-----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, MGVWm7lTNIeNeHvEgX7eCeZA9HgigGi8fSopfBAfl8nqYR+U+SbbOUr0Mxk8J9eo ByblsoeEdRJfV8VWbG4x6g== 0000898733-02-000757.txt : 20021126 0000898733-02-000757.hdr.sgml : 20021126 20021126143650 ACCESSION NUMBER: 0000898733-02-000757 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021126 EFFECTIVENESS DATE: 20021126 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HIGH YIELD PLUS FUND INC CENTRAL INDEX KEY: 0000828990 IRS NUMBER: 133459204 STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05468 FILM NUMBER: 02840862 BUSINESS ADDRESS: STREET 1: GATEWAY CENTER THREE 100 MULBERRT ST CITY: NEWARK STATE: NJ ZIP: 07102 BUSINESS PHONE: 2013671495 MAIL ADDRESS: STREET 1: GATEWAY CENTER THREE 100 MULBERRY STREET CITY: NEWARK STATE: NJ ZIP: 07102 N-30D 1 mf15749.txt HIGH YIELD PLUS FUND -- PROSPECTUS -- 11/26/02 The High Yield Plus Fund, Inc. SEMI- ANNUAL REPORT September 30, 2002 Letter To Shareholders October 24, 2002 Dear Shareholder: The US high yield market (as measured by the Lehman Brothers High Yield Index) returned - 9.2% for the six month period ending in September. The return of investment-grade bonds once again outperformed the high yield market, returning 8.5%, as measured by the Lehman Brothers Aggregate Bond Index. During the same period, the yield on the 10-year US Treasury decreased by 181 basis points, while the spread relative to the Lehman High Yield Index widened by 362 basis points; high yield bonds are now yielding 13.6%, approximately 1000 basis points above 10-year US Treasury yields. This spread is significantly wider than the five-year historical average of 618 basis points and well outside the ten-year historical average of 476 basis points. The high yield market has an attractive historical yield spread or risk premium versus Treasuries, but the market remains bifurcated. That is, the market prices a security with a relatively low yield if investors presume that the company will continue to service its debt or attributes a very high yield if the market anticipates a default. Thus, it is difficult to find a company with a "market yield". The performance shortfall in high yield bonds reflects the overall market's continued turbulence caused not only by the lack of trust in corporate managements and steady equity market declines, but also by the current substantial geopolitical risk weighing heavily on consumers and investors alike. In the second quarter, the high yield market suffered from several unexpected blows when high profile companies revealed that they had employed questionable accounting methods. As these companies were downgraded to below-investment grade status, the absolute amount of debt had a precedent-setting technical impact on the high yield market that was forced to absorb them. Eight out of the top ten issuers in the high yield market at one time had an investment- grade rating. Fund Performance The Fund's total returns for periods ended September 30, 2002 are shown on the following table. For comparison, we have also provided the returns of the Lipper Closed-End Leveraged High Yield category, an average of 27 closed- end high yield leveraged funds; we would note that the degree of leverage varies substantially amongst the funds in the group. This fact notwithstanding we are disappointed with the Fund's performance over the past year, and we attribute some of the Fund's underperformance to the dramatic divergence between B and BB rated issues. TOTAL RETURNS For the Periods Ended September 30, 2002 6 Months 1 Year 2 Years* High Yield Plus Fund (NAV)1. -17.5% -12.3% -15.8% Lipper CEHY - Leveraged -14.9 -6.5 -12.5 Represents NAV-based performance calculations as provided by Lipper Analytical Services, Inc. Past performance is no guarantee of future results. Returns based on market performance of the Fund's shares would be different. * Annualized 1 Despite the significant underperformance of B rated bonds relative to BB rated bonds over the last two years, we believe that the B rated "credit" sector of the high yield market will rebound and ultimately outperform higher quality instruments, and we remain positioned to benefit from