900+ 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) Bal 8.25 8/21/16 1,500+ 1,288,650 Unibanco-Uniao de Bancos Brasileiros S.A., Unsub. Notes (Brazil) B1 8.00 3/06/00 250+ 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 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 - ------------------------------------------------------------------------------------------------------------------------------------ See Notes to Financial Statements F-21 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) - ------------------------------------------------------------------------------------------------------------------------------------ HOME BUILDER & REAL ESTATE--2.9% BF Saul Real Estate Investment Trust, Sr. Sec. Notes B## 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 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 1,250+ 1,270,312 Innova S de R.L., Sr. Notes (Mexico) B2 12.875 4/01/07 1,000+ 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 8/05/04 285+ 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 1,250+ 1,265,625 TV Azteca S.A. de CV, Gtd. Sr. Notes (Brazil) Ba3 10.50 2/15/07 500+ 532,500 ----------- 9,992,313 - ------------------------------------------------------------------------------------------------------------------------------------ METALS--4.8% Acindar Industria Argentina de Aceros S.A., Notes (Argentina) B2 11.25 2/15/04 750+ 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 4/02/04 750+ 768,750 CSN Iron S.A., Gtd. Notes (Brazil) B1 9.125 6/01/07 1,250+ 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 10/01/05 750+ 720,000 Aracruz Celulose S.A., (Brazil), Notes B1 10.375 1/31/02 1,035+ 1,068,637 Notes B1 10.375 1/31/02 715+ 738,238 Bahia Sul Celulose S.A., Notes (Brazil) NR 10.625 7/10/04 500+ 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 3/15/04 750+ 747,187 Fonda Group Inc., Sr. Sub. Notes, Ser. B B3 9.50 3/01/07 750 735,000 - ------------------------------------------------------------------------------------------------------------------------------------ See Notes to Financial Statements. F-22 Portfolio of Investments as of March 31, 1998 THE HIGH YIELD PLUS FUND, INC. ==================================================================================================================================== MOODY'S PRINCIPAL DESCRIPTION RATING INTEREST MATURITY AMOUNT VALUE (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 1,000+ 1,006,250 Pindo Deli Finance Mauritius Ltd., Gtd. Sr. Notes (Indonesia) Caa 10.75 10/01/07 1,250+ 1,012,500 Repap New Brunswick, Inc., Sr. Sec. Notes (Canada) Caa 10.625 4/15/05 1,500+ 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 9/30/05 500+ 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 12/15/05 750+ 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 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 6/01/06 500+ 438,675 Notes Ba1 7.625 4/15/07 1,000+ 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 - ------------------------------------------------------------------------------------------------------------------------------------ See Notes to Financial Statements. F-23 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.) Philippine Long Dist. Tel. Co., Notes (The Philippines) Ba2 7.85% 3/06/07 $1,750+ $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 6/15/06 350+ 234,500 - ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION--0.9% MRS Logistica S.A., Notes (Brazil) B1## 10.625 8/15/05 500+ 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) Bal## 9.00 9/16/04 500+ 496,250 ----------- Total corporate bonds (cost $116,837,701) 118,948,685 - ----------------------------------------------------------------------------------------------------------------------------------- FOREIGN GOVERNMENT OBLIGATIONS+--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 Columbia, 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 7,487,582 (cost $6,786,157) - ------------------------------------------------------------------------------------------------------------------------------------ See Notes to Financial Statements. F-24 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) - ------------------------------------------------------------------------------------------------------------------------------------ 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% $104,558,372 ============ - -------------- * --Non-income-producing security. ** --Represents issuer in default on interest payments; non-income-producing security. ## --S&P Equivalent to Moody's Rating. + --US$ 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. F-25 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 $9.21 outstanding) ===== - ------------------------------------------------------------------------------------------------------------------------------------ See Notes to Financial Statements. F-26
THE HIGH YIELD PLUS FUND, INC. STATEMENT OF OPERATIONS ================================================================================ + NET INVESTMENT INCOME YEAR ENDED 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 ============ - -------------------------------------------------------------------------------- See Notes to Financial Statements. F-27
THE HIGH YIELD PLUS FUND, INC. STATEMENT OF CASH FLOWS ===================================================================================================================== INCREASE (DECREASE) IN CASH YEAR ENDED 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. F-28 THE HIGH YIELD PLUS FUND, INC. STATEMENT OF CHANGES IN NET ASSETS ==================================================================================================================================== INCREASE (DECREASE) YEAR ENDED MARCH 31, 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 =========== =========== - ------------------------------------------------------------------------------------------------------------------------------------ See Notes to Financial Statements. F-29
NOTES TO FINANCIAL STATEMENTS THE HIGH YIELD PLUS FUND, INC. ================================================================================ 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 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 F-30 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 F-31 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. F-32
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. F-33 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 F-34 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. F-35 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. F-36 APPENDIX A DESCRIPTION OF RATINGS MOODY'S INVESTORS SERVICE LONG-TERM RATINGS Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuations or protective elements may be of greater amplitude or there may be other elements present which make long-term risks appear somewhat larger than in Aaa securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa Bonds which are Baa rated are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during other good and bad times over the future. Uncertainty of position characterizes bonds in this class. B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. A-1 Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Note Moody's applies numerical modifiers 1, 2 and 3 in each generic range classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher SHORT-TERM RATINGS Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations which have an original maturity not exceeding one year. Among the obligations covered are commercial paper, Eurocommercial paper, bank deposits, bankers' acceptances and obligations to deliver foreign exchange. Obligations relying upon support mechanisms such as letters-of-credit and bonds of indemnity are excluded unless explicitly rated. Issuers rated Prime-l (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: - Leading market positions in well-established industries. - High rates of return on funds employed. - Conservative capitalization structure with moderate reliance on debt and ample asset protection. - Broad margins in earnings coverage of fixed financial charges and high internal cash generation. - Well-established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will- normally be evidenced by many of the characteristics cited above but to a lesser degree. A-2 Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. Preferred Stock Ratings Preferred stock rating symbols and their definitions are as follows: aaa An issue which is rated "aaa" is considered to be a top-quality preferred stock. This rating indicates good asset protection and the least risk of dividend impairment within the universe of preferred stocks. aa An issue which is rated "aa" is considered a high-grade preferred stock. This rating indicates that there is reasonable assurance that earnings and asset protection will remain relatively well maintained in the foreseeable future. a An issue which is rated "a" is considered to be an upper-medium grade preferred stock. While risks are judged to be somewhat greater than in the "aaa" and "aa" classifications, earnings and asset protections are, nevertheless, expected to be maintained at adequate levels. baa An issue which is rated "baa" is considered to be medium grade preferred stock, neither highly protected nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over any great length of time. ba An issue which is rated "ba" is considered to have speculative elements and its future cannot be considered well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse periods. Uncertainty of position characterizes preferred stocks in this class. b An issue which is rated "b" generally lacks the characteristics of a desirable investment. Assurance of dividend payments and maintenance of other terms of the issue over any long period of time may be small. caa An issue which is rated "caa" is likely to be in arrears on dividend payments. This rating designation does not purport to indicate the future status of payments. ca An issue which is rated "ca" is speculative in a high degree and is likely to be in arrears on dividends with little likelihood of eventual payment. A-3 c This is the lowest rated class of preferred or preference stock. Issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Note Moody's applies numerical modifiers 1, 2 and 3 in each rating classification. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. A-4 STANDARD & POOR'S CORPORATION LONG-TERM ISSUE CREDIT RATINGS AAA An obligation rated `AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment is EXTREMELY STRONG. AA An obligation rated `AA' differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is VERY STRONG. A An obligation rated `A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in the higher rated categories. However, the obligor's capacity to meet its financial commitment is still STRONG. BBB An obligation rated `BBB' exhibits ADEQUATE protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to meet its financial commitment on the obligation. Obligations rated `BB', `B', `CCC', `CC' and `C' are regarded as having significant speculative characteristics. `BB' indicates the least degree of speculation and `C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. BB An obligation rated `BB' is LESS VULNERABLE to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B An obligation rated `B' is MORE VULNERABLE to nonpayment than obligations rated `BB,' but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC An obligation rated `CCC' is CURRENTLY VULNERABLE to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment. CC An obligation rated `CC' is CURRENTLY HIGHLY VULNERABLE to A-5 nonpayment. C The `C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. D An obligation rated `D' is in payment default. The `D' rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The `D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. Plus (+) or Minus (-) The ratings from `AA' to `CCC' may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. NR Indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor's does not rate a particular type of obligation as a matter of policy. SHORT-TERM ISSUE CREDIT RATINGS A-1 A short-term obligation rated `A-l' is rated in the highest category by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong. A-2 A short-term obligation rated `A-2' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory A-3 A short-term obligation rated `A-3' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. A-6 B A short-term obligation rated `B' is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. C A short-term obligation rated `C' is currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation. D A short-term obligation rated `D' is in payment default. The `D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The `D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. DUAL RATING DEFINITIONS Standard & Poor's assigns "dual" ratings to all debt issues that have a put option or demand feature as part of their structure. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addressed only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity and the commercial paper rating symbols for the put option (for example, AAA/A-I +). With short-term demand debt, Standard & Poor's note rating symbols are used with the commercial paper rating symbols (for example, SP-l +/A-l +). The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity and the commercial paper rating symbols are used to denote the put option (for example, "AAA/A-l") or if the nominal maturity is short, a rating of "SP-l +/AAA" is assigned. MUNICIPAL NOTES A Standard & Poor's note ratings reflects the liquidity factors and market access risks unique to notes. Notes due in 3 years or less will likely receive a note rating. Notes maturing beyond 3 years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment: - Amortization schedule (the longer the final maturity relative to other maturities the more likely it will be treated as a note). - Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note). Note rating symbols are as follows: SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. A-7 SP-2 Satisfactory capacity to pay principal and interest with some vulnerability to adverse financial and economic changes over the term of the notes. SP-3 Speculative capacity to pay principal and interest. PREFERRED STOCK A Standard & Poor's preferred stock rating is an assessment of the capacity and willingness of an issuer to pay preferred stock dividends and any applicable sinking fund obligations. A preferred stock rating differs from a bond rating inasmuch as it is assigned to an equity issue, which issue is intrinsically different from, and subordinated to, a debt issue. Therefore, to reflect this difference, the preferred stock rating symbol will normally not be higher than the debt rating symbol assigned to, or that would be assigned to, the senior debt of the same issuer. The preferred stock ratings are based on the following considerations: l. Likelihood of payment - capacity and willingness of the issuer to meet the timely payment of preferred stock dividends and any applicable sinking fund requirements in accordance with the terms of the obligation; 2. Nature of, and provisions of, the issue; 3. Relative position of the issue in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. AAA This is the highest rating that may be assigned by Standard & Poor's to a preferred stock issue and indicates an extremely strong capacity to pay the preferred stock obligations. AA A preferred stock issue rated `AA' also qualifies as a high-quality fixed income security. The capacity to pay preferred stock obligations is very strong, although not as overwhelming as for issues rated `AAA ` . A An issue rated `A' is backed by a sound capacity to pay the preferred stock obligations, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. BBB An issue rated `BBB' is regarded as backed by an adequate capacity to pay the preferred stock obligations. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to make payments for preferred stock in this category than for issues in the `A' category. BB, B Preferred stock rated `BB', `B', or `CCC' is regarded, on CCC balance, as predominantly speculative with respect to the issuer's capacity to pay preferred stock obligations. A-8 `BB' indicates the lowest degree of speculation and `CCC' the highest degree of speculation. While such issues will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. CC The rating `CC' is reserved for a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying. C A preferred stock rated `C' is a non-paying issue. D A preferred stock rated `D' is a non-paying issue with the issuer in default on debt instruments. NR This indicates that no rating has been requested, that there is insufficient information on which to base a rating or that Standard & Poor's does not rate a particular type of obligation as a matter of policy. Plus (+) or Minus (-) To provide more detailed indications of preferred stock quality, the ratings from `AA' to `CCC' may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. A-9 APPENDIX B CHARACTERISTICS OF OPTIONS ON SECURITIES AND ASSOCIATED RISKS The writer of an option receives a premium which it retains whether or not the option is exercised. The Fund's principal objective in writing options is to realize, through the receipt of premiums, a greater return than would be realized on the underlying securities alone. The purchaser of a call option has the right, for a specified period of time, to purchase the securities subject to the option at a specified price (the "exercise price"). By writing a call option, the writer becomes obligated during the term of the option, upon exercise of the option, to sell the underlying securities to the purchaser against receipt of the exercise price. The writer of a call option also loses the potential for gain on the underlying securities in excess of the exercise price of the option during the period that the option is open. Conversely, the purchaser of a put option has the right, for a specified period of time, to sell the securities subject to the option to the writer of the put at the specified exercise price. The writer of an exchange-traded option that wishes to terminate its obligation may effect a "closing purchase transaction". This is accomplished by buying an option of the same series as the option previously written. (Options of the same series are options with respect to the same underlying security, having the same expiration date and the same exercise price.) Likewise, an investor who is the holder of an option may liquidate a position by effecting a "closing sale transaction". This is accomplished by selling an option of the same series as the option previously purchased. There is no guarantee that either a closing purchase or a closing sale transaction can be effected. An exchange-traded option position may be closed out only where there exists a secondary market for an option of the same series. For a number of reasons, a secondary market may not exist for options held by the Fund, or trading in such options might be limited or halted by the exchange on which the option is trading, in which case it might not be possible to effect closing transactions in particular options the Fund has purchased with the result that the Fund would have to exercise the options in order to realize any profit. If the Fund is unable to effect a closing purchase transaction in a secondary market in an option the Fund has written, it will not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise or it otherwise covers its position. Exchange-traded options in the U.S. are issued by a clearing organization affiliated with the exchange on a which the option is listed which, in effect, gives its guarantee to every exchange-traded option transaction. In contrast, options traded on the over-the-counter market ("OTC options") are contracts between the Fund and its contra-party with no clearing organization guarantee. Thus, when the Fund purchases an OTC option, it relies on the dealer from which it has purchased the OTC option to make or take delivery of the securities underlying the option. Failure by the dealer to do so would result in the loss of the premium paid by the Fund as well as the loss of the expected B-1 benefit of the transaction. The Board of Directors will evaluate the creditworthiness of any dealer from which the Fund proposes to purchase options. Exchange-traded options generally have a continuous liquid market while OTC options may not. Consequently, the Fund will generally be able to realize the value of an OTC option it has purchased only by exercising it or reselling it to the dealer who issued it. Similarly, when the Fund writes an OTC option, it generally will be able to close out the OTC option prior to its expiration only by entering into a closing purchase transaction with the dealer to which the Fund originally wrote the OTC option. While the Fund will enter into OTC options only with dealers which agree to, and which are expected to be capable of entering into closing transactions with the Fund, there can be no assurance that the Fund will be able to liquidate an OTC option at a favorable price at any time prior to expiration. Until the Fund is able to effect a closing purchase transaction in a covered OTC call option the Fund has written, it will not be able to liquidate securities used as cover until the option expires or is exercised or different cover is substituted. In the event of insolvency of the contra-party, the Fund may be unable to liquidate an OTC option. With respect to options written by the Fund, the inability to enter into a closing purchase transaction may result in material losses to the Fund. For example, since the Fund must maintain a covered position with respect to any call option on a security it writes, the Fund may be limited in its ability to sell the underlying security while the option is outstanding. This may impair the Fund's ability to sell a portfolio security at a time when such a sale might be advantageous. Currently, many options on equity securities are exchange-traded, whereas options on debt securities are primarily traded on the over-the counter market. In considering the use of options to hedge the Fund's portfolio, particular note should be taken of the following additional considerations: (1) As described in this Prospectus, the Fund may, among other things, purchase call options on debt securities it intends to acquire in order to hedge against anticipated market appreciation in the price of the underlying security. If the market price does increase as anticipated, the Fund will benefit from that increase but only to the extent that the increase exceeds the premium paid and related transaction costs. If the anticipated rise does not occur or if it does not exceed the amount of the premium and related transaction costs, the Fund will bear the expense of the option without gaining an offsetting benefit. If the market price of the debt securities should fall instead of rise, the benefit the Fund obtains from purchasing the securities at a lower price will be reduced by the amount of the premium paid for the call options and by transaction costs. (2) The Fund also may purchase put options on equity securities issued by the issuer of debt securities held by the Fund in order to hedge against declines in the debt securities attributable to the issuer's credit: or may purchase put options on portfolio debt securities when it believes a defensive posture is warranted. Protection is provided during the life of a put option because the put gives the Fund the right to sell the underlying security at the put exercise price, regardless of a decline in the underlying security's market price below the exercise price. This right limits the Fund's losses from the security's possible decline in value below the exercise B-2 price of the option to the premium paid for the option and related transaction costs. If the market price of the Fund's portfolio should increase, however, the profit which the Fund might otherwise have realized will be reduced by the amount of the premium paid for the put option and by transaction costs. (3) The value of an option position will reelect, among other things, the current market price of the underlying security, the time remaining until expiration, the relationship of the exercise price to the market price, the historical price volatility of the underlying security and general market conditions. For this reason, the successful use of options as a hedging strategy depends upon the adviser's ability to forecast the direction of price fluctuations in the underlying securities market. (4) Options normally have expiration dales of up to nine months. The exercise price of the options may be below, equal to or above the current market values of the underlying securities at the time the options are written. Options that expire unexercised have no value. Unless an Option purchased by the Fund is exercised or unless a closing transaction is effected with respect to that position, a loss will be realized in the amount of the premium paid (and related transaction costs). (5) The Fund's activities in the options markets may result in a higher portfolio turnover rate and additional brokerage costs; however, the Fund may also save on commissions and transaction costs by hedging through such activities rather than buying or selling securities in anticipation of market moves. (6) A holder of a stock index option who exercises it before the closing index value for that day is available runs the risk that the level of the underlying index may subsequently change. For example, in the case of a call, if such a change causes the closing index value to fall below the exercise price of the option on that index, the exercising holder will be required to pay the difference between the closing index value and the exercise price of the option. SPECIAL CHARACTERISTICS OF FUTURES AND OPTIONS THEREON AND ASSOCIATED RISKS The Fund may enter into futures contracts for the purchase or sale of certain debt securities, aggregates of debt securities or indices of prices thereof ("interest rate futures contracts"), aggregates of equity securities or indices of prices thereof ("stock index futures contracts"), and other financial indices (collectively, financial futures contracts") and options thereon. A "sale" of a futures contract (or a "short" futures position) means the assumption of a contractual obligation to deliver the securities underlying the contract at a specified price at a specified future time. "A purchase" of a futures contract (or a "long" futures position) means the assumption of a contractual obligation to acquire the securities underlying the contract at a specified price at a specified future time. No price is paid upon entering into a futures contract. Certain futures contracts are settled on a net cash payment basis rather than by the sale and delivery of the securities underlying the futures contracts. U.S. futures contracts and options thereon have been designed B-3 by exchanges that have been designated as "contract markets" by the CFTC and must be executed though a futures commission merchant (i.e., a brokerage firm) which is a member of the relevant contract market. Futures contracts and options thereon trade on these contract markets and the exchange's affiliated clearing organization guarantees performance of the contracts as between the clearing members of the exchange. An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the option exercise period. The writer of the option is required upon exercise to assume a short futures position (if the option is a call) or a long futures position (if the option is a put). Upon exercise of the option, the assumption of offsetting futures positions by the writer and holder of the option will be accompanied by delivery of the accumulated cash balance in the writer's futures margin account with respect to that option, which represents the amount by which the market price of the futures contract at exercise exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the futures contract. At the time a futures contract is purchased or sold, the Fund must allocate cash or securities as a deposit payment ("initial margin"). It is expected that the initial margin on U.S. exchanges may range from approximately 5% to approximately 15% of the value of the securities or commodities underlying the contract. Under certain circumstances, however, such as periods of high volatility, the Fund may be required by an exchange to increase the level of its initial margin payment. Additionally, initial margin requirements may be increased generally in the future by regulatory action. An outstanding futures contract is valued daily and the payment in cash of "variation margin" may be required, a process known as "mark to the market". Each day the Fund is required to provide or is entitled to receive variation margin in an amount equal to any decline (in the case of a long futures position) or increase (in the case of a short futures position) in the contract s value since the preceding day. Although futures contracts by their terms may call for the actual delivery or acquisition of underlying securities, in most cases the contractual obligation is extinguished by offset before the expiration of the contract without having to make or take delivery of the securities. The offsetting of a contractual obligation is accomplished by buying (to offset an earlier sale) or selling (to offset an earlier purchase) an identical futures contract calling for delivery in the same month. Such a transaction cancels the obligation to make or take delivery of the underlying securities. The Fund will incur brokerage fees and related transaction costs when it purchases or sells futures contracts. Futures contracts entail special risks. Among other things, the ordinary spreads between values in the cash and futures markets due to differences in the character of these markets, are subject to distortions relating to investors' obligations to meet additional variation margin requirements: decisions to make or take delivery, rather than entering into offsetting transactions; and the difference between margin requirements in the B-4 securities markets and margin deposit requirements in the futures market. The possibility of such distortion means that a correct forecast of general interest rate trends by the Adviser may still not result in a successful transaction. Although the Fund believes that use of such contracts will benefit the Fund, if the Adviser's judgment about the general direction of interest rates is incorrect the Fund's overall performance would be poorer than if it had not entered into any such contracts. For example, if the Fund has hedged against the possibility of an increase in interest rates which would adversely affect the price of debt securities held in its portfolio and interest rates decrease instead, the Fund will lose part or all of the benefit of the increased value of its assets which it has hedged because it will have offsetting losses in its futures positions. In addition, particularly in such situations, if the Fund has insufficient cash, it may have to sell assets from its portfolio to meet daily variation margin requirements. Any such sale of assets may, but will not necessarily, be at increased prices which reflect the rising market. Consequently, the Fund may have to sell assets at a time when it may be disadvantageous to do so. The Fund's ability to establish and close out positions in futures contracts and options on futures contracts will be subject to the development and maintenance of a liquid market. Although the Fund generally will purchase or sell only those futures contracts and options thereon for which there appears to be a liquid market, there is no assurance that a liquid market on an exchange will exist for any particular futures contract or option thereon at any particular time. Although futures contracts on indices of (investment grade) corporate debt securities do currently exist, the markets in these futures contracts are new and highly illiquid. Under certain circumstances, futures exchanges may establish daily limits in the amount that the price of a futures contract or related option contract may vary either up or down from the previous day's settlement price. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may prevent the liquidation of unfavorable positions. Futures or options contract prices could move to the daily limit for several consecutive trading days with little or no trading and thereby prevent prompt liquidation of positions and subject some traders to substantial losses. Where it is not possible to effect a closing transaction in a contract or to do so at a satisfactory price, the Fund would have to make or take delivery under the futures contract, or, in the case of a purchased option, exercise the option. In the case of a futures contract which the Fund has sold and is unable to close out, the Fund would be required to maintain margin deposits on the futures contract and to make arbitration margin payments until the contract is closed. B-5 PART C OTHER INFORMATION Item 24. FINANCIAL STATEMENTS AND EXHIBITS. (1) Financial Statements: (a) Financial Highlights, six months ended September 30, 1998 (unaudited); years ended March 31, 1998, 1997, 1996, 1995, 1994, 1993, 1992, 1991 and 1990, and the period April 22, 1988 (commencement of operations) to March 31, 1989. (b) Portfolio of Investments as of March 31, 1998. (c) Statement of Assets and Liabilities, March 31, 1998. (d) Statement of Operations, March 31, 1998. (e) Statement of Cash Flows, March 31, 1998. (f) Statement of Changes in Net Assets, years ended March 31, 1998 and 1997. (g) Notes to Financial Statements. (h) Report of Independent Accountants. Financial Statements (unaudited): (a) Portfolio of Investments as of September 30, 1998. (b) Statement of Assets and Liabilities, September 30, 1998. (c) Statement of Operations for the six months ended September 30, 1998. (d) Statement of Cash Flows for the six months ended September 30, 1998. (e) Statement of Changes in Net Assets for the six months ended September 30, 1998 and the fiscal year ended March 31, 1998. (f) Notes to Financial Statements. (2) Exhibits (a)(1) Articles of Incorporation dated February 3, 1988.(1) (a)(2) Articles of Amendment and Restatement dated February 22, 1988.(1) (a)(3) Articles of Amendment and Restatement dated April 13, 1988.(1) (b) By-Laws, as amended May 28, 1997.(1) (c) Not applicable. (d)(1) Specimen Certificate for Shares -- filed herewith. (d)(2) Form of Subscription Certificate -- filed herewith. (d)(3) Form of Notice of Guaranteed Delivery -- filed herewith. (d)(4) Form of Letter of Instructions -- filed herewith. (d)(5) Form of Nominee Holder Certification -- filed herewith. (d)(6) Form of Special Instructions -- filed herewith. (d)(7) Form of Nominee Holder Over-Subscription Form -- filed herewith. (e) Dividend Reinvestment Plan.(1) (f) Not applicable. (g) Investment Advisory Agreement with Wellington Management Company/Thorndike, Doran, Paine & Lewis dated April 15, 1988.(1) (h)(1) Form of Dealer-Manager Agreement with A.G. Edwards & Sons, Inc. -- filed herewith. (i) Not applicable. (j) Custody Agreement with State Street Bank and Trust Company dated April 15, 1988.(1) (k)(1) Administration Agreement with Prudential Mutual Fund Management, Inc. dated April 15, 1988.(1) (k)(2) Registrar, Transfer Agency and Service Agreement with State Street Bank and Trust Company dated April 15, 1988.(1) (k)(3) Credit Agreement with the First National Bank of Boston dated as of October 31, 1993.(1) (k)(3)(i) First Amendment to Credit Agreement dated as of October 30, 1994.(1) (k)(3)(ii) Second Amendment to Credit Agreement dated as of September 1, 1995.(1) (k)(3)(iii) Third Amendment to Credit Agreement dated as of May 15, 1996.(1) (k)(3)(iv) Fourth Amendment to Credit Agreement dated as of March 11, 1997.(1) (k)(3)(v) Fifth Amendment to Credit Agreement dated as of May 22, 1998.(1) (k)(4) Form of Subscription Agent Agreement -- filed herewith. (k)(5) Form of Information Agent Agreement -- filed herewith. (l) Opinion and consent of Kirkpatrick & Lockhart LLP -- filed herewith. (m) Not applicable. (n)(1) Consent of PricewaterhouseCoopers LLP -- filed herewith. (n)(2) Consent of Deloitte & Touche LLP -- filed herewith. (o) Not applicable. (p) Not applicable. (q) Not applicable. (r)(1) Financial Data Schedule for six months ended September 30, 1998 -- filed herewith. (r)(2) Financial Data Schedule for fiscal year ended March 31, 1998 -- filed herewith. - ------------------- (1) Incorporated herein by reference to the corresponding Exhibit to the Fund's Registration Statement, SEC File No. 333-67339, filed electronically November 16, 1998. C-2 Item 25. MARKETING ARRANGEMENTS. See Exhibits (h)(1) and (h)(2) of Item 24(2) of this Registration Statement. Item 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses to be incurred in connection with the Offer described in this Registration Statement: Registration fees $7,800 National Association of Securities $3,600 Dealers, Inc. fees New York Stock Exchange listing fee $13,300 Printing $30,000 Accounting fees and expenses $40,000 Legal fees and expenses $110,000 Dealer-Manager's expense reimbursement $50,00 Information Agent fees and expenses $30,000 Subscription Agent fees and expenses $40,000 Miscellaneous $20,000 Total $344,700 -------- Item 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT: None Item 28. NUMBER OF HOLDERS OF SECURITIES: (1) (2) Number of Record Holders Title of Class As of September 30, 1998 -------------- --------------------------- Common Stock 8569 Item 29. INDEMNIFICATION. Reference is made to the Registrant's By-laws, as amended, filed as Exhibit 2(b), the Dealer-Manager Agreement filed as Exhibit 2(h)(1), the Investment Advisory Agreement filed as Exhibit 2(g), and the Administration Agreement filed as Exhibit 2(k)(1), which provide for indemnification or contribution. The Registrant's officers, Directors and agents also have the benefit of the Maryland General Corporation law provisions regarding indemnification and insurance, including, but not limited to Section 2-418 and Section 2-405.2 thereof, subject also to the indemnification permitted under Sections 17(h) and 17(i) of the 1940 Act and the regulations and releases promulgated by the Commission thereunder. C-3 Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The Registrant and its directors and officers are insured by a directors and officers/errors and omissions liability policy. Item 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER. Wellington Management Company, LLP, a Massachusetts limited liability partnership, is a registered investment adviser engaged in the investment advisory business. Information as to the managing partners of the Adviser is included in its Form ADV filed on March 30, 1987 with the Securities and Exchange Commission (File No. 801-15908), as amended, and is incorporated herein by reference thereto together with all amendments thereto subsequently filed. Item 31. LOCATION OF ACCOUNTS AND RECORDS: The accounts and records of the Registrant are maintained at the office of the Registrant at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey, 07102 and at the office of its custodian, State Street Bank and Trust Company, One Heritage Drive, North Quincy, Massachusetts, 02171. Item 32. MANAGEMENT SERVICES. Not applicable. Item 33. UNDERTAKINGS. (1) The Registrant undertakes to suspend the offering of shares covered hereby until it amends its prospectus contained herein if (i) subsequent to the effective date of this Registration Statement, its net asset value declines more than 10 percent from its net asset value as of the effective date of this Registration Statement, or (ii) its net asset value increases to an amount greater than its net proceeds as stated in the prospectus contained herein. C-4 (2) Not applicable. (3) Not applicable. (4) The Registrant undertakes: a. to file, during any period in which offers or sales are being made, a post-effective amendment to the registration statement: (1) to include any prospectus required by Section 10(a)(3) of the 1933 Act [15 U.S.C. 77j(a)(3)]; (2) to reflect in the prospectus any facts or events after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (3) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. b. that, for the purpose of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof; and c. to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (5) The Registrant undertakes that: a. For the purpose of determining any liability under the 1933 Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant under Rule 497(h) under the 1933 Act shall be deemed to be part of the Registration Statement as of the time it was declared effective. b. For the purpose of determining any liability under the 1933 Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof. (6) Not applicable. C-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Amendment to its Registration Statement on Form N-2 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Newark and the State of New Jersey, on the 28th day of December, 1998. THE HIGH YIELD PLUS FUND, INC. By: /s/ THOMAS T. MOONEY* --------------------- Thomas T. Mooney President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form N-2 has been signed below by the following persons in their capacities as officers and Directors of the Registrant. SIGNATURES TITLE DATE /s/ Thomas T. Mooney* President, Treasurer and December 28, 1998 Thomas T. Mooney Director /s/ Eugene C. Dorsey* Director December 28, 1998 - -------------------- Eugene C. Dorsey /s/ Douglas H. McCorkindale* Director December 28, 1998 - --------------------------- Douglas H. McCorkindale - -------- * Signatures affixed by Stephanie A. Djinis pursuant to a Power of Attorney dated November 2, 1998, a copy of which is filed herewith. C-6 POWER OF ATTORNEY I, the undersigned Director of the following investment company: THE HIGH YIELD PLUS FUND, INC. (the "Fund"), hereby constitute and appoint each of Stephanie A. Djinis and Arthur J. Brown my true and lawful attorney-in-fact, with full power of substitution, and with full power to sign for me and in my name in the appropriate capacity, any Registration Statements on Form N-2, and any Pre-Effective Amendments and Post-Effective Amendments to said Registration Statements, any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorney-in-fact deems necessary or appropriate, to comply with the provisions of the Securities Act of 1933 and the Investment Company Act of 1940, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorney-in-fact or his or her substitutes may do or cause to be done by virtue hereof. WITNESS my hand as of the date set forth below. SIGNATURE DATE /s/ Eugene C. Dorsey November 2, 1998 - -------------------- Eugene C. Dorsey /s/ Thomas T. Mooney November 2, 1998 - -------------------- Thomas T. Mooney /s/ Douglas H. Mccorkindale November 2, 1998 - ------------------------------ Douglas H. McCorkindale INDEX OF EXHIBITS 2(d)(1) Specimen Certificate for Shares 2(d)(2) Form of Subscription Certificate 2(d)(3) Form of Notice of Guaranteed Delivery 2(d)(4) Form of Letter of Instructions 2(d)(5) Form of Nominee Holder Certification 2(d)(6) Form of Special Instructions 2(d)(7) Form of Nominee Holder Over-Subscription Form 2(h)(1) Form of Dealer-Manager Agreement with A.G. Edwards & Sons, Inc. 2(k)(4) Form of Subscription Agent Agreement 2(k)(5) Form of Information Agent Agreement 2(l) Opinion and consent of Kirkpatrick & Lockhart LLP 2(n)(1) Consent of PricewaterhouseCoopers LLP 2(n)(2) Consent of Deloitte & Touche LLP 2(r)(1) Financial Data Schedule for six months ended September 30, 1998 2(r)(2) Financial Data Schedule for fiscal year ended March 31, 1998 EX-99.2D1 2 Exhibit 2(d)(1) Temporary Certificate -- Exchangeable for Definitive Engraved Certificate When Ready for Delivery [GRAPHIC BORDER] [GRAPHIC] [GRAPHIC] COMMON STOCK COMMON STOCK PAR VALUE PAR VALUE $.01 PER SHARE $.01 PER SHARE THE HIGH YIELD PLUS FUND, INC. THIS CERTIFICATE IS TRANSFERRABLE IN BOSTON OR NEW YORK CITY INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS OF THE STATE OF MARYLAND CUSIP 429906 10 0 This certifies that [STAMP] Is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF THE HIGH YIELD PLUS FUND, INC. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be subject to all of the provisions of Articles of Incorporation and Bylaws of the Corporation, each as from time to time amended, copies of which are on file with the Transfer Agent and Registrar, to all of which the holder by acceptance hereof assents. This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. /s/ Arthur Brown [THE HIGH YIELD PLUS FUND, INC. /s/ Edward D. Beach Secretary CORPORATE SEAL] President [GRAPHIC BORDER] THE HIGH YIELD PLUS FUND, INC. The Corporation will furnish to any stockholder upon request and without charge a full statement of the designations, preferences, limitations, and relative rights of the shares of each class of stock authorized to be issued and, with respect to the classes of stock which may be issued in series, the variations in the relative rights and preferences between the shares of each such series, so far as the same have been fixed and determined, and the authority of the Board of Directors to fix and determine the relative rights and preferences of subsequent series. Such request may be made to the Secretary of the Corporation at its principal office or to the Transfer Agent. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM --as tenants in common UNIF GIFT MIN ACT-- Custodian --------- --------- (Cust) (Minor) TEN ENT --as tenants by the entireties under Uniform Gifts to Minors JT TEN --as joint tenants with right Act of survivorship and not as ------------------- tenants in common (State) Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED--HEREBY SELL, ASSIGN, AND TRANSFER UNDER PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ----------------------------------------- - -------------------------------------------------------------------------------- PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHARES OF THE COMMON STOCK REPRESENTED BY THE, WITHIN CERTIFICATE AND DO HEREBY IRREVOCABLY, CONSTITUTE, AND APPOINT __________________ ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED CORPORATION, WITH FULL POWER OF SUBSTITUTION IN THE PREMISES. DATED -------------------- -------------------------------------- NOTICE - THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. EX-99.2D2 3 EXHIBIT 2(d)(2) CONTROL NO. ____________ MAXIMUM SHARES AVAILABLE 3,796,342 THE OFFER EXPIRES AT 5:00 P.M., EASTERN TIME, ON FEBRUARY 2, 1999* THE HIGH YIELD PLUS FUND, INC. RIGHTS FOR COMMON STOCK Form of Subscription Certificate The High Yield Plus Fund, Inc. (the "Fund") issued to its shareholders of record (the "Record Date Shareholders"), as of the close of business on December 31, 1998 (the "Record Date"), transferable rights ("Rights") on the basis of one Right for each three shares held on the Record Date, entitling the holders thereof to subscribe for shares ("Shares") of the Fund's common stock, par value $0.01 per share (the "Common Stock") at a rate of one Share for every one Right held. The terms and conditions of the rights offer (the "Offer") are set forth in the Fund's January ___, 1999 Prospectus (the "Prospectus") incorporated herein by reference. The owner of this Subscription Certificate, or assignee, is entitled to the number of Rights shown on this Subscription Certificate and is entitled to subscribe for the number of Shares shown on this Subscription Certificate. Record Date Shareholders and persons who become holders of Rights who are not Record Date Shareholders ("Rights Holders") who have fully exercised their Rights pursuant to the Primary Subscription are entitled to subscribe for additional Shares pursuant to the Over-Subscription Privilege, subject to certain limitations and allotment, as described in the Prospectus. Capitalized terms not defined herein have the meanings attributed to them in the Prospectus. The Fund will not offer or sell in connection with the Offer any Shares which are not subscribed for pursuant to the Primary Subscription or the Over-Subscription Privilege. SAMPLE CALCULATION Primary Subscription Entitlement (1-for 3) No. of shares owned on the Record Date 300 / 3 = 100 = 100 new Shares ------ -- ------ (equals no. of Rights issued) (ignore fractions) THE RIGHTS ARE TRANSFERABLE The Rights are transferable until the Expiration Date (February 2, 1999)*. The Rights will be listed for trading on the New York Stock Exchange under the symbol "HYP.RT". If you wish to sell all or a portion of your Rights through the Subscription Agent, the Rights must be received by the Subscription Agent at or prior to 5:00 p.m., Eastern time, on January 29, 1999, two business days prior to the Expiration Date. ESTIMATED SUBSCRIPTION PRICE The Estimated Subscription Price is ______ per share. METHOD OF EXERCISE OF RIGHTS IN ORDER TO EXERCISE YOUR RIGHTS, YOU MUST EITHER (i) COMPLETE AND SIGN THIS SUBSCRIPTION CERTIFICATE ON THE BACK AND RETURN IT TOGETHER WITH PAYMENT OF THE ESTIMATED SUBSCRIPTION PRICE PER SHARE FOR THE SHARES SUBSCRIBED, OR (ii) PRESENT A PROPERLY COMPLETED NOTICE OF GUARANTEED DELIVERY, IN EITHER CASE TO THE SUBSCRIPTION AGENT, STATE STREET BANK AND TRUST COMPANY, BEFORE 5:00 P.M., EASTERN TIME, ON FEBRUARY 2, 1999 ("THE EXPIRATION DATE").* Full payment of the Estimated Subscription Price per Share for all Shares subscribed for pursuant to both the Primary Subscription and the Over-Subscription Privilege must accompany this Subscription Certificate and must be made payable in United States dollars by money order or check drawn on a bank or branch located in the United States payable to The High Yield Plus Fund, Inc. Because uncertified personal checks may take at least five business days to clear, we recommend you pay, or arrange for payment, by means of certified or cashier's check or money order. Alternatively, if a Notice of Guaranteed Delivery is used, a properly completed and executed Subscription Certificate, and full payment, as described in such notice, must be received by the Subscription Agent no later than the close of business on the third business day (February 5, 1999) after the Expiration Date (February 2, 1999)*. For additional information, see the Prospectus. Certificates for the Shares acquired pursuant to both the Primary Subscription and the Over-Subscription Privilege will be mailed promptly after the expiration of the Offer and full payment for the Shares subscribed for has been received and cleared. Any excess payment to be refunded by the Fund to a shareholder will be mailed by the Subscription Agent to such shareholder as promptly as practicable. Any additional amounts due from shareholders (in the event the actual Subscription Price exceeds the Estimated Subscription Price) must be received within [seven (7)] business days after the Confirmation Date. Account #: Control #: Number of Rights Issued: CUSIP #: ___________ (continued on back)