this reversal. The Fund is leveraged and has a $50 million credit line provided by Fleet National Bank and State Street Bank and Trust Company. As of September 30, 2002 the Fund had drawn $22 million on the line; borrowings fluctuate depending on investment outlook and opportunities. As of September 30, 2002, the Fund's shares were priced at $3.00. This price reflected a discount of 1.3% to the Fund's net asset value of $3.04 per share. (The average premium of the Funds in the Lipper Leveraged Closed End universe was 8.7% as of September 30, 2002.) The Fund's monthly dividend rate of $0.0325 per share equates to an annualized yield of 13.0% relative to the stock price. This yield was significantly in excess of the US 10-Year Treasury rate 3.59% on September 30, 2002. Our focus continues to be on seeking out attractive yields in the high yield market while minimizing credit losses. While the specter of war remains a threat, and corporate malfeasance continues to make front-page news, we believe that current spreads in the high yield market reflect a degree of pessimism that is unfounded. Contrary to common perceptions, corporate profits are in fact recovering, albeit slowly. Regulators have also taken quick and aggressive action against the wave of recent accounting scandals. The economic recovery is on track, and although defaults will remain high, they are expected to decline next year. With this decline, the risk premium associated with high yield bonds should narrow. As always, we appreciate your interest in the Fund. Sincerely yours, Earl McEvoy Portfolio Manager Senior Vice President Wellington Management Company, LLP 2 Portfolio of Investments as of September 30, 2002 (Unaudited) THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------------------------------------
Principal Moody's Interest Maturity Amount Value Description Rating Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ LONG-TERM INVESTMENTS--141.2% CORPORATE BONDS--141.2% - ------------------------------------------------------------------------------------------------------------------------------ Aerospace/Defense--1.8% Moog, Inc., Sr. Sub. Notes, Ser. B Ba3 10.00% 5/01/06 $ 425 $ 420,750 Sequa Corp., Sr. Notes Ba3 9.00 8/01/09 500 437,500 ------------ 858,250 - ------------------------------------------------------------------------------------------------------------------------------ Automotive--6.0% Accuride Corp., Sr. Sub. Notes Caa1 9.25 2/01/08 1,150 747,500 Dana Corp., Sr. Notes Ba3 10.125 3/15/10 225 225,000 Notes Ba3 9.00 8/15/11 1,100 1,031,250 Dura Operating Corp., Sr. Sub. Notes, Ser. D B2 9.00 5/01/09 500 461,250 Sr. Sub. Notes, Ser. B B1 8.625 4/15/12 405 400,950 ------------ 2,865,950 - ------------------------------------------------------------------------------------------------------------------------------ Building & Related Industries--1.1% Nortek, Inc., Sr. Notes, Ser. B B1 9.25 3/15/07 250 254,688 Sr. Notes, Ser. B B1 9.125 9/01/07 250 251,250 ------------ 505,938 - ------------------------------------------------------------------------------------------------------------------------------ Cable--8.0% Charter Communications Holdings LLC, Sr. Notes B2 10.00 4/01/09 695 430,900 Sr. Notes B2 10.75 10/01/09 140 88,200 Sr. Notes B2 9.625 11/15/09 450 274,500 Sr. Notes B2 11.125 1/15/11 285 180,975 CSC Holdings Corp., Sr. Notes, Ser. B B1 8.125 7/15/09 870 713,400 Insight Midwest L.P., Sr. Notes B2 9.75 10/01/09 245 215,600 Sr. Notes B2 10.50 11/01/10 1,100 979,000 Mediacom Broadband LLC, Sr. Notes B2 11.00 7/15/13 1,000 920,000 ------------ 3,802,575
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 3 Portfolio of Investments as of September 30, 2002 (Unaudited) THE HIGH YIELD PLUS FUND, INC. - --------------------------------------------------------------------------------