- ---------------------------------------- -------------------------------------- -------------------------------------- BY FIRST CLASS MAIL: BY OVERNIGHT COURIER: BY HAND: State Street Bank and Trust Company State Street Bank and Trust Company Bank of Boston Corporate Reorganization Corporate Reorganization c/o Boston EquiServe c/o Boston EquiServe c/o Boston EquiServe Corporate Reorganization P.O. Box __________ 150 Royall Street 95 Broadway -3rd Floor ______, MA _____ Canton, MA 02021 New York, NY 10006 U.S.A. U.S.A. U.S.A. - ---------------------------------------------------------------------------------------------------------------------- Delivery to an address other than one of the addresses listed above will not constitute valid delivery. - ---------------------------------------------------------------------------------------------------------------------- PLEASE PRINT ALL INFORMATION CLEARLY AND LEGIBLY - ---------------------------------------------------------------------------------------------------------------------- SECTION 1: OFFERING INSTRUCTIONS (CHECK THE APPROPRIATE BOXES) IF YOU WISH TO SUBSCRIBE FOR YOUR FULL ENTITLEMENT : |_| I apply for ALL of my entitlement of new Shares pursuant to the Primary Subscription_______________ x $_******__= $____________ (no. of new Shares) - ---------------------------------------------------------------------------------------------------------------------- |_| I apply for new Shares pursuant to the Over-Subscription Privilege** ___________________________ x $_******_ = $ _____________ (no. of additional Shares) - ---------------------------------------------------------------------------------------------------------------------- IF YOU DO NOT WISH TO APPLY FOR YOUR FULL ENTITLEMENT: |_| I apply for ______________________________________________________________________________ x $ __******_ = $ ------ (no. of new Shares) - ---------------------------------------------------------------------------------------------------------------------- Amount of check enclosed $___________________ |_| Sell any remaining Rights - ---------------------------------------------------------------------------------------------------------------------- |_| Sell ALL of my Rights - ---------------------------------------------------------------------------------------------------------------------- SECTION 2: SUBSCRIPTION AUTHORIZATION: I acknowledge that I have received the Prospectus for this Offer and I hereby irrevocably subscribe for the number of Shares indicated above on the terms and conditions specified in the Prospectus relating to the Primary Subscription and the Over-Subscription Privilege. I understand and agree that I will be obligated to pay any additional amount to the Fund if the Subscription Price as determined on the Pricing Date is in excess of the $_____ Estimated Subscription Price per Share. I hereby agree that if I fail to pay in full for the Shares for which I have subscribed, the Fund may exercise any of the remedies set forth for in the Prospectus. Signature of Subscriber(s) ____________________________________________________________________________________ (and address, if different) ____________________________________________________________________________________ ____________________________________________________________________________________ Telephone number (including area code) ( ) - ----------------------------------------------------------------------------- If you wish to have your Shares and refund check (if any) delivered to an address other than that listed on this Subscription Certificate you must have your signature guaranteed by a member of the New York Stock Exchange or a bank or trust company. Please provide the delivery address above and note if it is a permanent change. - ---------------------------------------------------------------------------------------------------------------------- SECTION 3: TRANSFER NOTIFICATION (except pursuant to a sale through the Subscription Agent) For value received, I request ___________ Rights represented by this Subscription Certificate be assigned to: Name of Assignee:_______________________________________________________ Address of Assignee:______________________________________________________ Signature of Assignor:_____________________________________________________ IMPORTANT: The signature(s) must correspond with the name(s) printed on your Subscription Certificate. Your signature must be guaranteed by: a commercial bank or trust company, or a member firm of a domestic stock exchange, or a savings bank or credit union. Signature guaranteed by: _______________________________________________________________________________________ PROCEEDS FROM THE SALE OF RIGHTS MAY BE SUBJECT TO WITHHOLDING OF U.S. TAXES UNLESS THE SELLER'S CERTIFIED U.S. TAXPAYER IDENTIFICATION NUMBER (OR CERTIFICATION REGARDING FOREIGN STATUS) IS ON FILE WITH THE SUBSCRIPTION AGENT AND THE SELLER IS NOT OTHERWISE SUBJECT TO U.S. BACKUP WITHHOLDING. - ---------------------------------------------------------------------------------------------------------------------- SECTION 4: DESIGNATION OF BROKER-DEALER The following broker-dealer is hereby designated as having been instrumental in the exercise of the Rights hereby exercised: FIRM:________________________________________________________ REPRESENTATIVE NAME:_____________________________________ REPRESENTATIVE NUMBER:__________________________________ - ----------------------------------------------------------------------------------------------------------------------
* Unless the Offer is extended ** You can participate in the Over-Subscription Privilege only if you have subscribed for your full entitlement of new shares pursuant to the Primary Subscription. *** $____ per share is an estimated price only. The Subscription Price will be determined on February 2, 1999, the Expiration Date, and could be higher or lower depending on the changes in the net asset value and share price of the Common Stock. ANY QUESTIONS REGARDING THIS SUBSCRIPTION CERTIFICATE AND THE OFFER MAY BE DIRECTED TO THE INFORMATION AGENT, SHAREHOLDER COMMUNICATIONS CORPORATION, TOLL FREE AT (800) 733-8481 EXT. 486 INSTRUCTIONS FOR COMPLETING THE SUBSCRIPTION CERTIFICATE THE HIGH YIELD PLUS FUND, INC. The enclosed Subscription Certificate represents the number of Rights, as set forth on the Subscription Certificate, held by the registered holder of such Rights (the "Rights Holder"). The Rights Holder is entitled to acquire one (1) share of the Common Stock of The High Yield Plus Fund, Inc. (the "Fund") for each Right held. To subscribe for shares of Common Stock, the Rights Holder must present to State Street Bank and Trust Company (the "Subscription Agent"), prior to 5:00 p.m., Eastern time, on the Expiration Date, either: (1) a properly completed and executed Subscription Certificate and a money order or check drawn on a bank located in the United States of America and payable to The High Yield Plus Fund, Inc. for an amount equal to the number of Shares subscribed for under the Primary Subscription (and, if such Rights Holder is electing to exercise the Over-Subscription Privilege, under the Over-Subscription Privilege) multiplied by the Estimated Subscription Price; or (2) a Notice of Guaranteed Delivery guaranteeing delivery of (i) a properly completed and executed Subscription Certificate and (ii) a money order or check drawn on a bank located in the United States of America and payable to The High Yield Plus Fund, Inc. for an amount equal to the number of shares subscribed for under the Primary Subscription (and, if such Rights Holder is electing to exercise the Over-Subscription Privilege, under the Over-Subscription Privilege) multiplied by the Estimated Subscription Price (which certificate and money order or check must then be delivered on or before the third business day after the Expiration Date). If the Rights Holder desires to subscribe for additional Shares pursuant to the Over-Subscription Privilege, Section 1 of the Subscription Certificate must be completed to indicate the maximum number of Shares for which such privilege is being exercised. On a date within [eight (8)] business days following the Expiration Date (the "Confirmation Date"), subscribers will be notified as to (i) the number of Shares purchased under the Primary Subscription and, if applicable, the Over-Subscription Privilege, and (ii) any additional amount payable by subscribers to the Fund or any excess to be refunded by the Fund to such subscribers, in each case, based on the actual Subscription Price as determined on the Expiration Date. The Rights Holder should note that the amount payable for the Shares subscribed for pursuant to the Subscription Certificate may be more than the Estimated Subscription Price and that additional amounts in respect of the Subscription Price may be payable following the Expiration Date. Any additional payment required from subscribers must be received by the Subscription Agent within [seven (7)] business days after the Confirmation Date. If the Rights Holder does not make payment of any amounts due in respect of Shares subscribed for, the Subscription Agent reserves the right to (i) find other Rights Holders for the subscribed and unpaid for Shares; (ii) apply any payment actually received by it toward the purchase of the greatest whole number of Shares which could be acquired by such Rights Holder upon exercise of the Primary Subscription and/or Over-Subscription Privilege, and /or (iii) exercise any and all other rights and/or remedies to which it may be entitled, including, without limitation, the right to set-off against payments actually received by it with respect to such subscribed Shares. The Subscription Certificate may be transferred, in the same manner and with the same effect as in the case of a negotiable instrument payable to specific persons, by duly completing and signing Section 3 (Transfer Notification) of the Subscription Certificate. Capitalized terms used but not defined in the Subscription Certificate shall have the meanings assigned to them in the Prospectus, dated January _____, 1999, relating to the Offer. ANY QUESTIONS REGARDING THE SUBSCRIPTION CERTIFICATE AND THE OFFER MAY BE DIRECTED TO THE FUND'S INFORMATION AGENT, SHAREHOLDER COMMUNICATIONS CORPORATION, TOLL FREE AT (800) 733-8481, EXT. 486. EX-99.2D3 4 Exhibit 2(d)(3) FORM OF NOTICE OF GUARANTEED DELIVERY FOR SHARES OF COMMON STOCK OF THE HIGH YIELD PLUS FUND, INC. ------------------ THIS FORM IS TO BE USED ONLY BY NEW YORK STOCK EXCHANGE MEMBER FIRMS, BANKS, TRUST COMPANIES, OR OTHER FINANCIAL INSTITUTIONS THAT ARE MEMBERS OF THE SECURITIES TRANSFER AGENTS MEDALLION PROGRAM, THE STOCK EXCHANGE MEDALLION PROGRAM OR THE NEW YORK STOCK EXCHANGE MEDALLION SIGNATURE PROGRAM. ------------------- As set forth in the Prospectus under "The Offer--Payment for Shares," this form or one substantially equivalent hereto, may be used as a means of effecting the subscription and payment for all shares of Common Stock (the "Shares") of The High Yield Plus Fund, Inc. (the "Fund") subscribed for pursuant to the Primary Subscription and the Over-Subscription Privilege, as such terms are defined in the Prospectus. This form may be delivered by hand or sent by facsimile transmission, overnight courier or mail to the Subscription Agent. THE SUBSCRIPTION AGENT IS: STATE STREET BANK AND TRUST COMPANY CST - CORPORATION REORGANIZATION DEPARTMENT BY FIRST CLASS MAIL BY HAND BY EXPRESS MAIL c/o Boston EquiServe c/o Boston EquiServe OR OVERNIGHT COURIER P.O. Box _____ 55 Broadway, 3rd Floor c/o Boston EquiServe ______, MA ______ New York, NY 10006 150 Royall Street Canton, MA 02021 BY FACSIMILE (617) ___________ CONFIRMED BY TELEPHONE TO: (617) ______________ DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. The bank, trust company or New York Stock Exchange member firm which completes this form must communicate the guarantee and the number of Shares subscribed for (pursuant to both the Primary Subscription and the Over-Subscription Privilege) to the Subscription Agent and must deliver this Notice of Guaranteed Delivery to the Subscription Agent of (a) prior to 5:00 p.m., Eastern time, on the Expiration Date (January ____, 1999). This Notice of Guaranteed Delivery guarantees delivery to the Subscription Agent of (a) by the third business day following the Expiration Date (i) a properly completed and executed Subscription Certificate and (ii) delivery of payment in full of the Estimated Subscription Price for all subscribed Shares; and (b) payment in full of any additional amount required to be paid if the Subscription Price as determined on the Expiration Date is in excess of the Estimated Subscription Price (which payment, if any, must then be delivered no later than the close of business on February __, 1999, the [seventh] business day after the Confirmation Date of February 12, 1999, unless the offer is extended). Failure to so deliver this Notice or to make the delivery Guaranteed herein will result in a forfeiture of the Rights. GUARANTEE The Undersigned, a bank or trust company having an office or correspondent in the United States, or a New York Stock Exchange member firm, hereby guarantees delivery to the Subscription Agent of (a) by 5:00 p.m., Eastern time on the third business day after the Expiration Date (i) a properly completed and executed Subscription Certificate and (ii) payment of the full Estimated Subscription Price for Shares subscribed for pursuant to the Primary Subscription and, if applicable, the Over-Subscription Privilege, as such subscription for Shares is indicated herein and in the Subscription Certificate and (b) by no later than 5:00 p.m., Eastern time, on February ___, 1999, the [seventh] business day after the Confirmation Date, of February 12, 1999, unless the offer is extended, of any additional amount required to be paid if the Subscription Price as determined on the Expiration Date is in excess of the Estimated Subscription Price.
Broker Assigned Control # _______ THE HIGH YIELD PLUS FUND, INC. Primary Subscription Number of Rights to be Number of Shares Payment to be made in exercised subscribed for pursuant to connection with Shares the Primary Subscription subscribed for pursuant to for which your are the Primary Subscription guaranteeing delivery of at the Estimated Rights and Payment Subscription Price. _________Rights = _________ Shares $___________ Over-Subscription Number of Shares Payment to be made in subscribed for pursuant to connection with Shares the Over-Subscription subscribed for pursuant to Privilege for which you the Over-Subscription are guaranteeing payment Privilege at the Estimated Subscription Price. _________ Shares $___________ Totals Total Number of Rights to Total number of Shares Total Payment be delivered requested _________Rights _________Shares $__________ Method of delivery (circle one) A. Through The Depository Trust Company ("DTC") B. Direct to State Street Bank and Trust Company, as Subscription Agent. Please reference below the registration of the Rights to be delivered ----------------------- ----------------------- -----------------------
PLEASE ASSIGN A UNIQUE CONTROL NUMBER FOR EACH GUARANTEE SUBMITTED. This number needs to be referenced on any direct delivery of Rights or any delivery through DTC. In addition, please note that if you are guaranteeing for Shares subscribed for pursuant to the Over-Subscription Privilege and are a DTC participant, you must also execute and forward to State Street Bank and Trust Company a Nominee Holder Over-Subscription Form. - ----------------------------------- --------------------------------------- Name of Firm Authorized Signature - ----------------------------------- --------------------------------------- DTC Participant Number Title - ----------------------------------- --------------------------------------- Address Name (Please Type or Print) - ----------------------------------- --------------------------------------- Zip Code Phone Number - ----------------------------------- --------------------------------------- Contact Name Date NOTICE OF GUARANTEED DELIVERY INSTRUCTIONS A Notice of Guaranteed Delivery may be submitted if the Notice is received by the Subscription Agent by 5:00 p.m., New York City Time, on the Expiration Date or as directed in the Prospectus. BROKER ASSIGNED CONTROL NUMBER: In order to properly track incoming guarantees on the Expiration Date, we are requiring that each guarantee submitted be assigned a unique control number. Each person in the Reorganization Department should assign his or her own unique number (i.e. the sixth item delivered by Paul in the Reorganization Department at XYZ Securities, could have a control number of XYZPaul6). It is the individual firm's responsibility to ensure that the control numbers are not duplicated as the firm will be held responsible for any losses incurred due to duplication. ITEM 1. THE PRIMARY SUBSCRIPTION Indicate the Rights exercised and Shares requested with the corresponding dollar amount. Please note, by completing Item 1 you are exercising Primary Subscription Rights. If the Rights had previously been exercised through DTC do not complete this portion. ITEM 2. THE OVER-SUBSCRIPTION PRIVILEGE Indicate the Shares requested and the corresponding dollar amount. ITEM 3. TOTALS Total the Rights and payment which the Subscription Agent will receive from you on the designated dates. METHOD OF DELIVERY Indicate how the Rights will be delivered to the Subscription Agent. If Subscription Certificates are to be delivered directly to the Subscription Agent, please provide the registration of such Certificates. EX-99.2D4 5 Exhibit 2(d)(4) FORM OF LETTER OF INSTRUCTIONS TO MY BANK OR BROKER: The undersigned acknowledges receipt of the Prospectus relating to the Common Stock Rights Offering by The High Yield Plus Fund, Inc. This letter instructs you to either exercise or sell the Rights as indicted below, which you hold for the account of the undersigned, upon the terms and conditions set forth in the Prospectus. 1) PRIMARY SUBSCRIPTION o EXERCISE (indicate number) ________ Rights to purchase shares of Common Stock of The High Yield Plus Fund, Inc. at the Estimated Subscription Price of $______. (One Right is required for the purchase of each share of Common Stock of The High Yield Plus Fund, Inc., except as noted in the Prospectus.) o SELL (indicate number) _________ Rights (If no number is specified, all Rights will be sold.) I am enclosing a money order or check for $____ (equal to the number of shares to be purchased multiplied by the $_______ Estimated Subscription Price). I understand that I may be required to pay an additional amount if the actual Subscription Price exceeds the Estimated Subscription Price. 2) OVER-SUBSCRIPTION PRIVILEGE (This privilege is only available to those stockholders who have fully exercised their Rights in the Primary Subscription.) o PURCHASE (indicate number) _____ shares of Common Stock of The High Yield Plus Fund, Inc. at the $________ Estimated Subscription Price subject to availability as described in the Prospectus. I have enclosed a money order or check made payable to "The High Yield Plus Fund, Inc." for $________ (equal to the number of shares to be purchased pursuant to the Over-Subscription Privilege multiplied by the $_____ Estimated Subscription Price). I understand that if I am not allocated the full amount of shares for which I have subscribed pursuant to the Over-Subscription Privilege, any excess payment will be refunded to me by you. Date: ----------------------------- ---------------------------------- ---------------------------------- Signature(s) ---------------------------------- Account Number ---------------------------------- Please Type or Print Name THIS FORM MUST BE RETURNED TO THE BANK OR BROKER HOLDING YOUR FUND STOCK (NOT TO STATE STREET BANK AND TRUST COMPANY WHO IS ACTING AS THE SUBSCRIPTION AGENT) EX-99.25 6 Exhibit 2(d)(5) THE HIGH YIELD PLUS FUND, INC. FORM OF NOMINEE HOLDER CERTIFICATION The undersigned, a bank, broker or other nominee holder of Common Stock, $0.01 par value ("Common Stock"), of The High Yield Plus Fund, Inc. (the "Fund") hereby certifies to the Fund and to State Street Bank and Trust Company, as Subscription Agent pursuant to the Offer described and provided for in the Fund's Prospectus dated, January ___, 1999 (the "Prospectus"), that the undersigned has exercised, on behalf of beneficial owners of Rights (which may include the undersigned), Rights to subscribe for the number of shares of Common Stock specified below pursuant to their Rights under the Primary Subscription (as defined in the Prospectus), listing separately below for each beneficial owner, the number of Rights owned by such beneficial owner, the number of shares subscribed for pursuant to its Rights under the Primary Subscription and the corresponding amount of shares subscribed for pursuant to the Over-Subscription Privilege (as defined in the Prospectus) (without identifying any such beneficial owner). The Undersigned has attached additional sheets if more space is required.
RECORD DATE POSITION NUMBER OF RIGHTS NUMBER OF SHARES SUBSCRIBED FOR NUMBER OF SHARES PURSUANT TO PRIMARY SUBSCRIPTION SUBSCRIBED FOR PURSUANT TO OVER-SUBSCRIPTION PRIVILEGE - ----------------------------- ----------------------------- ----------------------------- - ----------------------------- ----------------------------- ----------------------------- - ----------------------------- ----------------------------- ----------------------------- - ----------------------------- ----------------------------- ----------------------------- - ----------------------------- ----------------------------- ----------------------------- - ----------------------------- ----------------------------- ----------------------------- - ----------------------------- ----------------------------- ----------------------------- - ----------------------------- ----------------------------- ----------------------------- - ----------------------------- ----------------------------- ----------------------------- - ----------------------------- ----------------------------- ----------------------------- Provide the following information if applicable: _____________________________________________ Name of Nominee Holder --------------------------------------------- Address - -------------------------------------------- Depository Trust Company ("DTC") By:__________________________________________ Participant Number Name: Title: - --------------------------------------------- DTC Primary Subscription Dated _________________________, 1999 Confirmation Number(s)
EX-99.2D6 7 Exhibit 2(d)(6) To all DTC Participants: FORM OF SPECIAL INSTRUCTIONS PERTAINING TO THE HIGH YIELD PLUS FUND, INC. (THE "FUND") RIGHTS OFFERING Please note the following instructions: PRICING: The new Shares are being offered at a Subscription Price which will be the lower of (a) 97% of the net asset value per Share as of the close of business on the Expiration Date or (b) 95% of the average of the last reported sales price of a share on the New York Stock Exchange on the Expiration Date and the four preceding business days. Subscribers will be required initially to pay for the Shares subscribed for at an Estimated Subscription Price of $_______ per Share. On a date within [eight (8)] business days following the Expiration Date (the "Confirmation Date"), subscribers will be notified as to (i) the number of Shares subscribed for under the Primary Subscription and, if applicable, the Over-Subscription Privilege, and (ii) any additional amount payable by subscribers to the Fund or any excess to be refunded by the Fund to such subscribers, in each case, based on the Subscription Price as determined on the Expiration Date. The Rights Holder should note that the amount payable for the Shares subscribed for pursuant to the Certificate may be more than the Estimated Subscription Price and that additional amounts in respect of the Subscription Price may be payable following the Expiration Date. Any additional payment required by subscribers must be received by the Subscription Agent within [seven (7)] business days after the Confirmation Date. SOLICITATION FEES: The Dealer Manager (A. G. Edwards & Sons, Inc.) will pay Soliciting Dealers fees equal to 2.50% of the Subscription Price per share for Shares issued pursuant to the exercise of the Rights and the Over Subscription Privilege. No Solicitation fees will be paid for Shares purchased by the Dealer Manager or other broker-dealers for their own accounts through the exercise of Rights. No solicitation fees will be paid to a participating broker-dealer unless an executed copy of the Soliciting Dealer Agreement is received by the Dealer Manager by January ____, 1999. INFORMATION AGENT: Contact Shareholder Communications Corporation at (800) 733-8481, ext. 486 with any questions regarding the Rights Offering or with requests for additional materials. DEALER MANAGER: Contact A. G. Edwards & Sons, Inc. at (617) 619-9606 with any questions regarding the Rights Offering. EX-99.2D7 8 Exhibit 2(d)(7) FORM OF NOMINEE HOLDER OVER-SUBSCRIPTION FORM THE HIGH YIELD PLUS FUND INC. RIGHTS OFFERING THIS FORM IS TO BE USED ONLY BY NOMINEES TO EXERCISE THE OVER-SUBSCRIPTION PRIVILEGE, AS ISSUED BY THE HIGH YIELD PLUS FUND, INC. (THE "FUND"), FOR WHICH THE FULL PRIMARY SUBSCRIPTION WAS EXERCISED AND DELIVERED THROUGH THE FACILITIES OF THE DEPOSITORY TRUST COMPANY. ALL OTHER EXERCISES OF OVER-SUBSCRIPTION PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION CERTIFICATES. -------------------- THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S PROSPECTUS DATED JANUARY ____, 1999 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM SHAREHOLDER COMMUNICATIONS CORPORATION, THE FUND'S INFORMATION AGENT, AT (800) 733-8481, EXT. 486. -------------------- THIS FORM WILL BE DEEMED TO BE VOID UNLESS RECEIVED BY STATE STREET BANK AND TRUST COMPANY (THE "SUBSCRIPTION AGENT") BY 5:00 P.M., EASTERN TIME, ON FEBRUARY 2, 1999 (THE "EXPIRATION DATE") UNLESS EXTENDED BY THE FUND. Please complete all applicable information and return to: STATE STREET BANK AND TRUST COMPANY, CST CORPORATE REORGANIZATION DEPARTMENT
By First Class Mail: By Hand: By Overnight Courier: c/o Boston EquiServe c/o Boston EquiServe c/o Boston EquiServe P.O. Box _______ 55 Broadway, 3rd Floor 150 Royall Street ______, Massachusetts______ New York, NY 10006 Canton, MA 02021
By Facsimile: (617) ___-______ Confirmed by Telephone to: (617) ___-______ 1. The undersigned hereby certifies to the Fund and the Subscription Agent that it is a participant in The Depository Trust Company ("DTC") and that it has either (i) exercised the Primary Subscription Rights in full and delivered such exercised Rights to the Subscription Agent by means of transfer to the DTC account of the Subscription Agent or (ii) delivered to the Subscription Agent a Notice of Guaranteed Delivery in respect of the exercise of the Primary Subscription Rights and will deliver the Rights called for in such Notice of Guaranteed Delivery to the Subscription Agent by means of transfer to the DTC account of the Subscription Agent. 2. The undersigned hereby exercises the Over-Subscription Privilege to purchase, to the extent available, ________ shares of the Fund's Common Stock and certifies to the Fund and the Subscription Agent that such Over-Subscription Privilege is being exercised for the account or accounts of persons (which may include the undersigned) on whose behalf all Primary Subscription rights have been exercised.* 3. The undersigned hereby agrees to make payment of the Estimated Subscription Price of $_________ per share for each share of Common Stock subscribed for pursuant to the Over-Subscription Privilege to the Subscription Agent at or before 5:00 p.m., Eastern Time, on the Expiration Date and hereby represents that (check appropriate box): [ ] payment of the actual Subscription Price will be delivered to the Subscription Agent pursuant to the Notice of Guaranteed Delivery (Broker Assigned Control #_____________) [ ] payment of the Estimated Subscription Price is being delivered to the Subscription Agent herewith, in the aggregate amount of $_____________; [ ] payment of the Estimated Subscription Price has been delivered separately to the Subscription Agent, in the aggregate amount of $_____________; and, in the case of funds not delivered pursuant to a Notice of Guaranteed Delivery, is or was delivered in the manner set forth below (check appropriate box and complete information relating thereto): |_| uncertified check |_| certified check |_| bank draft ----------------------------------- Primary Subscription Confirmation Number ------------------------- Depository Participant Number ------------------------- Name of Depository Participant * PLEASE ATTACH A BENEFICIAL OWNER LISTING CONTAINING THE NUMBER OF RIGHTS OWNED BY EACH BENEFICIAL OWNER, THE NUMBER OF RIGHTS EXERCISED IN THE PRIMARY SUBSCRIPTION ON BEHALF OF EACH SUCH OWNER AND THE NUMBER OF ADDITIONAL COMMON SHARES REQUESTED ON BEHALF OF EACH SUCH OWNER PURSUANT TO THE OVER-SUBSCRIPTION PRIVILEGE. Registration into which shares of Common Stock, and/or refund checks should be issued: Name(s): ______________________________________ Address ______________________________________ ______________________________________ Certified TIN: ______________________________________ By: ______________________________________ Name: Title: Contact Name: ______________________________________ Phone Number: ______________________________________ Dated: ________________, 1999 EX-99.2H1 9 Exhibit 2(h)(1) The High Yield Plus Fund, Inc. (a Maryland corporation) [3,800,000] Shares of Common Stock Issuable Upon Exercise of Transferable Rights to Subscribe for Such Shares of Common Stock (Common Stock Par Value $.01 Per Share) FORM OF DEALER MANAGER AGREEMENT December__, 1998 A.G. Edwards & Sons, Inc. One Boston Place Suite 3660 Boston, MA 02108 Attention: Michael S. Burd Managing Director Investment Banking Ladies and Gentlemen: The High Yield Plus Fund, Inc., a Maryland corporation (the "Fund"), confirms the agreement with and appointment of A.G. Edwards & Sons, Inc. (the "Dealer Manager") to act as dealer manager in connection with the issuance by the Fund to holders of record ("Record Date Stockholders"), at the close of business on the record date (the "Record Date") set forth in the Prospectus (as defined herein), of the Fund's common stock, par value $0.01 per share (the "Common Stock"), of transferable rights (the "Rights," and individually, a "Right") entitling such Record Date Stockholders to subscribe for shares of Common Stock and, subject to certain conditions, additional shares of Common Stock pursuant to an over-subscription privilege (the "Offer"). The shares of Common Stock for which Record Date Shareholders and other holders of Rights ("Rightholders") may subscribe pursuant to the Offer are herein referred to as the "Shares." Pursuant to the terms of the Offer, the Fund is issuing to each Record Date Stockholder one Right for each three shares of Common Stock held. Such Rights entitle Rightholders to acquire, at the price set forth in such Prospectus (the "Subscription Price"), one Share for each Right exercised, on the terms and conditions set forth in such Prospectus. No fractional Shares will be issued. Any Rightholder who fully exercises all Rights held by such Rightholder will be entitled to subscribe for, subject to allocation, additional Shares (the "Over-Subscription Privilege") on the terms and conditions set forth in the Prospectus. The Rights are transferable and are expected to be listed on the New York Stock Exchange. The Fund has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form N-2 (Nos. 333-67339 and 811-5468) and a related prospectus under the Investment Company Act of 1940, as amended (the "Investment Company Act"), the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations of the Commission under the Investment Company Act and the Securities Act (the "Rules and Regulations"), and has filed such amendments to such registration statement on Form N-2, if any, and such amended preliminary prospectuses as may have been required to the date hereof. If the registration statement has not become effective, a further amendment to such registration statement, including the form of final prospectus necessary to permit such registration statement to become effective will promptly be filed, upon resolution of any Commission comments, by the Fund with the Commission. If the registration statement has become effective and any prospectus contained therein omits certain information at the time of effectiveness pursuant to Rule 430A of the Rules and Regulations, a final prospectus containing such omitted information will promptly be filed by the Fund with the Commission in accordance with Rule 497(h) of the Rules and Regulations. The registration statement, as amended at the time it becomes or became effective, including financial statements and all exhibits and all documents, if any, incorporated therein by reference, and any information deemed to be included by Rule 430A, is called the "Registration Statement." The term "Prospectus" means the final prospectus in the form filed with the Commission pursuant to Rule 497(c), (e), (h) or (j) of the Rules and Regulations, as the case may be, as from time to time amended or supplemented pursuant to the Securities Act and all documents, if any, incorporated by reference therein. The Prospectus and letters to beneficial owners of the shares of Common Stock of the Fund, forms used to exercise rights, any letters from the Fund to securities dealers, commercial banks and other nominees and any newspaper announcements, press releases and other offering materials and information that the Fund may use, approve, prepare or authorize for use in connection with the Offer, are collectively referred to hereinafter as the "Offering Materials." Section 1. REPRESENTATIONS AND WARRANTIES. a. The Fund represents and warrants to the Dealer Manager as of the date hereof, as of the date of the commencement of the Offer (such later date being hereinafter referred to as the "Representation Date") and as of the Expiration Date (as defined below) that: (i) The Fund meets the requirements for use of Form N-2 under the Securities Act and the Investment Company Act and the Rules and Regulations. At the time the Registration Statement became or becomes effective, the Registration Statement did or will comply in all material respects with the requirements of the Securities Act, the Investment Company Act and the Rules and Regulations and did not or will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. From the time the Registration Statement became or becomes effective through the expiration date of the Offer set forth in the Prospectus (the "Expiration Date"), the Prospectus and the Offering Materials will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that the 2 representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement, Prospectus or the Offering Materials made in reliance upon and in conformity with the information furnished to the Fund in writing by the Dealer Manager expressly for use in the Registration Statement, the Prospectus or the Offering Materials. (ii) The accountants who certified the financial statements of the Fund set forth or incorporated by reference in the Registration Statement and the Prospectus are independent public accountants as required by the Investment Company Act and the Rules and Regulations. (iii) The financial statements of the Fund set forth or incorporated by reference in the Registration Statement and the Prospectus present fairly the financial position of the Fund as of the date indicated and the results of its operations for the period specified; such financial statements have been prepared in conformity with generally accepted accounting principles; and the information in the Prospectus under the heading "Financial Highlights" presents fairly in all material respects the information stated therein. (iv) All senior securities and other indebtedness of the Fund as of a date specified in the Prospectus have been duly authorized and conform in all material respects to the description thereof in the Prospectus under the heading "Investment Policies and Limitations - Leverage and Borrowing." (v) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) the Fund has not incurred any liabilities or obligations, direct or contingent, or entered into any transactions, other than in the ordinary course of business, that are material to the business of the Fund, (B) there has been no material change in the capital stock (other than as a result of the payment of any dividends as set forth in (D) below), senior securities or other indebtedness of the Fund or any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise) or management of the Fund, or in the business affairs or business prospects of the Fund, whether or not arising in the ordinary course of business, (C) there have been no transactions entered into by the Fund which are material to the Fund other than those in the ordinary course of business, and (D) except for regular monthly distributions on the outstanding shares of Common Stock of the Fund, there has been no special dividend or distribution of any kind paid or declared in respect of the Fund's capital stock. (vi) The Fund has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland with full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement and the Prospectus; the Fund currently maintains all governmental licenses, permits, consents, orders, approvals, and other authorizations (collectively, the "Licenses and Permits") necessary to carry on its business as contemplated in the Prospectus, and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which the failure to so qualify, either individually or in the aggregate, would have a material adverse 3 effect upon the operations or financial condition of the Fund; and the Fund has no subsidiaries. (vii) The Fund is registered with the Commission under the Investment Company Act as a closed-end, diversified management investment company, no order of suspension or revocation of such registration has been issued or proceedings therefor initiated or threatened by the Commission and all required action has been taken under the Securities Act and the Investment Company Act to consummate the issuance of the Rights and the issuance and sale of the Shares, subject to the declaration of effectiveness of the Registration Statement by the Commission, if such Registration Statement is not yet effective. (viii) The authorized capital stock of the Fund at December 31, 1998 is as set forth in the Prospectus under the caption "Description of Common Stock" and the outstanding capital stock of the Fund as of December 31, 1998 is as set forth in Prospectus under the caption "Summary - Important Terms of the Offering"; the outstanding shares of Common Stock have been duly authorized by all requisite corporate action on the part of the Fund and are validly issued, fully paid and non-assessable; the Rights and the Shares have been duly authorized by all requisite corporate action on the part of the Fund for issuance pursuant to the Offer; the Shares have been duly authorized by all requisite corporate action on the part of the Fund for sale pursuant to the terms of the Offer and, when issued and delivered by the Fund pursuant to the terms of the Offer against payment of the consideration set forth in the Prospectus, will be validly issued, fully paid and non-assessable; the Common Stock, the Rights and the Shares conform in all material respects to the descriptions thereof set forth in the Registration Statement, the Prospectus and the Offering Materials; and the issuance of each of the Rights and the Shares is not subject to any preemptive rights. (ix) Each of this Agreement, the Investment Advisory Agreement referred to in the Registration Statement (the "Investment Advisory Agreement") with Wellington Management Company LLP, the Administration Agreement referred to in the Registration Statement (the "Administration Agreement") with Prudential Investments Fund Management LLC, the Subscription Agency Agreement referred to in the Registration Statement (the "Subscription Agency Agreement") with State Street Bank and Trust Co. (the "Subscription Agent"), the Custodian Agreement referred to in the Registration Statement (the "Custodian Agreement") with State Street Bank and Trust Company, the Information Agency Agreement referred to in the Registration Statement (the "Information Agency Agreement") with Shareholders Communication Corporation (the "Information Agent"), the Stock Transfer Agent Service Agreement referred to in the Registration Statement (the "Stock Transfer Agent Service Agreement") with State Street Bank and Trust Company (the "Stock Transfer Agent") and the Credit Agreement referred to in the Registration Statement (the "Credit Agreement") with BankBoston, N.A. (collectively, all of the foregoing are the "Fund Agreements") has been duly authorized by all requisite corporate action on the part of the Fund and executed and delivered by the Fund, and each complies with all applicable provisions of the Investment Company Act; and, assuming due authorization, execution and delivery by the other parties thereto, each of the Fund Agreements constitutes a legal, valid, binding and enforceable obligation of the Fund, subject to the qualification that the enforceability of the Fund's obligations thereunder may be limited by bankruptcy, insolvency, reorganization, moratorium 4 and similar laws of general applicability relating to or affecting creditors' rights, to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). (x) Neither the execution or delivery by the Fund nor the performance by the Fund of any of its obligations under any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which it is a party or by which it is bound contravenes or constitutes a default under any provision contained in any law, rule or regulation of any governmental or regulatory authority or any order or regulation of any court by which the Fund or any of its assets is bound or affected. (xi) There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Fund threatened against or affecting, the Fund, which might result in any material adverse change in the condition, financial or otherwise, business affairs, business prospects, net worth or results of operations of the Fund, or which might materially and adversely affect the properties or assets of the Fund; and there are no material contracts or documents of the Fund which are required to be filed as exhibits to the Registration Statement by the Securities Act, the Investment Company Act or by the Rules and Regulations which have not been or will not be so filed. (xii) There are no franchises, contracts or other documents of the Fund required to be described in the Registration Statement or the Prospectus, or to be filed or incorporated by reference therein as permitted by the Securities Act, the Investment Company Act or the Rules and Regulations, that are not so described, filed or incorporated by reference. (xiii) The Fund owns or possesses, or can acquire on reasonable terms, any trademarks, service marks and trade names necessary to conduct its business as described in the Registration Statement, and the Fund has not received any notice of infringement of or conflict with asserted rights of others with respect to any trademarks, service marks or trade names which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially adversely affect the conduct of the business, operations, financial condition or income of the Fund. (xiv) The Fund has complied in all previous tax years, and intends to direct the investment of the proceeds of the offering described in the Registration Statement and the Prospectus in such a manner as to continue to comply, with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended ("Subchapter M of the Code"), and has qualified and intends to continue to qualify as a regulated investment company under Subchapter M of the Code. (xv) The Fund is not in violation of its Articles of Incorporation, as amended (the "Charter"), or its by-laws, as amended (the "By-Laws") or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which it is a party or by which it may be bound; the issuance of the Rights, the issuance 5 and sale of the Shares and the performance and consummation of the other transactions contemplated herein and in the other Fund Agreements have been duly authorized by all necessary corporate action and will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien (other than under the Credit Agreement), charge or encumbrance upon any property or assets of the Fund pursuant to any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Fund is a party or by which it may be bound or to which any of the property or assets of the Fund is subject, nor will such action result in any violation of the provisions of the Charter or By-Laws or any law, administrative regulation or administrative or court decree applicable to the Fund. (xvi) The Common Stock is duly listed on the New York Stock Exchange ("NYSE") and prior to their issuance the Rights and the Shares will have been duly approved for listing, subject to official notice of issuance, on the NYSE. (xvii) The Fund (A) has not taken, directly or indirectly, any action designed to cause or to result in, or that has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Fund to facilitate the issuance of the Rights or the sale or resale of the Shares, (B) has not since the filing of the Registration Statement sold, bid for or purchased, or paid anyone any compensation for soliciting purchases of, shares of Common Stock of the Fund (except for the solicitation of exercises of the Rights pursuant to this Agreement) and (C) will not, until the later of the expiration of the Rights or the completion of the distribution (within the meaning of the anti-manipulation rules under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of the Shares, sell, bid for or purchase, pay or agree to pay to any person any compensation for soliciting another to purchase any other securities of the Fund (except for the solicitation of the exercises of Rights pursuant to this Agreement); PROVIDED, HOWEVER, that any action in connection with the Fund's Dividend Reinvestment Plan will not be deemed to be within the terms of this Section 1(a)(xvii). (xviii) No consent, approval, authorization, notification or order of, or filing with, any court or governmental agency or body, whether foreign or domestic, is legally required for the consummation by the Fund of the transactions contemplated by the Fund Agreements or the Registration Statement, except such as have been obtained, or if the registration statement filed with respect to the Shares is not effective under the Securities Act as of the time of execution hereof, such as may be required (and shall be obtained as provided in this Agreement) under the Investment Company Act, the Securities Act, the Exchange Act , and state securities laws. Section 2. AGREEMENT TO ACT AS DEALER MANAGER. a. On the basis of the representations and warranties contained herein, and subject to the terms and conditions of the Offer: (i) The Fund hereby appoints the Dealer Manager and other soliciting dealers entering into a Soliciting Dealer Agreement in the form attached hereto as Exhibit A (the "Soliciting Dealer Agreement") with the Dealer Manager (the "Soliciting Dealers"), to solicit, in accordance with the Securities Act, the Investment Company Act and the Exchange Act, the rules and regulations under those Acts, any applicable Blue Sky laws, and its customary 6 practice, the exercise of the Rights and the Over-Subscription Privilege, subject to the terms and conditions of this Agreement, the procedures described in the Registration Statement and the Prospectus and, where applicable, the terms and conditions of such Soliciting Dealer Agreement and the Dealer Manager and Soliciting Dealers agree to use their reasonable best efforts in soliciting the exercise of the Rights and the Over-Subscription Privilege; and (ii) The Fund agrees to furnish, or cause to be furnished, to the Dealer Manager, lists, or copies of those lists, showing (to the knowledge of the Fund) the names and addresses of, and number of shares of Common Stock held by, Record Date Stockholders, and to use its best efforts to advise the Dealer Manager, or cause it to be advised, on each day on which the NYSE is open for trading during the subscription period set forth in the Prospectus, as to any transfer of Rights or shares of Common Stock, and the Dealer Manager agrees to use such information only in connection with the Offer, and not to furnish the information to any other