Principal Moody's Interest Maturity Amount Value Description Rating Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ Chemicals--7.6% ARCO Chemical Co., Debs. Ba3 9.375% 12/15/05 $ 700 $ 661,500 Goodyear Tire & Rubber Co., Notes Ba1 8.50 3/15/07 400 367,068 Notes Ba1 7.857 8/15/11 510 425,356 IMC Global, Inc., Sr. Notes, Ser. B Ba1 11.25 6/01/11 530 569,750 Lyondell Chemical Co., Sr. Sec'd. Notes Ba3 9.50 12/15/08 140 126,350 Sr. Sub. Notes B2 10.875 5/01/09 655 519,088 Methanex Corp., Sr. Notes (Canada) Ba1 8.75 8/15/12 95(c) 98,325 Resolution Performance Products, Inc., Sr. Sub. Notes B3 13.50 11/15/10 665 734,825 UCAR Finance, Inc., Gtd. Notes B2 10.25 2/15/12 125 118,750 ------------ 3,621,012 - ------------------------------------------------------------------------------------------------------------------------------ Consumer Finance--0.7% Ford Motor Credit Co., Sr. Notes A3 7.25 10/25/11 380 352,241 - ------------------------------------------------------------------------------------------------------------------------------ Consumer Goods & Services--3.3% Advanced Medical Optics, Inc., Sr. Sub. Notes B3 9.25 7/15/10 175 171,500 Corning Consumer Products Co., Sr. Sub. Notes Ca 9.625 5/01/08 1,500(b) 75,000 Hasbro, Inc., Notes Ba3 6.15 7/15/08 235 218,550 Icon Health & Fitness, Inc., Sr. Sub. Notes B3 11.25 4/01/12 500 485,000 Iron Mountain, Inc., Sr. Sub. Notes B2 8.25 7/01/11 575 569,250 JohnsonDiversey, Inc., Sr. Sub. Notes B2 9.625 5/15/12 75 74,813 ------------ 1,594,113 - ------------------------------------------------------------------------------------------------------------------------------ Containers--4.0% Owens-Brockway Glass Container, Inc., Sr. Sec'd. Notes B2 8.875 2/15/09 500 502,500 Owens-Illinois, Inc., Sr. Notes B3 8.10 5/15/07 550 500,500 Silgan Holdings, Inc., Sr. Sub. Debs. B1 9.00 6/01/09 900 929,250 ------------ 1,932,250 - ------------------------------------------------------------------------------------------------------------------------------ Energy & Related Goods & Services--9.2% Clark R & M, Inc., Sr. Notes Ba3 8.375 11/15/07 150 135,000 Sr. Notes Ba3 8.625 8/15/08 950 855,000 Forest Oil Corp., Sr. Notes Ba3 8.00 6/15/08 827 860,080 Frontier Oil Corp., Sr. Notes B2 9.125 2/15/06 750 750,000 Giant Industries, Inc., Sr. Sub. Notes B3 11.00 5/15/12 430 301,000 Parker Drilling Co., Sr. Notes, Ser. D B1 9.75 11/15/06 20 18,800
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 4 Portfolio of Investments as of September 30, 2002 (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 (cont'd.) Pioneer Natural Resources Co., Sr. Notes Ba1 9.625% 4/01/10 $ 500 $ 577,617 Plains Exploration & Production Co., Sr. Sub. Notes B2 8.75 7/01/12 370 370,000 Tesoro Petroleum Corp., Sr. Sub. Notes B2 9.625 11/01/08 275 162,250 Sr. Sub. Notes B2 9.625 4/01/12 690 386,400 ------------ 4,416,147 - ------------------------------------------------------------------------------------------------------------------------------ Financial Services--3.9% Fairfax Final Holdings Ltd., Notes (Canada) Ba2 7.375 3/15/06 485(c) 357,425 GS Escrow Corp., Sr. Notes Ba1 7.125 8/01/05 425 463,104 Ocwen Federal Savings Bank., Sub. Debs. B1 12.00 6/15/05 500 500,000 Western Financial Savings Bank, Sub. Cap. Debs. B1 8.875 8/01/07 225 213,750 Sub. Cap. Debs. B1 9.625 5/15/12 340 323,000 ------------ 1,857,279 - ------------------------------------------------------------------------------------------------------------------------------ Food & Lodging--1.5% Host Marriot L.P., Sr. Sub. Notes, Ser. I Ba3 9.50 1/15/07 640 638,400 Sr. Sub. Notes, Ser. G Ba3 9.25 10/01/07 60 60,600 ------------ 699,000 - ------------------------------------------------------------------------------------------------------------------------------ Gaming--6.4% Harrahs Operating Co., Inc., Sr. Sub. Notes Ba1 7.875 12/15/05 775 819,562 MGM Mirage, Inc., Sr. Notes Ba1 8.50 9/15/10 700 758,569 Riviera Holdings Corp., Sr. Sec'd. Notes B2 11.00 6/15/10 625 584,375 Station Casinos, Inc., Sr. Sub. Notes B2 8.875 12/01/08 850 875,500 ------------ 3,038,006 - ------------------------------------------------------------------------------------------------------------------------------ General Industrial--8.6% Allied Waste North America, Inc., Sr. Notes Ba3 7.625 1/01/06 700 673,750 Sr. Notes Ba3 8.50 12/01/08 450 427,500 Case Corp., Notes Ba2 7.25 8/01/05 400 358,000 International Wire Group, Inc., Sr. Sub. Notes, Ser. B Caa1 11.75 6/01/05 250 175,000 Lucent Technologies, Inc., Notes B2 7.25 7/15/06 240 93,600 Notes B2 5.50 11/15/08 425 146,625 MDP Acquisitions PLC, Sr. Notes (Ireland) B2 9.625 10/01/12 135(c) 136,363 Numatics, Inc., Sr. Sub. Notes Caa2 9.625 4/01/08 160 73,600