person, except that the Dealer Manager may furnish necessary and appropriate information to securities brokers and dealers, including, but not limited to, Soliciting Dealers, that the Dealer Manager has requested to solicit exercises of Rights. b. The Dealer Manager agrees to provide to the Fund, in addition to the services described in paragraph (a) of this Section 2, financial advisory and marketing services in connection with the Offer. c. The Fund and the Dealer Manager agree that the Dealer Manager is an independent contractor with respect to the solicitation of the exercise of Rights and the performance of financial advisory and marketing services to the Fund contemplated by this Agreement. d. In rendering the services contemplated by this Agreement, the Dealer Manager will not be subject to any liability to the Fund, or any of its affiliates, for any act or omission on the part of any securities broker or dealer (except with respect to the Dealer Manager acting in such capacity) or any other person, and the Dealer Manager will not be liable to the Fund or any of its affiliates for acts or omissions in performing its obligations under this Agreement, except for any losses, claims, damages, liabilities or judgments determined in a final judgment by a court of competent jurisdiction to have resulted primarily from the Dealer Manager's gross negligence, willful misconduct or bad faith in such acts or omissions. Section 3. DEALER MANAGER FEES AND SOLICITING FEES. In full payment for the financial advisory, marketing and soliciting services rendered and to be rendered hereunder by the Dealer Manager, the Fund agrees to pay the Dealer Manager a fee (the "Dealer Manager Fee") equal to (a) 3.50% of the aggregate Subscription Price per Share for Shares issued pursuant to the exercise of Rights and the Over-Subscription Privilege, less (b) the $25,000 retainer fee paid to the Dealer Manager by the Fund pursuant to the letter agreement between the Fund and the Dealer Manager, dated as of October 16, 1998. In full payment for the soliciting efforts to be rendered, the Dealer Manager agrees to reallow soliciting fees (the "Soliciting Fees") to Soliciting Dealers, equal to 2.50% of the aggregate Subscription Price per Share for Shares issued pursuant to the exercise of Rights and the Over-Subscription Privilege. The 7 Dealer Manager agrees to pay the Soliciting Fees to the broker-dealers designated on the applicable portion of the forms used by Rightholders to exercise Rights and the Over-Subscription Privilege, and if, in any case, no broker-dealer is so designated or a broker-dealer is otherwise not entitled to receive compensation pursuant to the terms of the Soliciting Dealer Agreement, then the Dealer Manager shall retain the Soliciting Fee that would otherwise have been payable in such case. Payment to the Dealer Manager by the Fund will be in the form of a wire transfer of same day funds to an account or accounts identified by the Dealer Manager. Such payment will be made on the day after the final payment for Shares is due as set forth in the Prospectus, to the extent that the Fund has received and accepted such final payment from the exercising Rightholders and, to the extent that the Fund receives and accepts such payment from the exercising Rightholders after such date, one day after the Fund receives and accepts each such payment. Payment to a Soliciting Dealer will be made by the Dealer Manager directly to such Soliciting Dealer by check to an address identified by such Soliciting Dealer. Such payment shall be made on or before the tenth business day following the day the Fund issues Shares after the Expiration Date. Section 4. COVENANTS. a. The Fund covenants with the Dealer Manager as follows: (i) The Fund will use its best efforts to cause the Registration Statement to become effective under the Securities Act, and will advise the Dealer Manager promptly as to the time at which the Registration Statement and any amendments thereto (including any post-effective amendment) becomes so effective. (i) The Fund will notify the Dealer Manager immediately, and confirm the notice in writing, (i) of the effectiveness of the Registration Statement and any post-effective amendment thereto, (ii) of the receipt of any comments from the Commission on the Registration Statement, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose, (v) of the issuance by the Commission of an order of suspension or revocation of the notification on Form N-8A of registration of the Fund as an investment company under the Investment Company Act or the initiation of any proceeding for that purpose and (vi) of the suspension of the qualification of the Shares or the Rights for offering or sale in any jurisdiction. The Fund will make every reasonable effort to prevent the issuance of any stop order described in subsection (iv) hereunder or any order of suspension or revocation described in subsection (v) or subsection (vi) hereunder and, if any such stop order or order of suspension or revocation is issued, to obtain the lifting thereof at the earliest possible moment. (ii) The Fund will give the Dealer Manager notice of its intention to file any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus (including any revised prospectus which the Fund proposes for use by the Dealer Manager in connection with the Offer, which differs from the prospectus on file 8 at the Commission at the time the Registration Statement becomes effective, whether such revised prospectus is required to be filed pursuant to Rule 497(c), (e), (h) or (j) of the Rules and Regulations), whether pursuant to the Investment Company Act, the Securities Act, or otherwise, and will furnish the Dealer Manager with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement to which the Dealer Manager or counsel for the Dealer Manager shall reasonably object; PROVIDED, however, in the event of such an objection the Dealer Manager and its counsel agree to cooperate with the Fund to ensure that an acceptable filing can be promptly made. (iii) The Fund will, without charge, deliver to the Dealer Manager, as soon as practicable, the number of copies (one of which is manually executed) of the Registration Statement as originally filed and of each amendment thereto as it may reasonably request, in each case with the exhibits filed therewith. (iv) The Fund will, without charge, furnish to the Dealer Manager, from time to time during the period when the Prospectus is required to be delivered under the Securities Act, such number of copies of the Prospectus (as amended or supplemented) as the Dealer Manager may reasonably request for the purposes contemplated by the Securities Act or the Rules and Regulations. (v) If any event shall occur as a result of which it is necessary, in the opinion of counsel for the Fund, to amend or supplement the Registration Statement or the Prospectus in order to make the Prospectus not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, the Fund will forthwith amend or supplement the Prospectus by preparing and filing with the Commission (and furnishing to the Dealer Manager a reasonable number of copies of) an amendment or amendments of the Registration Statement or an amendment or amendments of or a supplement or supplements to, the Prospectus (in form and substance satisfactory to counsel for the Dealer Manager) which will amend or supplement the Registration Statement or the Prospectus so that the Prospectus will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a Rightholder, not misleading, and the Dealer Manager and its counsel agree to cooperate with the Fund to ensure that an acceptable filing can be promptly made. (vi) The Fund will endeavor, in cooperation with the Dealer Manager, to qualify the Rights and the Shares for offering and sale under the applicable securities laws (if any) of such states and other jurisdictions of the United States as the Dealer Manager may designate, and will maintain such qualifications in effect for the duration of the Offer; PROVIDED, HOWEVER, that the Fund will not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not now so qualified; PROVIDED, FURTHER, HOWEVER, that the Fund shall rely solely on the advice of the Dealer Manager's counsel in determining if any action under state law is required. The Fund will file such statements and reports as may be required by the laws of each jurisdiction in which the Rights and the Shares have been qualified as above provided. 9 (vii) The Fund will make generally available to its security holders as soon as practicable, but no later than 60 days after the close of the period covered thereby, an earning statement (in form complying with the provisions of Rule 158 of the Rules and Regulations) covering a twelve-month period beginning not later than the first day of the Fund's fiscal quarter next following the "effective" date (as defined in said Rule 158) of the Registration Statement. (viii) For a period of 180 days from the date of this Agreement, the Fund will not, without the prior consent of the Dealer Manager, offer or sell, or enter into any agreement to sell, any equity or equity related securities of the Fund, or securities convertible into such securities, other than the Rights and the Shares and the Common Stock issued in reinvestment of dividends or distributions. (ix) The Fund will apply the net proceeds from the Offer as set forth under "Use of Proceeds" in the Prospectus. (x) The Fund will use its best efforts to cause the Rights and the Shares to be duly authorized for listing by the NYSE prior to the time the Shares are issued. (xi) The Fund will use its best efforts to maintain its qualification as a regulated investment company under Subchapter M of the Code. (xii) The Fund will advise or cause the Subscription Agent to advise the Dealer Manager and each Soliciting Dealer from day to day during the period of, and promptly after the termination of, the Offer, as to all names and addresses of Rightholders exercising Rights, the total number of Rights exercised by each Rightholder during the immediately preceding day, indicating the total number of Rights verified to be in proper form for exercise, rejected for exercise and being processed and, for the Dealer Manager and each Soliciting Dealer, the number of Rights exercised for Shares on exercise forms indicating the Dealer Manager or Soliciting Dealer as the broker-dealer with respect to such exercise, and as to such other information as the Dealer Manager may reasonably request; and will notify the Dealer Manager and each Soliciting Dealer, not later than 5:00 P.M., New York City time, on the first business day following the Expiration Date, of the total number of Rights exercised and Shares related thereto, the total number of Rights verified to be in proper form for exercise, rejected for exercise and being processed and, for the Dealer Manager and Soliciting Dealer, the number of Rights exercised for Shares on exercise forms indicating the Dealer Manager or Soliciting Dealer as the broker-dealer with respect to such exercise, and as to such other information as the Dealer Manager may reasonably request. b. The Fund has not taken and will not take, directly or indirectly, any action designed to cause or to result in, or that has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any security issued by the Fund to facilitate the issuance of the Rights or the sale or resale of the Shares; PROVIDED, HOWEVER, that any action in connection with the Fund's Dividend Reinvestment Plan will not be deemed to fall under the terms of this Section 4(b). Section 5. PAYMENT OF EXPENSES. 10 a. The Fund will pay all expenses incident to the performance of its obligations under this Agreement, including, but not limited to, expenses relating to (i) the printing and filing of the Registration Statement as originally filed and of each amendment thereto, (ii) the preparation, issuance and delivery of the certificates for the Shares, (iii) the fees and disbursements of the Fund's counsel and accountants, (iv) the qualification of the Rights and the Shares under securities laws in accordance with the provisions of Section 4(a)(vii) of this Agreement, including filing fees and any reasonable fees or disbursements of counsel for the Dealer Manager in connection with such qualification, (v) the printing and delivery to the Dealer Manager of copies of the Registration Statement as originally filed and of each amendment thereto, of the preliminary prospectus, of the Prospectus and any amendments or supplements thereto, of this Agreement and of the Soliciting Dealer Agreement, provided that the number of copies that are printed of any documents do not exceed the number that are reasonably necessary, (vi) the fees and expenses incurred in connection with the listing of the Rights and the Shares on the NYSE, (vii) the filing fees of the Commission, (viii) the fees and expenses incurred with respect to filing with the National Association of Securities Dealers, Inc., (ix) the printing, mailing and delivery expenses incurred in connection with the Offering Materials, and (x) the fees and expenses incurred with respect to the Subscription Agent and the Information Agent. b. In addition to any fees that may be payable to the Dealer Manager under this Agreement, the Fund agrees to reimburse the Dealer Manager promptly upon request, up to a maximum of $50,000, for the reasonable out-of-pocket costs and expenses (including, without limitation, reasonable fees, disbursements, and other charges of legal counsel and other advisers) incurred by the Dealer Manager in connection with this Agreement or the Offer; PROVIDED, HOWEVER, that, in the event that fewer than 1,900,000 Shares are issued upon the exercise of Rights in connection with the Offer, such reimbursement by the Fund of such out-of-pocket costs and expenses shall be limited to a maximum of $25,000. The Fund shall be entitled to receive adequate documentation evidencing any such out-of-pocket costs and expenses prior to reimbursement by the Fund. c. If this Agreement is terminated by the Dealer Manager in accordance with the provisions of Section 6 or Section 9(a)(i), 9(a)(ii) or 9(a)(iii), the Fund shall reimburse the Dealer Manager up to a maximum of $50,000, for the reasonable out-of-pocket costs and expenses (including, without limitation, reasonable fees, disbursements, and other charges of legal counsel and other advisers) incurred by the Dealer Manager in connection with this Agreement or the Offer. In the event the transactions contemplated hereunder are not consummated for any reason other than as a result of a breach of this Agreement by the Dealer Manager, the Fund agrees to pay all of the costs and expenses set forth in paragraphs (a) and (b) of this Section 5 which the Fund would have paid if such transactions had been consummated. Section 6. CONDITIONS OF DEALER MANAGER'S OBLIGATIONS. The obligations of the Dealer Manager hereunder are subject to the accuracy of the representations and warranties of the Fund herein contained, to the performance by the Fund of its covenants and obligations hereunder, and to the following further conditions: 11 a. The Registration Statement shall have become effective not later than 5:30 P.M., New York City time, on the Representation Date, or at such later time and date as may be approved by the Dealer Manager; the Prospectus and any amendment or supplement thereto shall have been filed with the Commission in the manner and within the time period required by Rule 497(c), (e), (h) or (j), as the case may be, under the Securities Act; no stop order suspending the effectiveness of the Registration Statement or any amendment thereto shall have been issued, and no proceedings for that purpose shall have been instituted or threatened or, to the knowledge of the Fund, the Investment Adviser or the Dealer Manager, shall be contemplated by the Commission; and the Fund shall have complied with any request of the Commission for additional information (to be included in the Registration Statement, the Prospectus or otherwise). b. On the Representation Date and the Expiration Date, the Dealer Manager shall have received: (1) The favorable opinion, dated the Representation Date and the Expiration Date, of Kirkpatrick & Lockhart LLP, counsel for the Fund, in form and substance satisfactory to counsel for the Dealer Manager, to the effect that: i) The Fund has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland. ii) The Fund has full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement and the Prospectus. iii) To its knowledge, the Fund currently maintains all Licenses and Permits necessary to carry on its business as contemplated in the Prospectus. iv) The Fund is duly qualified as a foreign corporation to transact business and is in good standing in the State of New Jersey; and, to its knowledge, the Fund has no subsidiaries. v) The outstanding shares of Common Stock have been duly authorized by all requisite corporate action on the part of the Fund and are validly issued, fully paid and non-assessable. vi) The Fund's outstanding shares of Common Stock have been listed on the NYSE and, to its knowledge, the Rights [for the opinion on the Expiration Date only: and the Shares] have been duly approved for listing on the NYSE, subject to official notice of issuance. vii) The Fund's authorized capitalization is as set forth in the Prospectus under the heading "Description of Common Stock." The Rights and the Shares have been duly authorized by all requisite corporate action on the part of the Fund for issuance pursuant to 12 the Offer; the Shares have been duly authorized by all requisite corporate action on the part of the Fund for sale pursuant to the terms of the Offer and, when issued and delivered by the Fund pursuant to the terms of the Offer against payment of the consideration set forth in the Prospectus, will be validly issued, fully paid and non-assessable; the Common Stock, the Rights and the Shares conform in all material respects to the descriptions thereof set forth in the Registration Statement and the Prospectus; and the issuance of each of the Rights and the Shares is not subject to any preemptive rights provided by law or under the Fund's Charter or By-Laws. viii)This Agreement and the other Fund Agreements have been duly authorized, executed and delivered by the Fund, are valid and binding obligations of the Fund, comply as to form in all material respects with all applicable provisions of the Investment Company Act and are in full force and effect. ix) The Registration Statement is effective under the Securities Act; any required filing of the Prospectus or any supplement thereto pursuant to Rule 497(c), (e), (h) or (j) required to be made to the date hereof has been made in the manner and within the time period required by Rule 497(c), (e), (h) or (j), as the case may be; to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been instituted or threatened; and the Registration Statement, the Prospectus and each amendment thereof or supplement thereto (other than the financial statements, schedules, the notes thereto and the schedules and other financial data contained or incorporated by reference therein or omitted therefrom, as to which such counsel need express no opinion) as to their respective effective or issue dates comply as to form in all material respects with the applicable requirements of the Securities Act and the Investment Company Act and the Rules and Regulations. x) Except as set forth in the Registration Statement and Prospectus, to the best knowledge of such counsel, there is no pending or threatened action, suit or proceeding to which the Fund is a party before or by any court or governmental agency, authority or body or any arbitrator, whether foreign or domestic, which could reasonably be expected to result in any material adverse change in the condition (financial or other), business prospects, net worth or results of operations of the Fund, or which could reasonably be expected to materially and adversely affect the properties or assets thereof which are of a character required to be disclosed in the Registration Statement or the Prospectus. xi) To its knowledge, there are no contracts, indentures, mortgages, loan agreements, notes, leases or other instruments of the Fund required to be described or referred to in the Prospectus or the Registration Statement or to be filed as exhibits thereto other than those respectively described or referred to therein or filed as exhibits thereto, the descriptions thereof are correct in all material respects, references thereto are correct, and no 13 default exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, loan agreement, note or lease so described, referred to or filed. xii) No consent, approval, authorization or order of any court or governmental authority or agency is required in connection with the sale of the Shares pursuant to the Offer, except such as has been obtained under the Securities Act, the Investment Company Act or the Rules and Regulations or such as may be required under state securities laws; and to their knowledge, the execution and delivery of the Dealer Manager Agreement and the Fund Agreements and the consummation of the transactions contemplated herein and therein will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Fund pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other instrument known to such counsel to which the Fund is a party or by which it may be bound or to which any of the property or assets of the Fund is subject, nor will such action result in any violation of the provisions of the Charter or By-Laws of the Fund, or to their knowledge, any law, administrative regulation, or administrative or court decree. xiii)The Fund is registered with the Commission under the Investment Company Act as a closed-end, diversified management investment company, and all required action has been taken by the Fund under the Securities Act, the Investment Company Act and the Rules and Regulations to make and consummate the Offer; the provisions of the Charter and By-Laws of the Fund comply as to form in all material respects with the requirements of the Investment Company Act and the rules and regulations thereunder; and, to their knowledge, no order of suspension or revocation of such registration under the Investment Company Act, pursuant to Section 8(e) of the Investment Company Act, has been issued or proceedings therefor initiated or threatened by the Commission. xiv) The information in the Prospectus under the caption "Federal Taxation," to the extent that it constitutes matters of law or legal conclusions relating to Federal income tax matters, has been reviewed by them and is correct in all material respects. In rendering such opinion, such counsel may rely as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Fund or the Investment Adviser, as applicable, and public officials. Such counsel may state that their opinion is limited to the federal laws of the United States, the laws of the State of Maryland and the laws of the Commonwealth of Massachusetts, as applicable, and that they are expressing no opinion as to the effect of laws of any other jurisdiction, except as specifically set forth in such opinion. Such counsel shall also have stated that, while they have not themselves checked the accuracy and completeness of or otherwise verified, 14 and are not passing upon and assume no responsibility for the accuracy or completeness of, the statements contained in the Registration Statement or the Prospectus, in the course of their review and in the course of discussions of the contents of the Registration Statement and Prospectus with certain officers and employees of the Fund and its independent accountants, no facts have come to their attention which cause them to believe that the Registration Statement, on the date it became effective, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements contained therein not misleading or that the Prospectus, as of its date and on the Representation Date or the Expiration Date, as the case may be, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (2) The favorable opinion, dated the Representation Date and the Expiration Date, of Peter L. Curry, General Counsel of the Investment Adviser, in form and substance satisfactory to counsel for the Dealer Manager, to the effect that: i) The Investment Adviser is duly registered as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act or the Investment Company Act, or the rules and regulations under such acts, from acting under the Investment Advisory Agreement for the Fund as contemplated by the Prospectus. ii) The Investment Adviser has been duly organized and is validly existing as a limited liability partnership in [good standing] under the laws of the Commonwealth of Massachusetts. iii) The Investment Adviser has all power and authority necessary to own or hold its properties and to conduct its business as described in the Registration Statement and the Prospectus. iv) [To his knowledge, the Investment Adviser currently maintains all Licenses and Permits necessary to carry on its business as contemplated in the Prospectus.] v) The Investment Advisory Agreement has been duly authorized, executed and delivered by the Investment Adviser; the Investment Advisory Agreement constitutes a valid and binding obligation of the Investment Adviser, enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, reorganization or other laws relating to or affecting creditors' rights and to general equity principles; [no consent, approval, authorization or order of any court or governmental authority or agency is required that has not been obtained for the performance of the Investment Advisory Agreement by the Investment Adviser]; and neither the execution and delivery of the Investment Advisory Agreement nor the performance by the Investment Adviser of its obligations under that agreement will conflict with, or result in a breach of, any of the terms and provisions of, or constitute, with or without the giving of notice 15 or the lapse of time or both, a default under, the [Investment Adviser's Limited Liability Partnership Agreement] or, to such counsel's knowledge, any agreement or instrument to which the Investment Adviser is a party or by which the Investment Adviser is bound, or to its knowledge, any law, order, rule or regulation applicable to the Investment Adviser of any jurisdiction, court, federal or state regulatory body, administrative agency or other governmental body, stock exchange or securities association having jurisdiction over the Investment Adviser or its properties or operations. vi) To such counsel's knowledge, there are no legal or governmental proceedings pending or threatened against the Investment Adviser that are required to be disclosed in the Registration Statement or the Prospectus, other than those disclosed therein. vii) [The Investment Advisory Agreement complies with all applicable provisions of the Advisers Act.] viii) The description of the Investment Adviser in the Registration Statement and Prospectus does not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements contained therein not misleading. [Such opinion shall also state that paragraphs (i) through (vii) above also constitute representations of such General Counsel as an officer of the Investment Adviser.] (3) The favorable opinion, dated as of the Representation Date, of Rogers & Wells LLP, counsel for the Dealer Manager, with respect to the issuance and sale of the Shares, and such other related matters as the Dealer Manager may reasonably require. c. The Fund shall have furnished to the Dealer Manager certificates of the Fund, signed by the President, the Treasurer, the Secretary, or the Assistant Secretary of the Fund, dated as of the Representation Date and the Expiration Date, to the effect that the signer of such certificate carefully examined the Registration Statement, the Prospectus, any supplement to the Prospectus and this Agreement and that, to the best of their knowledge: (i) The representations and warranties of the Fund in this Agreement are true and correct on and as of the Representation Date or the Expiration Date, as the case may be, with the same effect as if made on the Representation Date or the Expiration Date, as the case may be, and the Fund has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Representation Date or the Expiration Date, as the case may be; (ii) No stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the Fund's knowledge, threatened; and 16 (iii) Since the date of the most recent balance sheet included or incorporated by reference in the Prospectus, there has been no material adverse change in the condition (financial or other), business, prospects, net worth or results of operations of the Fund (excluding fluctuations in the Fund's net asset value due to investment activities in the ordinary course of business), except as set forth in or contemplated in the Prospectus. (iv) The Fund does not own any property or conduct its business in any jurisdiction other than the State of New Jersey. d. The Investment Adviser shall have furnished to the Dealer Manager certificates of the Investment Adviser, signed by the President, Treasurer, Secretary, Assistant Secretary or Vice President, dated as of the Representation Date and the Expiration Date, to the effect that the signer of such certificate has read the Registration Statement, the Prospectus, any supplement to the Prospectus and this Agreement and, to the best knowledge of such signer, the representations and warranties of the Investment Adviser in Exhibit C to this Agreement are true and correct in all material respects on and as of the Representation Date or the Expiration Date, as the case may be, with the same effect as if made on the Representation Date or the Expiration Date, as the case may be. e. PricewaterhouseCoopers LLP shall have furnished to the Dealer Manager letters, dated the Representation Date and the Expiration Date, in form and substance satisfactory to the Dealer Manager, to the effect that: (i) They are independent accountants with respect to the Fund within the meaning of the Securities Act and the Rules and Regulations; (ii) In their opinion, the audited financial statements examined by them and included or incorporated by reference in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the Investment Company Act and the Rules and Regulations; (iii) They have performed specified procedures, not constituting an audit in accordance with generally accepted auditing standards, including a reading of the latest available interim financial statements of the Fund, a reading of the minute books of the Fund, inquiries of officials of the Fund responsible for financial accounting matters and such other inquiries and procedures as may be specified in such letter, and on the basis of such inquiries and procedures nothing came to their attention that caused them to believe that at the date of the latest available financial statements read by such accountants, or at a subsequent specified date not more than three days prior to the Representation Date and the Expiration Date, respectively, there was any change in the capital stock or any decrease in the net assets of the Fund as compared with amounts shown on the statement of net assets included or incorporated by reference in the Registration Statement except as the Registration Statement discloses has occurred or may occur, or they shall state any specific changes or decreases; and (iv) In addition to the procedures referred to in clause (iii) above, they have performed other specified procedures, not constituting an 17 audit, with respect to certain amounts, percentages, numerical data, financial information and financial statements appearing in the Registration Statement, which have previously been specified by the Dealer Manager and which shall be specified in such letter, and have compared certain of such items with, and have found such items to be in agreement with, the accounting and financial records of the Fund. f. At the date of this Agreement, counsel for the Dealer Manager shall have been furnished with such further documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance of the Rights and the Shares and the sale of the Shares as contemplated herein and in the Registration Statement and to pass upon related proceedings, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Fund in connection with the issuance of the Rights and the Shares and sale of the Shares as contemplated herein and in the Registration Statement shall be satisfactory in form and substance to the Dealer Manager and counsel for the Dealer Manager. g. Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall not have been (i) any change or decrease specified in the letter or letters referred to in paragraph (e)(iii) of this Section 6, or (ii) any change, or any development involving a prospective change, in or affecting the business or properties of the Fund, the effect of which, in any case referred to in clause (i) or (ii) above, is, in the reasonable judgment of the Dealer Manager, so material and adverse as to make it impractical or inadvisable to proceed with the Offer as contemplated by the Registration Statement and the Prospectus. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Dealer Manager by notice to the Fund at any time at or prior to the Representation Date by the Dealer Manager, and such termination shall be without liability of any party to any other party except as provided in Section 5. Section 7. INDEMNIFICATION AND CONTRIBUTION. a. In connection with or arising out of or relating to the engagement of the Dealer Manager pursuant to this Agreement, the Fund agrees to indemnify and hold harmless each Indemnified Party (as defined below) from and against any and all losses, claims, damages, liabilities, judgments, actions, suits, investigations or proceedings of any kind or nature (collectively, "Losses") and costs or expenses incurred by them of any kind or nature, in connection with the investigation of, preparation for, or defense or settlement of any pending or threatened claim, litigation, proceeding, appeal or other action (collectively, "Expenses"), to which such Indemnified Party may become subject under the Securities Act, the Exchange Act, the Investment Company Act, the Investment Advisers Act, or other federal or state statutory law or otherwise, insofar as such Losses and Expenses arise out of or are based on the following: (i) Any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Prospectus, the Offering Materials, or in any documents filed under the Exchange Act and deemed to be incorporated by reference into the Registration Statement, the Prospectus or the 18 Offering Materials, or in any application or other document executed by or on behalf of the Fund or based on written information furnished by or on behalf of the Fund and filed or submitted in any jurisdiction or filed with the Commission; (ii) The omission or alleged omission to state, in any or all such documents, a material fact required to be stated therein or necessary to make the statements therein not misleading; or (iii) Any breach by the Fund of any of its representations, warranties or agreements contained herein or in any certificate or document furnished pursuant to Section 6(c), 6(d) or 6(f) hereof. PROVIDED, HOWEVER, that the Fund will not be liable to the extent that such Losses and Expenses are based on an untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to the Dealer Manager and furnished in writing to the Fund by the Dealer Manager expressly for inclusion in the Registration Statement, the Prospectus or the Offering Materials. As used herein, the "Indemnified Parties" shall mean and include each and all of the following: (i) the Dealer Manager; (ii) affiliates, the respective directors, officers, agents, consultants and employees of and counsel to the Dealer Manager and its affiliates; (iii) each person controlling (within the meaning of the Securities Act) the Dealer Manager or any of its affiliates; and (iv) the successors, assigns, heirs and personal representatives of any of the foregoing. b. The Dealer Manager will indemnify and hold harmless the Fund and the Investment Adviser, their respective affiliates, the respective partners, directors, officers, agents, consultants and employees of and counsel to the Fund, the Investment Adviser and their respective affiliates, each person controlling (within the meaning of the Securities Act) the Fund, the Investment Adviser and their respective affiliates, and the successors, assigns, heirs and personal representatives of any of the foregoing, to the same extent as the foregoing indemnity from the Fund to the Indemnified Parties, but only insofar as Losses and Expenses arise out of or are based on any untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to the Dealer Manager and furnished in writing to the Fund by the Dealer Manager expressly for use in the Registration Statement, the Prospectus or the Offering Materials. c. If multiple claims are brought in arbitration in connection with or arising out of or relating to the Offer or this Agreement, with respect to at least one of which indemnification is provided for in this Agreement, any arbitration award shall be conclusively deemed to be based on claims as to which indemnification is provided for in this Agreement, except to the extent the arbitration award expressly states that the award, or any portion thereof, is based solely on a claim as to which indemnification is not available. d. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Agreement is 19 applicable in accordance with its terms but for any reason is held to be unavailable from the Fund or the Dealer Manager, the Fund, on the one hand, and the Dealer Manager, on the other hand, shall contribute to the total Losses to which the Fund, the Investment Adviser or the Indemnified Parties may be subject in such proportion as shall be appropriate to reflect the relative benefits received by the Fund, on the one hand, and the Dealer Manager and Indemnified Parties, on the other hand. The relative benefits received by the Fund, on the one hand, and the Dealer Manager and Indemnified Parties, on the other hand, shall be deemed to be in the same proportion that the total net proceeds from the Offering received by the Fund bear to the total discounts and commissions received by the Dealer Manager and Indemnified Parties. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only such relative benefits referred to in the foregoing sentence but also the relative fault of the Fund, on the one hand, and the Dealer Manager and Indemnified Parties, on the other hand, with respect to the untrue statements or omissions or alleged untrue statements or omissions that resulted in the Losses, for which the contribution is sought, as well as any other equitable considerations; PROVIDED, HOWEVER, that in no event shall the contribution of the Dealer Manager exceed the amount of fees actually received by the Dealer Manager pursuant to this Agreement; PROVIDED FURTHER, HOWEVER, that no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7(d), each person, if any, who controls the Dealer Manager within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Dealer Manager, and each director of the Fund or partner of the Investment Adviser and each person, if any, who controls the Fund or the Investment Adviser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Fund and the Investment Adviser, as the case may be. None of the Indemnified Parties shall have any liability whatsoever to the Fund or its affiliates, directors, officers, employees, agents or shareholders, directly or indirectly, in connection with or arising out of or related to the Offer or this Agreement, except Losses incurred by the Fund which are finally judicially determined, by a court of competent jurisdiction within the United States, to have resulted primarily from the gross negligence, willful misconduct or bad faith of the Indemnified Party in fulfilling its duties under this Agreement. In no event, regardless of the theory advanced, shall the Fund, the Investment Adviser or any of the Indemnified Parties be liable for any consequential, indirect, incidental or special damages of any nature. e. The Fund will not, without the prior written consent of the Dealer Manager, settle, compromise or consent to the entry of any judgment in any pending or threatened claim, litigation, proceeding, appeal or other action related to the Offer or this Agreement unless the settlement, compromise or consent includes an express unconditional release of the Indemnified Parties from all liability and obligations arising therefrom. f. The Fund's and the Dealer Manager's respective obligations referred to herein shall be in addition to any rights that the Fund and any of the 20 Indemnified Parties may otherwise have. The Fund's and the Dealer Manager's respective obligations referred to herein will remain operative regardless of any termination or completion of the Dealer Manager's services. g. In the event an Indemnified Party is requested or required to appear as a witness in any action brought by or on behalf of or against the Fund, the Fund agrees to reimburse the Dealer Manager for all reasonable expenses as incurred by it in connection with such Indemnified Party's appearing and preparing to appear as such a witness, including , without limitation, the reasonable fees and disbursements of its legal counsel, and to compensate the Dealer Manager in an amount to be mutually agreed upon. In addition, the Fund agrees to compensate the Dealer Manager in an amount to be mutually agreed upon per employee per day for each day that a Dealer Manager office or employee is involved in preparation, discovery or testimony pertaining to any litigation, discovery or investigation in connection with the Dealer Manager's engagement under this agreement. h. Promptly after receipt by an Indemnified Party of written notice of any claim or commencement of an action or proceeding with respect to which indemnification may be sought hereunder, such Indemnified Party will notify the Fund in writing of such claim or of the commencement of such action or proceeding, but failure so to notify the Fund will not relieve the Fund from any liability which it may have to such Indemnified Party under this indemnification agreement, and in any event will not relieve the Fund from any other liability that it may have to such Indemnified Party. The Dealer Manager shall have the right to select counsel in connection with any transaction for which any Indemnified Party may be entitled to indemnification or contribution hereunder, provided that in no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all Indemnified Parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. i. If at any time an Indemnified Party shall have requested an indemnifying party to reimburse the Indemnified Party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such Indemnifying Party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. j. The Fund agrees to indemnify each Soliciting Dealer and its affiliates and their respective directors, officers, employees, agents and controlling persons to the same extent and subject to the same conditions and to the same agreements, including with respect to contribution, provided for in subsections (a) through (g) of this Section 7. This indemnity agreement will be in addition to any liability which the Fund may otherwise have. Section 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties and agreements contained in this Agreement, or 21 contained in certificates of officers of the Fund submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Dealer Manager or any controlling person, or by or on behalf of the Fund or the Investment Adviser and shall survive delivery of the Shares pursuant to the Offer. The provisions of Sections 5 and 7 hereof shall survive the termination or cancellation of this Agreement. Section 9. TERMINATION OF AGREEMENT. a. This Agreement may be terminated in the sole discretion of the Dealer Manager by notice to the Fund given at or prior to the expiration of the Offer in the event that the Fund shall have failed, refused or been unable to perform all material obligations and satisfy all material conditions on its part to be performed or satisfied hereunder at or prior thereto or, if at or prior to the termination of the Offer, (i) The Fund or the Investment Adviser shall have sustained any material loss or interference with its business or properties from fire, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding, or there shall have been any material adverse change or any development involving a prospective material adverse change (including without limitation a change in management or control of the Fund or the Investment Adviser, as the case may be), in the condition, financial or otherwise, or in the business affairs or business prospects of the Fund or the Investment Adviser, whether or not arising in the ordinary course of business, except in each case as described in or contemplated by the Registration Statement and the Prospectus (exclusive of any amendment or supplement thereto) and except for changes in the Fund's net asset value due to its normal investment operations; (ii) Trading in the Common Stock has been suspended by the Commission or the NYSE; (iii) There has occurred any material adverse change in the financial markets in the United States or internationally or any outbreak of hostilities or escalation thereof or other calamity or crisis, or any change or development involving a prospective change in national or international political, financial, or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Dealer Manager, impracticable to market the Shares or to enforce contracts for the sale of the Shares; or (iv) Trading generally on the NYSE or the National Association of Securities Dealers Automated Quotations System shall have been suspended or limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by any of said exchanges or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by United States or New York authorities. b. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 5. 22 Section 10. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of written telecommunication. Notices to the Dealer Manager shall be directed to A.G. Edwards & Sons, Inc., One Boston Place, Suite 3660, Boston, Massachusetts 02108, Attention: Michael S. Burd, Managing Director, Investment Banking; notices to the Fund shall be directed to The High Yield Plus Fund, Inc., c/o Thomas T. Mooney, President, Treasurer and Director, The Greater Rochester Metro Chamber of Commerce, 55 St. Paul Street, Rochester, NY 14604; notices to the Investment Adviser shall be directed to Wellington Management Company, LLP, 75 State Street, Boston, Massachusetts 02109, Attention: Robert M. Doran. Section 11. PARTIES. This Agreement shall inure to the benefit of and be binding upon the Dealer Manager, the Fund, and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the parties hereto and their respective successors and the controlling persons and officers and directors referred to in Section 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the parties hereto and thereto and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. Section 12. GOVERNING LAW AND TIME. This Agreement shall be governed by the laws of the State of New York applicable to agreements made and to be performed in said State. Specified times of day refer to New York City time. Section 13. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 23 If the foregoing is in accordance with your understanding of our agreement, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among the Fund and the Dealer Manager. Very truly yours, The High Yield Plus Fund, Inc. By:_________________________________________ Name: Thomas T. Mooney Title: President and Treasurer The foregoing Agreement is hereby confirmed and accepted as of the date first above written. A.G. Edwards & Sons, Inc. By:_____________________________ Name: Title: 24 Exhibit A THE HIGH YIELD PLUS FUND, INC. Rights Offering for Shares of Common Stock FORM OF SOLICITING DEALER AGREEMENT THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME _____________, 1999* Ladies and Gentlemen: The High Yield Plus Fund, Inc., a Maryland corporation (the "Fund"), proposes to issue to holders of record ("Record Date Stockholders") of its common stock, par value $0.01 per share (the "Common Stock"), at the close of business on the record date (the "Record Date") set forth in the Prospectus (as defined herein), transferable rights (the "Rights," and individually, a "Right") entitling such Record Date Stockholders to subscribe for shares of Common Stock and, subject to certain conditions, additional shares of Common Stock pursuant to an over-subscription privilege (the "Offer"). The shares of Common Stock for which holders of Rights ("Rightholders") may subscribe pursuant to the Offer are herein referred to as the "Shares." Pursuant to the terms of the Offer, the Fund is issuing each Record Date Stockholder one Right for each three shares of Common Stock held. Such Rights entitle Rightholders to acquire, at the subscription price set forth in the Prospectus (the "Subscription Price"), one share for each Right held on the terms and subject to the conditions set forth in the Prospectus. No fractional Shares will be issued. Any Rightholder who fully exercises all Rights held by such Rightholder will be entitled to subscribe for, subject to allocation, additional Shares (the "Over-Subscription Privilege") on the terms and conditions set forth in the final prospectus of the Fund in the form filed with the Securities and Exchange Commission pursuant to Rule 497(c), (e), (h) or (j) under the Securities Act (as defined herein), as from time to time amended or supplemented pursuant to the Securities Act and all documents, if any, incorporated by reference therein (the "Prospectus"). The undersigned, as the dealer manager (the "Dealer Manager") named in the Prospectus, has entered into a Dealer Manager Agreement dated December __, 1998 with the Fund, pursuant to which the undersigned has agreed to form and manage, for purposes of soliciting exercises of Rights pursuant to the Offer, a group of soliciting dealers, including the undersigned, consisting of brokers and dealers who shall be members in good standing of the National Association of Securities Dealers, Inc. (the "NASD") or any foreign broker or dealer not eligible for membership who agrees to conform to the Rules of Fair Practice of the NASD, including Sections 2730, 2740, 2420 and 2750 thereof, in making solicitations in the United States to the same extent as if it were a member thereof (the members of such group being hereinafter called the "Soliciting Dealers"). You are invited to become one of the Soliciting Dealers - ------------- * Unless extended to a date no later than ______________, 1999. A-1 and by your confirmation hereof you agree to act in such capacity, in accordance with the terms and conditions herein and in your confirmation hereof, to obtain exercises of Rights pursuant to the Offer. (1) SOLICITING AND SOLICITING MATERIAL. Soliciting and other activities by you hereunder shall be undertaken only in accordance with this Agreement, the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the applicable rules and regulations of the Securities and Exchange Commission and only in those states and other jurisdictions where such solicitations and other activities may lawfully be undertaken and in accordance with the laws thereof. Accompanying this Agreement are copies of the following documents: the Prospectus describing the terms of the Offer, a Subscription Certificate and letters to stockholders. Additional copies of these documents will be supplied in reasonable quantities upon your request. You agree that during the period of the Offer you will not use any solicitation material other than that referred to above and such as may hereafter be furnished to you by the Fund through us. (2) COMPENSATION OF SOLICITING DEALERS. The Dealer Manager has agreed to reallow soliciting fees ("Soliciting Fees") to qualified brokers or dealers executing Soliciting Dealer Agreements who solicit the exercise of Rights and the Over-Subscription Privilege in connection with the Offer and who comply with the procedures described below. Upon timely delivery to State Street Bank and Trust Company, the Fund's Subscription Agent for the Offer, of payment for Shares purchased pursuant to the exercise of Rights and the Over-Subscription Privilege and of properly completed and executed documentation as set forth in this Soliciting Dealer Agreement, the Dealer Manager will pay to Soliciting Dealers Soliciting Fees equal to 2.50% of the aggregate Subscription Price for the Shares issued pursuant to such exercise of Rights and the Over-Subscription Privilege; PROVIDED, HOWEVER, that no payment shall be due with respect to the issuance of any Shares until payment therefor is actually received by the Dealer Manager. The Dealer Manager agrees to pay the Soliciting Fees to the broker-dealers designated on the applicable portion of the related Subscription Certificate, if such broker-dealers have executed a confirmation accepting the terms of the Soliciting Dealer Agreements; PROVIDED, HOWEVER, that if, in any case, no broker-dealer is so designated or a broker-dealer is otherwise not entitled to receive compensation pursuant to the Soliciting Dealer Agreement, the Dealer Manager will retain the Soliciting Fee that would otherwise have been payable in such case. Payment of the Soliciting Fees to qualifying Soliciting Dealers will be made by the Dealer Manager directly to such Soliciting Dealers by U.S. dollar checks drawn upon an account at a bank in New York City. Such payments to such Soliciting Dealers shall be made as soon as practicable after payment of the Dealer Manager Fee is made by the Fund to the Dealer Manager. Payment to the Dealer Manager by the Fund will be in the form of a wire transfer of same day funds to an account or accounts identified by the Dealer Manager. Such payments will be made on the day after the final payment for Shares is due as determined pursuant to in the Prospectus. A-2 No Soliciting Fees shall be payable to a Soliciting Dealer in respect of any particular exercise of Rights if no Soliciting Dealer is so designated on the Subscription Certificate in the place so provided, or if in the opinion of counsel for the Dealer Manager, such Soliciting Fees cannot legally be paid in respect of such exercise of Rights because of the provisions of applicable state law or for any other reason. In case of any dispute or disagreement as to the amount of Soliciting Fees payable to any Soliciting Dealer hereunder or as to the proper recipient of any such Soliciting Fees, the decision of the Dealer Manager shall be conclusive. The payment of any Soliciting Fees to Soliciting Dealers shall be the responsibility of the Dealer Manager, but the Dealer Manager shall have no other obligation or liability to any Soliciting Dealer for any obligation of the Fund hereunder. (3) The Offer will expire on the Expiration Date as set forth in the Prospectus. In order for a Soliciting Dealer to receive the Soliciting Fees, the Subscription Agent must have received from such Soliciting Dealer no later than 5:00 P.M., New York City time, on the Expiration Date, either (i) a properly