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 5 Portfolio of Investments as of September 30, 2002 (Unaudited) THE HIGH YIELD PLUS FUND, INC. - --------------------------------------------------------------------------------
Principal Moody's Interest Maturity Amount Value Description Rating Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ General Industrial (cont'd.) Tyco International Group S.A., (Luxembourg) Gtd. Notes Ba2 6.375% 2/15/06 $ 105(c) $ 90,300 Gtd. Notes Ba2 5.80 8/01/06 60(c) 50,400 Gtd. Notes Ba2 6.125 1/15/09 215(c) 176,300 Gtd. Notes Ba2 6.75 2/15/11 110(c) 90,750 Gtd. Notes Ba2 6.375 10/15/11 860(c) 705,200 United Rentals, Inc., Sr. Sub. Notes B2 9.00 4/01/09 400 326,000 WESCO Distribution, Inc., Sr. Sub. Notes B3 9.125 6/01/08 650 559,000 ------------ 4,082,388 - ------------------------------------------------------------------------------------------------------------------------------ Grocery Stores--0.6% Winn-Dixie Stores, Inc., Sr. Notes Ba2 8.875 4/01/08 275 269,500 - ------------------------------------------------------------------------------------------------------------------------------ Health Care--10.8% Alaris Medical Systems, Inc., Sr. Sub. Notes Caa1 9.75 12/01/06 800 766,000 Sr. Sec'd. Notes, Ser. B B2 11.625 12/01/06 145 156,600 Athena Neurosciences Finance LLC, Sr. Notes B2 7.25 2/21/08 835 442,550 Beverly Enterprises, Inc., Sr. Notes B1 9.00 2/15/06 500 417,500 Sr. Notes B1 9.625 4/15/09 525 438,375 Bio-Rad Labs, Inc., Sr. Sub. Notes B2 11.625 2/15/07 395 438,450 Conmed Corp., Sr. Sub. Notes B2 9.00 3/15/08 600 606,000 HEALTHSOUTH Corp., Sr. Notes Ba3 7.375 10/01/06 130 96,200 Sr. Notes Ba3 8.50 2/01/08 120 90,000 Radiologix, Inc., Sr. Notes B2 10.50 12/15/08 770 752,675 Sybron Dental Specialties, Inc., Sr. Sub. Notes B2 8.125 6/15/12 100 99,250 Triad Hospitals Holdings, Inc., Sr. Sub. Notes B2 11.00 5/15/09 480 526,800 Universal Hospital Services, Sr. Sub. Notes B3 10.25 3/01/08 350 334,250 ------------ 5,164,650 - ------------------------------------------------------------------------------------------------------------------------------ Home Builder & Real Estate--6.0% Beazer Homes USA, Inc., Sr. Notes Ba2 8.875 4/01/08 750 757,500 Sr. Notes Ba2 8.625 5/15/11 100 100,500 D.R. Horton, Inc., Sr. Sub. Notes Ba2 9.375 3/15/11 500 481,250 Ryland Group, Inc., Sr. Sub. Notes Ba3 8.25 4/01/08 750 744,375
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 6 Portfolio of Investments as of September 30, 2002 (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 $ 250 $ 243,125 Sr. Notes Ba2 8.00 2/15/08 575 550,562 ------------ 2,877,312 - ------------------------------------------------------------------------------------------------------------------------------ Media & Entertainment--13.1% Corus Entertainment, Inc., Sr. Sub. Notes (Canada) B1 8.75 3/01/12 205(c) 208,588 EchoStar DBS Corp., Sr. Notes B1 9.125 1/15/09 1,025 963,500 Entravision Communications Corp., Sr. Sub. Notes B3 8.125 3/15/09 110 112,200 Mail-Well I Corp., Sr. Notes B1 9.625 3/15/12 395 272,550 PRIMEDIA, Inc., Sr. Notes B3 8.875 5/15/11 775 581,250 Quebecor Media, Inc., Sr. Notes (Canada) B2 11.125 7/15/11 1,500(c) 1,200,000 Rogers Communications, Inc., Sr. Notes (Canada) Ba1 8.875 7/15/07 600(c) 486,000 Time Warner, Inc., Sr. Notes Baa1 9.125 1/15/13 425 416,406 Von Hoffman Press, Inc., Sr. Sub. Notes B3 10.875 5/15/07 550 467,500 Sr. Notes B2 10.25 3/15/09 345 324,300 World Color Press, Inc., Sr. Sub. Notes Baa2 8.375 11/15/08 750 780,873 Young Broadcasting, Inc., Sr. Sub. Notes B3 10.00 3/01/11 475 427,500 ------------ 6,240,667 - ------------------------------------------------------------------------------------------------------------------------------ Metals--4.7% AK Steel Corp., Sr. Notes B1 7.875 2/15/09 600 597,000 Century Aluminum Co., Sr. Sec'd. First Mtge. Notes Ba3 11.75 4/15/08 670 643,200 Steel Dynamics, Inc., Sr. Notes B2 9.50 3/15/09 65 65,650 United States Steel LLC, Sr. Notes Ba3 10.75 8/01/08 875 861,875 