completed and duly executed Subscription Certificate with respect to Shares purchased pursuant to the exercise of Rights and the Over-Subscription Privilege and full payment for such Shares; or (ii) a Notice of Guaranteed Delivery guaranteeing delivery to the Subscription Agent by close of business on the third business day after the Expiration Date, of (a) full payment for such Shares and (b) a properly completed and duly executed Subscription Certificate with respect to Shares purchased pursuant to the exercise of Rights. The Soliciting Fees will only be paid after receipt by the Dealer Manager of a properly completed and duly executed confirmation accepting the terms of the Soliciting Dealer Agreement and by the Subscription Agent of a Subscription Certificate designating the Soliciting Dealer in the applicable portion hereof. In the case of a Notice of Guaranteed Delivery, the Soliciting Fees will only be paid after delivery in accordance with such Notice of Guaranteed Delivery has been effected. (4) TRADING. You represent to the Fund and the Dealer Manager that you have not engaged, and agree that you will not engage, in any activity in respect of the Rights or the Shares in violation of the Exchange Act, including Regulation M thereunder. Your acceptance of Soliciting Fees will constitute a representation that you are eligible to receive such Soliciting Fees and that you have complied with the preceding sentence and your other agreements hereunder. (5) UNAUTHORIZED INFORMATION AND REPRESENTATIONS. Neither you nor any other person is authorized by the Fund or the Dealer Manager to give any information or make any representations in connection with this Agreement or the Offer other than those contained in the Prospectus and other authorized solicitation material furnished by the Fund through the Dealer Manager, and you hereby agree not to use any solicitation material other than material referred to in this Section 5. Without limiting the generality of the foregoing, you agree for the benefit of the Fund and the Dealer Manager not to publish, circulate or otherwise use any other advertisement or solicitation material without the prior written approval of the Fund and the Dealer Manager. You are not authorized to act as agent of the Fund or the Dealer Manager in any respect, A-3 and you agree not to act as such agent and not to purport to act as such agent. On becoming a Soliciting Dealer and in soliciting exercises of Rights, you agree for the benefit of the Fund and the Dealer Manager to comply with any applicable requirements of the Securities Act, the Exchange Act, the rules and regulations thereunder, any applicable securities laws of any state or jurisdiction where such solicitations may lawfully be made, and the applicable rules and regulations of any self-regulatory organization or registered national securities exchange, and to perform and comply with the agreements set forth in your confirmation of your acceptance of this Agreement, a copy of the form of which is appended hereto. (6) BLUE SKY AND SECURITIES LAWS. The Dealer Manager assumes no obligation or responsibility in respect of the qualification of the Shares issuable pursuant to the Offer or the right to solicit Rights under the laws of any jurisdiction. The enclosed Blue Sky Letter indicates the states in which it is believed that acceptances of the Offer may be solicited under the applicable Blue Sky or securities laws. Under no circumstances will you as a Soliciting Dealer engage in any activities hereunder in any state in which you may not lawfully so engage. The Blue Sky Letter shall not be considered solicitation material as that term is herein used. You agree that you will not engage in any activities hereunder outside the United States except in jurisdictions where such solicitations and other activities may lawfully be undertaken and in accordance with the laws thereof. (7) TERMINATION. This Agreement may be terminated by written or telegraphic notice to you from the Dealer Manager, or to the Dealer Manager from you, and in any case it will terminate upon the expiration or termination of the Offer; PROVIDED, HOWEVER, that such termination shall not relieve the Dealer Manager of the obligation to pay when due any Soliciting Fees payable to you hereunder with respect to Shares acquired pursuant to the exercise of Rights through the close of business on the date of such termination or relieve the Fund of its obligations referred to under Section 9 hereof, and shall not relieve you of any obligation or liability under Sections 1, 4, 5, 6, 10 and 11 hereof. (8) LIABILITY OF DEALER MANAGER. Nothing herein contained shall constitute the Soliciting Dealers as partners with the Dealer Manager or with one another, or agents of the Dealer Manager or the Fund, or shall render the Fund liable for the obligations of the Dealer Manager or the obligations of any Soliciting Dealers, or shall render the Dealer Manager liable for the obligations of any Soliciting Dealers nor constitute the Fund or the Dealer Manager the agent of any Soliciting Dealer. The Fund and the Dealer Manager shall be under no liability to any Soliciting Dealer or any other person for any act or omission or any matter connected with this Agreement or the Offer, except that the Fund shall be liable on the basis set forth in Section 9 hereof to indemnify certain persons. You represent that you have not purported, and agree that you will not purport, to act as agent of the Fund or the Dealer Manager in any connection or transaction relating to the Offer. (9) INDEMNIFICATION. Under the Dealer Manager Agreement, the Fund has agreed to indemnify and hold harmless the Dealer Manager, each Soliciting Dealer, and their respective directors, officers, employees, agents and each person who controls the Dealer Manager or a Soliciting Dealer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against A-4 certain liabilities, including liabilities under the Securities Act and the Exchange Act. By returning an executed copy of this Agreement, you agree to indemnify and hold harmless the Fund as an intended third-party beneficiary to this Agreement, the Dealer Manager, and their respective directors, officers, employees, agents and each person who controls the Fund or the Dealer Manager within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (the "Indemnified Persons") against losses, claims, damages and liabilities to which the Indemnified Persons may become subject (a) as a result of your breach of your representations or agreements made herein or (b) if you (as custodian, trustee or fiduciary or in any other capacity) are acting on behalf of another entity that is soliciting exercises of Rights pursuant to the Offer (a "Soliciting Entity"), as a result of any breach by any such Soliciting Entity of the representations or agreements made herein by the Soliciting Dealers to the same extent as if such Soliciting Entity had executed the confirmation referred to in Section 14 hereof and was therefore a Soliciting Dealer that had directly made such representations and agreements. This indemnity agreement will be in addition to any liability which you may otherwise have. (10) DELIVERY OF PROSPECTUS. You agree for the benefit of the Fund and the Dealer Manager to deliver to each person who owns beneficially Common Stock registered in your name, and who exercises Rights on a Subscription Certificate on which your name, to your knowledge, has been inserted, a Prospectus prior to the exercise of Rights by such person. (11) STATUS OF SOLICITING DEALER. Your acceptance of Soliciting Fees will constitute a representation to the Fund and the Dealer Manager that you (i) have not purported to act as agent of the Fund or the Dealer Manager in any connection or in any transaction relating to the Offer, (ii) are not affiliated with the Fund or the Investment Adviser, (iii) will not accept Soliciting Fees from the Dealer Manager pursuant to the terms hereof with respect to Shares purchased by you pursuant to an exercise of Rights for your own account or the account of any affiliate, other than a natural person, (iv) will not remit, directly or indirectly, any part of any Soliciting Fees to any beneficial owner of Shares purchased pursuant to the Offer, (v) agree to the amount of the Soliciting Fees and the terms and conditions set forth herein with respect to receiving such Soliciting Fees, (vi) have read and reviewed the Prospectus, and (vii) are a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD") or are a foreign broker or dealer not eligible for membership who agrees to conform to the Rules of Fair Practice of the NASD, including Sections 2730, 2740, 2420 and 2750 thereof, in making solicitations in the United States to the same extent as if you were a member thereof. (12) NOTICES. Any notice hereunder shall be in writing or by telegram and if to you as a Soliciting Dealer shall be deemed to have been duly given if mailed or telegraphed to you at the address to which this letter is addressed, and if to the Dealer Manager, if delivered or sent to A.G. Edwards & Sons, Inc., One Boston Place, Suite 3660, Boston, Massachusetts 02108, Attention: Michael S. Burd, Managing Director, Investment Banking. (13) PARTIES IN INTEREST. The Agreement herein set forth is intended for the benefit of the Dealer Manager, the Soliciting Dealers and the Fund. A-5 (14) CONFIRMATION. Please confirm your agreement to become one of the Soliciting Dealers under the terms and conditions set forth herein and in attached confirmation by completing and executing the confirmation and sending it via facsimile (617-523-1845) to A.G. Edwards & Sons, Inc., Attention: Michael S. Burd, Managing Director. (15) GOVERNING LAW AND TIME. This Agreement shall be governed by the laws of the State of New York applicable to agreements made and to be performed in said State. A-6 Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Dealer Manager Agreement or, if not defined therein, in the Prospectus. NOTICE: IF A COPY OF THE CONFIRMATION REFERRED TO IN SECTION 14 HEREOF IS NOT SIGNED, DATED AND RETURNED TO THE DEALER MANAGER PRIOR TO THE EXPIRATION OF THE OFFER, NO SOLICITATION FEES WILL BE PAYABLE TO A SOLICITING DEALER HEREUNDER. Very truly yours, A.G. Edwards & Sons, Inc. as Dealer Manager By: _______________________ Name:______________________ Title:_____________________ A-7 EXHIBIT B CONFIRMATION A.G. Edwards & Sons, Inc. One Boston Place Suite 3660 Boston, MA 02108 Attention: Michael S. Burd Managing Director Investment Banking Facsimile: (617) 523-1845 Ladies and Gentlemen: We hereby confirm our acceptance of the terms and conditions of the letter captioned "Soliciting Dealer Agreement" which was attached hereto upon our receipt hereof (this "Agreement") with reference to the Offer of The High Yield Plus Fund, Inc. (the "Fund") described therein. We hereby acknowledge that we (i) have received, read and reviewed the Prospectus and other solicitation material referred to in this Agreement, and confirm that in executing this confirmation we have relied upon such Prospectus and other solicitation material authorized by the Fund and upon no other representations whatsoever, written or oral, (ii) have not purported to act as agent of the Fund or the Dealer Manager in any connection or in any transaction relating to the Offer, (iii) are not affiliated with the Fund, (iv) are not purchasing Shares for our own account or the account of any of our affiliates, other than a natural person, (v) will not remit, directly or indirectly, any part of any Soliciting Fees to any beneficial owner of Shares purchased pursuant to the Offer, and (vi) agree to the amount of the Soliciting Fees and the terms and conditions set forth in this Agreement with respect to receiving such Soliciting Fees. We also confirm that we are a broker or dealer who is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD") or are a foreign broker or dealer not eligible for membership who agrees to conform to the Rules of Fair Practice of the NASD, including Sections 2730, 2740, 2420 and 2750 thereof, in making solicitations in the United States to the same extent as if we were a member thereof. B-1 In connection with the Offer, we represent that we have complied, and agree that we will comply, with any applicable requirements of the Securities Act of 1933, the Securities Exchange Act of 1934, any applicable securities or Blue Sky laws and the rules and regulations under the Securities Act of 1933, the Securities Exchange Act of 1934 and any applicable securities or Blue Sky laws. ------------------------------------ Firm Name By__________________________________ Authorized Signature Address: ------------------------------------ ------------------------------------ DTC Number: ------------------------------------ Nominee Name: ------------------------------------ ------------------------------------ Dated: __________________, 1998 NOTICE: IF A COPY OF THIS CONFIRMATION IS NOT SIGNED, DATED AND RETURNED TO THE DEALER MANAGER PRIOR TO THE EXPIRATION OF THE OFFER, NO SOLICITATION FEES WILL BE PAYABLE TO A SOLICITING DEALER HEREUNDER. B-2 EXHIBIT C REPRESENTATION AND WARRANTIES OF THE INVESTMENT ADVISOR (i) [The Investment Adviser has been duly formed and is validly existing as a limited liability partnership in good standing under the laws of the Commonwealth of Massachusetts with full power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement and the Prospectus; the Investment Adviser currently maintains all Licenses and Permits necessary to carry on its business as contemplated in the Prospectus, and is duly qualified as a foreign limited liability partnership to transact business and is in good standing in each jurisdiction in which the failure to so qualify, either individually or in the aggregate, would have a material adverse effect upon the operations or financial condition of the Investment Adviser; and the Investment Adviser has no subsidiaries.] (i) [The Investment Adviser is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and is not prohibited by the Advisers Act or the Investment Company Act, or the rules and regulations under such Acts, from acting as an investment adviser for the Fund as contemplated in the Registration Statement and the Prospectus and the Investment Advisory Agreement.] (ii) The description of the Investment Adviser in the Registration Statement and the Prospectus is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading. (iii) [The Investment Advisory Agreement has been duly authorized, executed and delivered by the Investment Adviser and complies with all applicable provisions of the Advisers Act and the Investment Company Act, and is, assuming due authorization, execution and delivery by the other parties thereto, a legal, valid, binding and enforceable obligation of the Investment Adviser, subject to the qualification that the enforceability of the Investment Adviser's obligations thereunder may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights, and to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).] (iv) [Neither the performance by the Investment Adviser of its obligations under Investment Advisory Agreement nor the consummation of the transactions contemplated therein or in the Registration Statement nor the fulfillment of the terms thereof will conflict with, result in a breach or violation of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Investment Adviser under the [Limited Liability Partnership Agreement] of the Investment Adviser, or the terms and provisions of any agreement, indenture, mortgage, lease or other instrument to which the Investment Adviser is a party or by which it may be bound or to which any of the property or assets of the Investment Adviser is subject, nor will such action result in any violation of C-1 any order, law, rule or regulation of any court or governmental agency or body, whether foreign or domestic, having jurisdiction over the Investment Adviser or any of its properties.] (v) Except as set forth in the Registration Statement and the Prospectus, there is no pending or, to the best knowledge of the Investment Adviser, threatened action, suit or proceeding to which the Investment Adviser is a party before or by any court or governmental agency, authority or body or any arbitrator, whether foreign or domestic, which might result in any material adverse change in the condition (financial or other), business prospects, net worth or results of operations of the Investment Adviser, or which might materially and adversely affect the properties or assets thereof of a character required to be disclosed in the Registration Statement or Prospectus. (vi) [The Investment Adviser does not require any governmental licenses, permits, consents, orders, approvals or other authorizations to enable the Investment Adviser to continue to supervise investments in securities as contemplated in the Prospectus other than those which it has already obtained.] (vii) [No consent, approval, authorization, notification or order of, or any filing with, any court or governmental agency or body is required under federal law or the laws of any other jurisdiction, whether foreign or domestic, for the consummation by the Investment Adviser of the transactions contemplated by the Investment Advisory Agreement.] (viii) [The Investment Adviser (A) has not taken, directly or indirectly, any action designed to cause or to result in, or that has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Fund to facilitate the issuance of the Rights or the sale or resale of the Shares, (B) has not since the filing of the Registration Statement sold, bid for or purchased, or paid anyone any compensation for soliciting purchases of, shares of Common Stock of the Fund (except for the solicitation of exercises of Rights pursuant to this Agreement) and (C) will not, until the later of the expiration of the Rights or the completion of the distribution (within the meaning of the anti-manipulation rules under the Exchange Act) of the Shares, sell, bid for or purchase, pay or agree to pay any person any compensation for soliciting another to purchase any other securities of the Fund (except for the solicitation of exercises of Rights pursuant to this Agreement); PROVIDED, HOWEVER, that any action in connection with the Fund's Dividend Reinvestment Plan will not be deemed to be within the terms of this paragraph (viii).] (ix) The Investment Adviser has the financial resources available to it necessary for the performance of its services and obligations as contemplated in the Registration Statement and the Prospectus. (x) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, there has been no material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise) or management of the Investment Adviser, or in the business affairs or business prospects of the Investment Adviser, whether or not arising in the ordinary course of business. C-2 EX-99.2K4 10 Exhibit 2(k)(4) FORM OF SUBSCRIPTION AGENT AGREEMENT This Subscription Agent Agreement (the "Agreement") is made as of December ___, 1998 between The High Yield Plus Fund, Inc. (the "Fund") and State Street Bank and Trust Company as subscription agent (the "Agent"). All terms not defined herein shall have the meaning given in the Fund's prospectus (the "Prospectus") included in its Registration Statement on Form N-2 (File No. 811-5468) filed with the Securities and Exchange Commission on November 16, 1998, as amended by any amendment filed with respect thereto (the "Registration Statement"). WHEREAS, the Fund proposes to make a subscription offer by issuing certificates or other evidences of subscription rights, in the form designated by the Fund (the "Subscription Certificates") to shareholders of record (the "Shareholders") of its Common Stock, par value $0.01 per share ("Common Stock"), as of a record date specified by the Fund (the "Record Date"), pursuant to which each Shareholder will have certain rights (the "Rights") to subscribe for shares of Common Stock, as described in and upon such terms as are set forth in the Prospectus, a final copy of which has been or, upon availability will promptly be, delivered to the Agent; and WHEREAS, the Fund wishes the Agent to perform certain acts on behalf of the Fund, and the Agent is willing to so act, in connection with the distribution of the Subscription Certificates and the issuance and exercise of the Rights to subscribe therein set forth, all upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and of the mutual agreements set forth herein, the parties agree as follows: 1. APPOINTMENT. The Fund hereby appoints the Agent to act as subscription agent in connection with the distribution of Subscription Certificates and the issuance and exercise of the Rights in accordance with the terms set forth in this Agreement, and the Agent hereby accepts such appointment. 2. RIGHTS AND ISSUANCE OF SUBSCRIPTION CERTIFICATES. (a) Each Subscription Certificate shall evidence the right of the holder of the Subscription Certificates to purchase shares of Common Stock upon the terms and conditions therein and herein set forth. (b) Upon the written advice of the Fund, signed by any of its duly authorized officers, as to the Record Date, the Agent shall, from a list of Record Date Shareholders to be prepared by the Agent in its capacity as Transfer Agent of the Fund, prepare and record Subscription Certificates in the names of the Record Date Shareholders, setting forth the number of Rights to subscribe for shares of Common Stock calculated on the basis of one Right for every three shares of Common Stock recorded on the books in the name of each such Record Date Shareholder. Fractional Rights shall not be issued. Each Subscription Certificate shall be dated as of the Record Date and shall be executed manually or by facsimile signature of a duly authorized officer of the Fund. Upon the written advice, signed as aforesaid, as to the effective date of the Registration Statement, the Agent shall promptly countersign and deliver the Subscription Certificates, together with a copy of the Prospectus, instruction letter and any other document as the Fund deems necessary or appropriate, to all Record Date Shareholders with record addresses in the United States (including its territories and possessions and the District of Columbia). Delivery shall be by first class mail (without registration or insurance). No Subscription Certificate shall be valid for any purpose unless so executed. Should any officer whose signature has been placed upon any Subscription Certificate cease to hold such office at any time thereafter, such event shall have no effect on the validity of such Subscription Certificate. (c) The Agent will mail a copy of the Prospectus, instruction letter, a special notice and other documents as the Fund deems necessary or appropriate, if any, but not Subscription Certificates to Record Date Shareholders whose record addresses are outside the United States (including its territories and possessions and the District of Columbia ) ("Foreign Record Date Shareholders"). The Rights to which such Subscription Certificates relate will be held by the Agent for such Foreign Record Date Shareholders' accounts until instructions are received to exercise, sell or transfer the Rights. 3. EXERCISE. (a) Each Subscription Certificate shall be transferable and shall, its having been exercised by the holder thereof in the manner set forth in the Prospectus, become irrevocable after receipt of payment for shares by the Agent. The Agent shall, in its capacity as Transfer Agent for the Fund maintain a register of Subscription Certificates and the Record Date Shareholders. Each Subscription Certificate shall, subject to the provisions thereof, entitle the holder thereof to the right (the "Primary Subscription Right") to purchase during the Primary Subscription, as defined in the Prospectus, at the Subscription Price, as defined in the Prospectus, one share of Common Stock for each Right held. In addition, each Subscription Certificate shall, subject to the provisions thereof, entitle Record Date Shareholders and persons who become holders of Rights who are not Record Date Shareholders ("Rights Holders") who exercise their Rights in the Primary Subscription ("Exercising Rights Holders") the right (the "Over-Subscription Right") to purchase from the Fund additional shares subject to the availability of such shares and to allotment of such shares as may be available among Exercising Rights Holders who exercise Over-Subscription Rights on the basis specified in the Prospectus; provided, however, that an Exercising Rights Holder who has not exercised his Primary Subscription Rights with respect to the full number of Rights issued to him shall not be entitled to any Over-Subscription Rights. -2- (b) Record Date Shareholders and Rights Holders may acquire shares of Common Stock in the Primary Subscription and pursuant to the Over-Subscription Privilege by delivery to the Agent as specified in the Prospectus of (i) the Subscription Certificate with respect thereto, duly executed by such Record Date Shareholder or Rights Holder in accordance with and as provided by the terms and conditions of the Subscription Certificate, together with (ii) payment in full for the shares to be purchased at the estimated purchase price as disclosed in the Prospectus, in U.S. dollars by money order or check drawn on a bank or branch located in the United States, in each case payable to the order of the Fund. (c) Rights may be exercised at any time after the date of issuance of the Subscription Certificates with respect thereto but no later than 5:00 P.M. Eastern time on such date as the Fund shall designate to the Agent in writing (the "Expiration Date"). For the purpose of determining the time of the exercise of any Rights, delivery of any material to the Agent shall be deemed to occur when such materials are received at the Shareholder Services Division of the Agent specified in the Prospectus. All questions as to the validity, form, eligibility and acceptance of Subscription Certificates will be determined by the Fund. (d) Notwithstanding the provisions of Section 3(b) and 3(c) regarding delivery of an executed Subscription Certificate to the Agent prior to 5:00 P.M. Eastern time on the Expiration Date, if prior to such time the Agent receives a Notice of Guaranteed Delivery by facsimile (telecopy) or otherwise from a financial institution that is a member of the Securities Transfer Agents Medallion Program, the Stock Exchange Medallion Program or the New York Stock Exchange Medallion Signature Program guaranteeing delivery of (i) payment of the full Estimated Subscription Price for the shares of Common Stock subscribed for in the Primary Subscription and any additional shares of Common Stock subscribed for pursuant to the Over-Subscription Privilege, (ii) payment in full of any additional amount required to be paid if the actual Subscription Price is in excess of the Estimated Subscription Price, and (iii) a properly completed and executed Subscription Certificate, then such exercise of Primary Subscription Rights and Over-Subscription Rights shall be regarded as timely, subject, however, to receipt of the duly executed Subscription Certificate and full payment for the Common Stock based on the Estimated Subscription Price by the Agent within three Business Days (as defined below) after the Expiration Date. For the purposes of the Prospectus and this Agreement, "Business Day" shall mean any day on which trading is conducted on the New York Stock Exchange. (e) Within eight Business Days following the Expiration Date (the "Confirmation Date") the Agent shall send to each Exercising Rights Holder (or, if shares of Common Stock are held by Cede & Co. or any other depository or nominee, to Cede & Co. or such other depository or nominee) a confirmation showing (i) the number of shares of Common Stock acquired pursuant to the Primary Subscription, (ii) the number of shares of Common Stock, if any, -3- acquired pursuant to the Over-Subscription Privilege, (iii) any excess to be refunded by the Fund to such Exercising Rights Holder as a result of payment for shares of Common Stock pursuant to the Over-Subscription Privilege which the Exercising Rights Holder is not acquiring and (iv) any additional amount payable to the Fund by such Exercising Rights Holder or any excess to be refunded by the Fund to such Exercising Rights Holder, in each case based on the actual Subscription Price as determined on the Expiration Date. (f) Any additional payment required from a shareholder must be received by the Agent within seven Business Days after the Confirmation Date and any excess payment to be refunded by the Fund to a shareholder will be mailed by the Agent as promptly as practicable. If a shareholder does not make timely payment of any additional amounts due in accordance with Section 3(e), the Agent will consult with the Fund in accordance with Section 4 as to the appropriate action to be taken. The Agent will not issue or deliver certificates for shares subscribed for until payment in full therefore has been received, including collection of checks and payment pursuant to notices of guaranteed delivery. 4. VALIDITY OF SUBSCRIPTIONS. Irregular subscriptions not otherwise covered by specific instructions herein shall be submitted to an appropriate officer of the Fund and handled in accordance with his or her instructions. Such instructions will be documented by the Agent indicating the instructing officer and the date thereof. 5. OVER-SUBSCRIPTION. If, after allocation of shares of Common Stock to Exercising Rights Holders, there remain unexercised Rights, then the Agent shall allot the shares issuable upon exercise of such unexercised Rights (the "Remaining Shares") to persons exercising Over-Subscription Rights. Shares subscribed for pursuant to the Over-Subscription Privilege will be allocated in the amounts of such over-subscriptions. If the number of shares exercised pursuant to the Over-Subscription Privilege is greater than the Remaining Shares, the Agent shall allocate pro rata the Remaining Shares among Exercising Rights Holders who over-subscribe based on the number of Rights held by such Exercising Rights Holders. 6. TRANSFERABILITY OF RIGHTS. The Rights are transferable until the Expiration Date, and the Rights and the shares of Common Stock will be listed for trading on the New York Stock Exchange. Reference is made to the Prospectus for a complete description of the sale of the Rights. 7. DELIVERY OF CERTIFICATES. The Agent will deliver certificates representing those shares of Common Stock purchased pursuant to exercise of Primary Subscription Rights and those shares purchased pursuant to the exercise of the Over-Subscription Privilege promptly after the expiration of the Offer once full payment for such shares has been received and cleared. -4- 8. HOLDING PROCEEDS OF RIGHTS OFFERING. (a) All proceeds received by the Agent from the exercise of Rights shall be held by the Agent, on behalf of the Fund, in a segregated, interest bearing account (the "Account") in the name of the Fund (the interest from which will accrue to the benefit of the Fund) pending proration and distribution of shares. (b) The Agent shall deliver all proceeds received in respect of the exercise of Rights (including interest earned thereon) to the Fund as promptly as practicable, [but in no event later than ten business days after the Confirmation Date]. Proceeds held in respect of Excess Payments (including interest earned thereon) shall belong to the Fund. 9. REPORTS. Daily, during the period commencing on January ___, 1999, until termination of the Subscription Period, the Agent will report by telephone or telecopier (by 2:00 p.m., Eastern time), confirmed by letter, to an Officer of the Fund, data regarding Rights exercised, the total number of shares of Common Stock subscribed for, and payments received therefor, bringing forward the figures from the previous day's report in each case so as to show the cumulative totals and any such other information as may be mutually determined by the Fund and the Agent. 10. LOSS OR MUTILATION. If any Subscription Certificate is lost, stolen, mutilated or destroyed, the Agent may, on such terms which will indemnify and protect the Fund and the Agent as the Agent may in its discretion impose (which shall, in the case of a mutilated Subscription Certificate include the surrender and cancellation thereof), issue a new Subscription Certificate of like denomination in substitution for the Subscription Certificate so lost, stolen, mutilated or destroyed. 11. COMPENSATION FOR SERVICES. The Fund agrees to pay to the Agent compensation for its services as such in accordance with its Fee Schedule to act as Agent set forth hereto as Exhibit A. The Fund further agrees that it will reimburse the Agent for its reasonable out-of-pocket expenses incurred in the performance of its duties as such. 12. INSTRUCTIONS AND INDEMNIFICATION. The Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions: (a) The Agent shall be entitled to rely upon any instructions or directions furnished to it by an appropriate officer of the Fund, whether in conformity with the provisions of this Agreement or constituting a modification hereof or a supplement hereto. Without limiting the generality of the foregoing or any other provision of this Agreement, the Agent, in connection with its duties hereunder, shall not be under any duty or obligation to inquire into the validity or invalidity or authority or lack thereof of any instruction or direction from an officer of the Fund which conforms to the applicable requirements of this Agreement and which the Agent reasonably believes to be genuine and shall not be liable for any delays, errors or loss of data occurring by reason of circumstances beyond the Agent's control. -5- [(b) The Fund will indemnify the Agent and its nominees against, and hold it harmless from, all liability and expense which may arise out of or in connection with the services described in this Agreement or the instructions or directions furnished to the Agent relating to this Agreement by an appropriate officer of the Fund, except for any liability or expense which shall arise out of the negligence, bad faith or willful misconduct of the Agent or such nominees.] 13. CHANGES IN SUBSCRIPTION CERTIFICATE. The Agent may, without the consent or concurrence of the Shareholders in whose names Subscription Certificates are registered, by supplemental agreement or otherwise, concur with the Fund in making any changes or corrections in a Subscription Certificate that it shall have been advised by counsel (who may be counsel for the Fund) is appropriate to cure any ambiguity or to correct any defective or inconsistent provision or clerical omission or mistake or manifest error therein or herein contained, and which shall not be inconsistent with the provision of the Subscription Certificate except insofar as any such change may confer additional rights upon the Shareholders. 14. ASSIGNMENT, DELEGATION. (a) Neither this Agreement nor any rights or obligations hereunder may be assigned or delegated by either party without the written consent of the other party. (b) This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. Nothing in this Agreement is intended or shall be construed to confer upon any other person any right, remedy or claim or to impose upon any other person any duty, liability or obligation. (c) The Agent may (i) without further consent on the part of the Fund, subcontract for the performance of its obligations hereunder with Boston EquiServe Limited Partnership or (ii) [with the consent of the Fund,] subcontract with other subcontractors for systems, processing, and telephone and mailing services as may be required from time to time; provided, however, that the Agent shall be as fully responsible to the Fund for the acts and omissions of any subcontractor as it is for its own acts and omissions. 15. GOVERNING LAW. The validity, interpretation and performance of this Agreement shall be governed by the law of the Commonwealth of Massachusetts. 16. THIRD PARTY BENEFICIARIES. This Agreement does not constitute an agreement for a partnership or joint venture between the Agent and the Fund. Neither party shall make any commitments with third parties that are binding on the other party hereto without the other party's prior written consent. -6- 17. FORCE MAJEURE. In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, acts of war, strikes, or equipment or transmission failure or damage reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. Performance under this Agreement shall resume when the affected party or parties are able to perform substantially that party's duties. 18. CONSEQUENTIAL DAMAGES. Neither party to this Agreement shall be liable to the other party for any consequential, indirect, special or incidental damages under any provisions of this Agreement or for any consequential, indirect, special or incidental damages arising out of any act or failure to act hereunder even if that party has been advised of or has foreseen the possibility of such damages. 19. SEVERABILITY. If any provision of this Agreement shall be held invalid, unlawful, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired. 20. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement. 21. CAPTIONS. The captions and descriptive headings herein are for the convenience of the parties only. They do not in any way modify, amplify, alter or give full notice of the provisions hereof. 22. FACSIMILE SIGNATURES. Any facsimile signature of any party hereto shall constitute a legal, valid and binding execution hereof by such party. 23. CONFIDENTIALITY. The Agent and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law. 24. TERM. This Agreement shall remain in effect until terminated on ___________, 1999 (the "Termination Date") or, prior to the Termination Date, upon 30 days' written notice by either party to the other. Upon termination of the Agreement, the Agent shall retain all canceled Certificates and related documentation as required by applicable law. 25. MERGER OF AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof whether oral or written. -7- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers, hereunto duly authorized, as of the day and year first above written. STATE STREET BANK AND THE HIGH YIELD PLUS FUND, INC. TRUST COMPANY - -------------------------------------- ------------------------------------ Signature Signature - -------------------------------------- President and Treasurer Title ------------------------------------ Title -8- Exhibit A FEE SCHEDULE -9- EX-99.2K5 11 Exhibit 2(k)(5) FORM OF INFORMATION AGENT AGREEMENT This document will constitute the agreement between THE HIGH YIELD PLUS FUND, INC. ("FUND") with its principal executive offices at Gateway Center Three, 100 Mulberry Street, Newark, NJ 07102 and SHAREHOLDER COMMUNICATIONS CORPORATION ("SCC"), with its principal executive offices at 17 State Street, New York, NY 10004, relating to a Rights Offering (the "OFFER") of the FUND. The services to be provided by SCC will be as follows: (1) INDIVIDUAL HOLDERS OF RECORD AND BENEFICIAL OWNERS -------------------------------------------------- TARGET GROUP. SCC estimates that it may call between 1,800 to 2,700 of the approximately 9,000 outstanding beneficial and registered shareholders of the FUND. The estimate number is subject to adjustment and SCC may actually call a greater or lesser number of shareholders depending on the response to the OFFER or at the FUND's direction. TELEPHONE NUMBER LOOKUPS. SCC will obtain the needed telephone numbers from various types of telephone directories. INITIAL TELEPHONE CALLS TO PROVIDE INFORMATION. SCC will begin telephone calls to the target group as soon as practicable after effectiveness of the registration statement relating to the OFFER. Most calls will be made during 10:00 A.M. to 9:00 P.M. on business days and only during 10:00 A.M. to 5:00 P.M. on Saturdays. NO CALLS WILL BE RECEIVED BY ANY SHAREHOLDER AFTER 9:00 P.M. ON ANY DAY, IN ANY TIME ZONE, UNLESS SPECIFICALLY REQUESTED BY THE SHAREHOLDER. SCC will maintain "800" lines for shareholders to call with questions about the OFFER. The "800" lines will be staffed Monday through Friday between 9:00 a.m. and 9:00 p.m. SCC will provide the FUND with a weekly report reflecting the number of calls received by SCC reflecting the names and phone number of the caller, if available. REMAILS. SCC will coordinate remails of offering materials to the shareholders who advise us that they have discarded or misplaced the originally mailed materials. Use of overnight courier services must receive prior approval by the FUND. REMINDER/EXTENSION MAILING. SCC will help to coordinate any targeted or broad-based reminder mailing at the request of the FUND. SCC will mail only materials supplied by the FUND or approved by the FUND in writing. SUBSCRIPTION REPORTS. SCC will provide the FUND and A.G. Edwards & Sons, Inc., the dealer manager with subscription indications beginning not less than 7 business days prior to expiration of the OFFER. These reports shall be based solely on verbal indications received from the reorganization departments of each participating broker dealer. (2) BANK/BROKER SERVICING --------------------- Immediately following the availability of the offering materials, SCC will contact all banks, dealers and other nominee shareholders ("intermediaries") holding stock as shown on appropriate portions of the shareholder lists to ascertain quantities of offering materials needed for forwarding to beneficial owners. SCC will deliver offering materials by messenger to New York City based intermediaries and by Federal Express or other next-day delivery service to non-New York City based intermediaries. SCC will also follow-up by telephone with each intermediary to insure receipt of the offering materials and to confirm timely remailing of materials to the beneficial owners. SCC will maintain frequent contact with intermediaries to monitor shareholder response and to insure that all liaison procedures are proceeding satisfactorily. In addition, SCC will contact beneficial holders directly, if such names are made available, and do whatever may be appropriate or necessary to provide information regarding the OFFER to this group. SCC will, as frequently as practicable, report to the FUND with responses from intermediaries. (3) PROJECT FEE ----------- In consideration for acting as Information Agent SCC will receive a project fee of $5,000. (4) ESTIMATED EXPENSES ------------------ SCC will be reimbursed by the FUND for its reasonable out-of-pocket expenses incurred provided that SCC submits to the FUND an expense report, itemizing such expenses and providing copies of all supporting bills in respect of such expenses. If the actual expenses incurred are less than the portion of the estimated high range expenses paid in advance by the FUND, the FUND will receive from SCC a check payable in the amount of the difference at the time that SCC sends its final invoice for the second half of the project fee. SCC's expenses are estimated as set forth below and the estimates are based largely on data provided to SCC by the FUND. In the course of the OFFER the expenses and expense categories may change due to changes in the OFFER schedule or due to events beyond SCC's control, such as delays in receiving offering material and related items from the FUND. In the event of a change of 10% or more from the total expenses estimated or new expenses not originally contemplated, SCC will notify the FUND by phone and/or by letter for prior approval of such expenses. ESTIMATED EXPENSES Low Range High Range - ------------------ --------- ---------- DATA HANDLING AND PREPARATION Telephone # Lookup - Account Consolidation, Computer Match and Information Operators (blended rate) 3,600 @ $.45..................................... $ 1,620 $ 1,620 INBOUND/OUTBOUND INFORMATION CAMPAIGN Outbound Telephone Calls 1,800 to 2,700 @ $3.00 (registered & NOBO holders).. 5,400 8,100 200 to 400 @ $3.50 (Reorganization Calls)........ 700 1,400 Inbound "800" Telephone Calls (Shareholders, Banks, Brokers and Financial Advisors) 450 to 900 @ $3.00.....................................1,350 2,700 MAILING & DISTRIBUTION Bank/Broker Distribution (freight, messenger and FedEx)............................................ 1,000 1,500 Miscellaneous expenses - THE FUND, FedEx, postage, search and related items............... 750 1,250 --- ----- TOTAL ESTIMATED EXPENSES........................$10,820 $16,570 (5) PERFORMANCE ----------- SCC will use its best efforts to achieve the goals of the FUND but SCC is not guaranteeing a minimum success rate. SCC's Project Fee as outlined in Section 3 and Expenses as outlined in Section 4 are not contingent on success or failure of the OFFER. SCC's strategies revolve around a telephone information campaign. The purpose of the telephone information campaign is to raise the overall awareness among FUND shareholders of the OFFER and help shareholders better understand the transaction. This in turn may result in a higher overall response. (6) COMPLIANCE ---------- SCC agrees that all activities by SCC and by others on behalf of SCC pursuant to this Agreement shall be conducted in compliance with all applicable (i) federal and state laws and regulations, including, but not limited to all federal and state securities laws and regulations, and (ii) requirements of the National Association of Securities Dealers, Inc. and the New York Stock Exchange. The FUND agrees that all activities by the FUND and by others (other than by, or on behalf of SCC) on behalf of the FUND pursuant to this Agreement shall be conducted in compliance with all applicable (i) federal and state laws and regulations, including, but not limited to all federal and state securities laws and regulations, and (ii) requirements of the National Association of Securities Dealers, Inc. In rendering the services contemplated by this Agreement, SCC agrees not to make any representations, oral or written that are not contained in the FUND's current Prospectus for the OFFER, unless previously authorized to do so in writing by the FUND. (7) PAYMENT ------- Payment for one half the project fee ($2,500) and one half the estimated high range expenses ($8,285) for a total of $10,785 will be made at the signing of this contract. The balance, if any, will be paid by the FUND due thirty days after SCC sends its final invoice. (8) DISSEMINATION OF INFORMATION ---------------------------- In rendering the services contemplated by this Agreement, SCC agrees that neither SCC, nor any person or entity acting on behalf of SCC shall (i) mail or otherwise distribute any written materials unless such materials have been provided by the FUND to SCC for distribution, or such distribution has been approved by the FUND in advance in writing, or (ii) make any oral representations or other statements to any person or entity relating in anyway to the FUND or the OFFER other than as set forth in (A) written materials provided by the FUND to SCC for use by SCC in oral communications pursuant to this Agreement or (B) the then current prospectus for the OFFER. In connection with representations or other statements based on information set forth in such prospectus, SCC shall take appropriate steps to ensure that information is presented in a manner that is fair, balanced and not misleading. (9) TRAINING -------- SCC shall at its own expense provide training to all persons who are to be involved in communications with shareholders or intermediaries so as to ensure that all such persons review carefully and understand the prospectus for the OFFER so as to be in a position to effectively communicate with shareholders and the intermediaries. Training materials will be based solely on the information provided in the prospectus or supplemented by the FUND. (10) MISCELLANEOUS ------------- SCC will hold in confidence and will neither use nor disclose to third parties information it receives from the FUND, or information developed by SCC based upon such information it receives, except for information which was public at the time of disclosure or becomes part of the public domain without disclosure by SCC or information which SCC learns from a third party which does not have an obligation of confidentiality to the FUND. In the event the project is cancelled or postponed for an indefinite period of time after the signing of this Agreement and before the expiration of the OFFER, SCC will be reimbursed by the FUND for any expenses incurred as of that date and a pro rata portion of the project fee as calculated based upon the number of days that have passed from the signing of this Agreement until such cancellation or postponement in relation to the total period from signing through the original expiration date. The FUND agrees to indemnify, hold harmless, reimburse and defend SCC, and its officers, agents and employees, against all claims or threatened claims, costs, expenses, liabilities, obligations, losses or damages (including reasonable legal fees and expenses) of any nature, incurred by or imposed upon SCC, or any of its officers, agents or employees, which result, arise out of or are based upon services rendered to the FUND in accordance with the provisions of this AGREEMENT, provided that such services are rendered to the FUND without any negligence, willful misconduct, bad faith or reckless disregard on the part of SCC, or its officers, agents and employees. SCC agrees to advise the FUND of any claim or liability promptly after receipt of any notice thereof. The FUND shall not be liable for any settlement without its written consent. SCC will indemnify, hold harmless, reimburse and defend the FUND and its affiliates, directors, officers, agents, consultants and employees of and counsel to the FUND to the same extent as the foregoing indemnity from the FUND to SCC, but only insofar as such claims, costs, expenses, liabilities, obligations, losses or damages arise out of or in connection with the services provided by SCC described in this AGREEMENT. This agreement will be governed by and construed in accordance with the laws of the State of New York. This AGREEMENT sets forth the entire AGREEMENT between SCC and the FUND with respect to the agreement herein and cannot be modified except in writing by both parties. IN WITNESS WHEREOF, the parties have signed this AGREEMENT this _____ day of December 1998. THE HIGH YIELD PLUS FUND, INC SHAREHOLDER COMMUNICATIONS CORPORATION By __________________________ By_________________________ Thomas T. Mooney Robert S. Brennan President and Treasurer Vice President EX-99.2L 12 Exhibit 2(l) Kirkpatrick & Lockhart LLP 1800 Masssachusetts Ave., N.W. 2nd Floor Washington, DC 20036-1800 (202) 778-9000 December 28, 1998 The High Yield Plus Fund, Inc. Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 Dear Sir or Madam: We serve as counsel for The High Yield Plus Fund, Inc., a Maryland corporation (the "Fund"), in connection with the issuance of up to 3,796,342 additional shares of the Fund's common stock, par value $.01 per share (the "Common Stock") pursuant to the Fund's rights offering (the "Offering") as described in its Registration Statement filed with the Securities and Exchange Commission on Form N-2, Securities Act File No. 333-67339 and Investment Company Act No. 811-5468 (the "Registration Statement"). All capitalized terms not otherwise herein defined shall have the meaning set forth in the Registration Statement. As counsel for the Fund, we are familiar with its Articles of Incorporation and Bylaws, as amended, and we are familiar with the actions taken by the Fund's board of directors in connection with the Offering. We have examined its Registration Statement, including the prospectus contained therein, substantially in the form in which it is to become effective. We have further examined and relied upon a certificate of the Maryland State Department of Assessments and Taxation to the effect that the Fund is duly incorporated and existing under the laws of the State of Maryland and is in good standing and duly authorized to transact business in the State of Maryland. We have also examined and relied upon such corporate records of the Fund and other documents and certificates with respect to factual matters as we have deemed necessary to render the opinion expressed herein. We have assumed, without independent verification, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity with originals of all documents submitted to us as copies. Based on such examination, we are of the opinion that: 1. The Fund is duly organized and validly existing as a corporation in good standing under the laws of the State of Maryland. The High Yield Plus Fund, Inc. December 28, 1998 Page 2 2. The issuance and sale of the Common Stock pursuant to the Offering have been duly authorized by all necessary corporate actions on the part of the Corporation. 3. Upon the issuance and sale of the Common Stock pursuant to the Offering, the Common Stock will be validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion in connection with Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form N-2 (File No. 333-67339) being filed with the Securities and Exchange Commission. We also consent to the reference to our firm under the caption "Legal Opinions" in the Prospectus filed as part of the Registration Statement. Sincerely, /S/ KIRKPATRICK & LOCKHART LLP KIRKPATRICK & LOCKHART LLP EX-99.2N1 13 Exhibit 2(n)(1) [PricewaterhouseCoopers LLP letterhead] CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Pre-Effective Amendment No. 1 to the registration statement on Form N-2 (the "Registration Statement") of our report dated May 14, 1998, relating to the financial statements and financial highlights of The High Yield Plus Fund, Inc., which appear in such Prospectus. We also consent to the references to us under the headings "Financial Highlights" and "Experts" in such Prospectus. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036 December 23, 1998 EX-99.2N2 14 Exhibit 2(n)(2) [Letterhead of Deloitte & Touche LLP] CONSENT OF INDEPENDENT AUDITORS We consent to the use in Pre-Effective Amendment No. 1 to Registration Statement No. 333-67339 of The High Yield Plus Fund, Inc. to the references to us under the headings "Financial Highlights" and "Experts" in the Prospectus which is included in such Registration Statement. /s/ Deloitte & Touche LLP - ------------------------- New York, New York December 23, 1998 EX-27 15
6 001 THE HIGH YIELD PLUS FUND, INC. 6-MOS MAR-31-1999 SEP-30-1998 130,882,545 111,674,512 4,871,430 46,103 0 116,592,045 987,090 32,000,000 1,293,747 34,280,837 0 104,427,060 11,367,373 11,348,544 647,061 0 (3,554,880) 0 (19,208,033) 82,311,208 125,448 6,516,843 0 1,508,512 5,133,779 (411,673) (22,328,229) (17,606,123) 0 (4,797,317) 0 0 0 0 156,275 (22,247,165) 310,599 (3,143,207) 0 0 247,864 980,065 1,508,512 106,099,000 9.21 0.45 (2.00) 0.00 (0.42) 0.00 7.24 2.84 0 0.00
EX-27 16
6 001 THE HIGH YIELD PLUS FUND, INC. YEAR MAR-31-1998 MAR-31-1998 128,010,923 131,131,119 8,355,291 2,754,709 0 142,241,119 6,484,839 30,000,000 1,197,908 37,682,747 0 104,270,784 11,348,544 11,250,532 310,599 0 (3,143,207) 0 3,120,196 104,558,372 225,226 11,712,150 0 2,458,213 9,479,163 5,009,438 2,649,914 17,138,515 0 (9,479,163) (19,779) 0 0 0 876,479 8,516,052 330,378 (8,152,645) 0 0 505,151 1,374,351 2,458,213 100,766,000 8.54 0.84 0.67 (0.84) 0.00 0.00 9.21 1.07 0 0.00
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