Weirton Steel Corp., Sr. Sec'd. Notes Caa3 10.00 4/01/08 413 103,125 ------------ 2,270,850 - ------------------------------------------------------------------------------------------------------------------------------ Paper & Packaging--6.6% Buckeye Cellulose Corp., Inc., Sr. Sub. Notes Caa1 8.50 12/15/05 335 288,100 Caraustar Industries, Inc., Sr. Sub. Notes Ba2 9.875 4/01/11 675 685,125 Georgia-Pacific Corp., Sr. Notes Ba1 9.50 12/01/11 625 531,250 Graphic Packaging Corp., Sr. Sub. Notes B2 8.625 2/15/12 105 105,525 Pacifica Papers, Inc., Sr. Notes (Canada) Ba2 10.00 3/15/09 750(c) 753,750 Stone Container Corp., Sr. Notes B2 9.25 2/01/08 450 463,500 Sr. Notes B2 8.375 7/01/12 325 323,375 ------------ 3,150,625
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 7 Portfolio of Investments as of September 30, 2002 (Unaudited) THE HIGH YIELD PLUS FUND, INC. - --------------------------------------------------------------------------------
Principal Moody's Interest Maturity Amount Value Description Rating Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ Retail--7.0% CSK Auto, Inc., Sr. Notes B2 12.00% 6/15/06 $ 195 $ 206,456 Sr. Sub. Notes B3 11.00 11/01/06 88 89,760 GAP, Inc., Notes Ba3 10.55 12/15/08 545 547,044 Levi Strauss & Co., Notes Caa1 11.625 1/15/08 850 680,000 PCA Finance Corp., Sr. Notes B3 11.875 8/01/09 370 377,400 J.C. Penney Co., Inc., Sr. Notes Ba3 7.60 4/01/07 350 337,750 Rite Aid Corp., Notes Caa3 7.125 1/15/07 1,500 1,012,500 Sr. Notes Caa3 11.25 7/01/08 100 73,000 ------------ 3,323,910 - ------------------------------------------------------------------------------------------------------------------------------ Technology--10.6% Amkor Technologies, Inc., Sr. Notes B3 9.25 5/01/06 600 414,000 Sr. Sub. Notes B3 10.50 5/01/09 750 345,000 Avaya, Inc., Sr. Sec'd. Notes Ba2 11.125 4/01/09 650 409,500 ChipPac International Co. Ltd., Sr. Sub. Notes, Ser. B B3 12.75 8/01/09 870 848,250 Fairchild Semiconductor Corp., Sr. Sub. Notes B2 10.50 2/01/09 1,000 1,040,000 SCG Holdings Corp., Sr. Sub. Notes, Ser. B Caa1 12.00 8/01/09 1,315 499,700 Solectron Corp., Sr. Notes Ba3 9.625 2/15/09 575 474,375 Xerox Capital Europe PLC, Gtd. Notes (United Kingdom) B1 5.875 5/15/04 750(c) 588,750 Xerox Corp., Sr. Notes B1 9.75 1/15/09 585 468,000 ------------ 5,087,575 - ------------------------------------------------------------------------------------------------------------------------------ Telecommunications--3.8% AT&T Wireless Services, Inc., Sr. Notes Baa2 7.875 3/01/11 235 180,950 Nextel Communications, Inc., Sr. Notes B3 9.50 2/01/11 1,125 840,937 Qwest Capital Funding, Inc., Sr. Notes Caa1 7.90 8/15/10 250 112,500 Sr. Notes Caa1 7.25 2/15/11 700 308,000 Rogers Wireless, Inc., Sr. Sec'd. Notes (Canada) Ba3 9.625 5/01/11 450(c) 324,000 U.S. West Capital Funding, Inc., Sr. Notes Caa1 6.375 7/15/08 100 44,000 ------------ 1,810,387 - ------------------------------------------------------------------------------------------------------------------------------ Transportation--6.6% Air Canada, Inc., Sr. Notes (Canada) B3 10.25 3/15/11 1,060(c) 577,700 Atlas Air, Inc., Sr. Notes B2 10.75 8/01/05 810 315,900
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 8 Portfolio of Investments as of September 30, 2002 (Unaudited) THE HIGH YIELD PLUS FUND, INC. - --------------------------------------------------------------------------------
Principal Moody's Interest Maturity Amount Value Description Rating Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ Transportation (cont'd.) Delta Air Lines, Inc., Notes Ba3 7.90% 12/15/09 $ 880 $ 572,000 Debs. Ba3 10.375 2/01/11 45 28,350 Kansas City Southern Railway Co., Sr. Notes Ba2 9.50 10/01/08 750 821,250 Navistar International Corp., Sr. Notes, Ser. B Ba1 9.375 6/01/06 620 589,000 Northwest Air Lines, Inc., Sr. Notes B2 8.875 6/01/06 330 161,700 Notes B2 9.875 3/15/07 165 80,850 ------------ 3,146,750 - ------------------------------------------------------------------------------------------------------------------------------ Utilities--9.3% AES Corp., Sr. Notes Ba3 8.875 2/15/11 825 420,750 Avista Corp., Sr. Notes Ba1 9.75 6/01/08 780 724,675 Calpine Canada Energy Finance LLC, Gtd. Notes (Canada) B1 8.50 5/01/08 1,000(c) 410,000 Calpine Corp., Sr. Notes B1 8.625 8/15/10 500 197,500 Sr. Notes B1 8.50 2/15/11 400 164,000 CMS Energy Corp., Sr. Notes B3 9.875 10/15/07 700 574,000 Energy Corporation of America, Sr. Sub. Notes, Ser A Caa3 9.50 5/15/07 250 163,438 Mirant Americas Generation LLC, Sr. Notes Ba1 7.20 10/01/08 850 450,500 TNP Enterprises, Inc., Sr. Sub. Notes Ba3 10.25 4/01/10 500 475,000 Western Resources, Inc., Sr. Notes Ba2 9.75 5/01/07 200 191,935 Sr. Notes Ba2 7.125 8/01/09 750 668,512 ------------ 4,440,310 ------------ Total long-term corporate bonds 67,407,685 ------------------------------------------------------------------------------------------------------------------------------ COMMON STOCK(a) Shares --------- Mediq, Inc.(d) -- -- -- 3,205 0 - ------------------------------------------------------------------------------------------------------------------------------ PREFERRED STOCK Weirton Steel Corp., Ser. C, PIK NR 12.50 -- 6,750 16,875 ------------ Total long-term investments (cost $80,238,612) 67,424,560
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 9 Portfolio of Investments as of September 30, 2002 (Unaudited) THE HIGH YIELD PLUS FUND, INC. - --------------------------------------------------------------------------------
Principal Interest Maturity Amount Value Description Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ SHORT-TERM INVESTMENT--1.9% REPURCHASE AGREEMENT UBS Warburg, dated 9/30/02, due 10/01/02 in the amount of $899,047 (cost $899,000; collateralized by $691,000 U.S. Treasury Notes, 7.50%, due 11/15/16, value of collateral including accrued interest is $916,367) 1.87% 10/01/02 $ 899 $ 899,000 - ------------------------------------------------------------------------------------------------------------------------------ Total Investments--143.1% (cost $81,137,612; Note 4) 68,323,560 Other assets in excess of liabilities--(43.1)% (20,589,214) ------------ Net Assets--100% $ 47,734,346 ------------ ------------
- --------------- (a)--Non-income producing securities. (b)-- Represents issuer in default on interest payments; non-income producing security. (c)--US$ denominated foreign bonds. (d)--Fair-valued security--value is determined by the Valuation Committee or Board of Directors in consultation with the investment adviser. LLC--Limited Liability Company. L.P.--Limited Partnership. NR--Not rated by Moody's or Standard & Poor's. PIK--Payment in Kind. PLC--Public Limited Company (United Kingdom Limited Liability Company). S.A.--Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French Corporation). - -------------------------------------------------------------------------------- See Notes to Financial Statements. 10 Statement of Assets and Liabilities (Unaudited) THE HIGH YIELD PLUS FUND, INC. - --------------------------------------------------------------------------------
Assets September 30, 2002 - -------------------------------------------------------------------------------------------------------------------------------- Investments, at value (cost $81,137,612)................................................................... $ 68,323,560 Cash....................................................................................................... 1,925 Interest receivable........................................................................................ 2,031,667 Receivable for investments sold............................................................................ 166,298 Other assets............................................................................................... 43,802 ------------------ Total assets............................................................................................ 70,567,252 ------------------ Liabilities Loan payable (Note 5)...................................................................................... 22,000,000 Dividends payable.......................................................................................... 510,626 Loan interest payable (Note 5)............................................................................. 147,720 Accrued expenses........................................................................................... 115,433 Deferred directors' fees................................................................................... 30,252 Advisory fee payable....................................................................................... 20,625 Administration fee payable................................................................................. 8,250 ------------------ Total liabilities....................................................................................... 22,832,906 ------------------ Net Assets................................................................................................. $ 47,734,346 ------------------ ------------------ Net assets were comprised of: Common stock, at par.................................................................................... $ 157,116 Paid-in capital in excess of par........................................................................ 131,837,484 ------------------ 131,994,600 Overdistribution of net investment income............................................................... (962,509) Accumulated net realized loss on investment and foreign currency transactions........................... (70,483,758) Net unrealized depreciation on investments and foreign currencies....................................... (12,813,987) ------------------ Net assets, September 30, 2002.......................................................................... $ 47,734,346 ------------------ ------------------ Net asset value per share ($47,734,346 / 15,711,567 shares of common stock issued and outstanding)......... $3.04 ------------------ ------------------
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 11 THE HIGH YIELD PLUS FUND, INC. Statement of Cash Flows (Unaudited) - ------------------------------------------------------------ THE HIGH YIELD PLUS FUND, INC. Statement of Operations (Unaudited) - ------------------------------------------------------------
Six Months Ended September 30, Net Investment Income 2002 Income Interest................................... $ 3,886,103 Dividends.................................. 29 ------------- 3,886,132 ------------- Expenses Investment advisory fee.................... 140,290 Administration fee......................... 56,116 Custodian's fees and expenses.............. 56,000 Legal fees and expenses.................... 52,000 Reports to shareholders.................... 28,000 Transfer agent's fees and expenses......... 19,000 Listing fee................................ 18,000 Directors' fees and expenses............... 17,000 Audit fee.................................. 15,000 Insurance expense.......................... 8,000 Miscellaneous.............................. 4,047 ------------- Total operating expenses................ 413,453 Loan interest expense (Note 5)............. 361,534 ------------- Total expenses.......................... 774,987 ------------- Net investment income......................... 3,111,145 ------------- Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies Net realized loss on: Investment transactions.................... (10,170,325) Foreign currency transactions.............. (1,308) ------------- (10,171,633) ------------- Net change in unrealized appreciation (depreciation) on: Investments................................ (3,398,734) Foreign currencies......................... 159 ------------- (3,398,575) ------------- Net loss on investments and foreign currencies................................. (13,570,208) ------------- Net Decrease in Net Assets Resulting from Operations..................... $(10,459,063) ------------- -------------
THE HIGH YIELD PLUS FUND, INC. Statement of Cash Flows (Unaudited) - ------------------------------------------------------------ Six Months Ended September Increase (Decrease) in Cash 30, (Including Foreign Currency) 2002 Cash flows provided from operating activities Interest and dividends received (excluding discount and premium amortization of $389,149)................................. $ 3,754,316 Operating expenses paid...................... (431,591) Loan interest and commitment fee paid........ (351,659) Purchases of short-term portfolio investments............................... 1,445,000 Purchases of long-term portfolio investments............................... (41,978,006) Proceeds from disposition of long-term portfolio investments..................... 40,856,213 Other assets................................. 7,833 ------------ Net cash provided from operating activities................................ 3,302,106 ------------ Cash used for financing activities Cash dividends paid (excluding reinvestment of dividends of $227,776)................. (3,300,318) ------------ Net increase in cash......................... 1,788 Cash at beginning of period.................. 137 ------------ Cash at end of period........................ $ 1,925 ------------ ------------ Reconciliation of Net Decrease in Net Assets to Net Cash (Including Foreign Currency) Provided from Operating Activities Net decrease in net assets resulting from operations................................... $10,459,063 ------------ Decrease in investments......................... 1,073,048 Net realized loss on investment and foreign currency transactions........................ 10,171,633 Net decrease in unrealized appreciation (depreciation) on investments and foreign currencies................................... 3,398,575 Decrease in receivable for investments sold..... 102,662 Decrease in interest receivable................. 257,333 Decrease in other assets........................ 7,833 Decrease in payable for investments purchased... (1,241,877) Decrease in accrued expenses and other liabilities.................................. (8,038) ------------ Total adjustments............................ 13,761,169 ------------ Net cash provided from operating activities................................ $ 3,302,106 ------------ ------------ - -------------------------------------------------------------------------------- See Notes to Financial Statements. 12 THE HIGH YIELD PLUS FUND, INC. Notes to Financial Statements (Unaudited) - ------------------------------------------------------------ THE HIGH YIELD PLUS FUND, INC. Statement of Changes in Net Assets (Unaudited) - ------------------------------------------------------------ Six Months Ended Year September Ended Increase (Decrease) in 30, March 31, Net Assets 2002 2002 ------------ ------------ Operations Net investment income....... $ 3,111,145 $ 9,582,239 Net realized loss on investment and foreign currency transactions.... (10,171,633) (29,515,535) Net change in unrealized appreciation (depreciation) on investments and foreign currencies............... (3,398,575) 13,844,030 ------------ ------------ Net decrease in net assets resulting from operations............... (10,459,063) (6,089,266) Dividends from net investment income........ (3,373,382) (11,197,187) Value of Fund shares issued to shareholders in reinvestment of dividends................ 227,776 1,032,315 ------------ ------------ Total decrease................. (13,604,669) (16,254,138) Net Assets Beginning of period............ 61,339,015 77,593,153 ------------ ------------ End of period.................. $ 47,734,346 $ 61,339,015 ------------ ------------ ------------ ------------ THE HIGH YIELD PLUS FUND, INC. Notes to Financial Statements (Unaudited) - ------------------------------------------------------------ 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. Repurchase Agreements: In connection with transactions in repurchase agreements with United States financial institutions, it is the Fund's policy that its custodian or designated subcustodians under triparty repurchase agreements, as the case may be, take possession of the underlying collateral securities, the value of which exceeds the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to ensure the adequacy of the collateral. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of - -------------------------------------------------------------------------------- 13 Notes to Financial Statements (Unaudited) THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------------------------------------- the security, realization of the collateral by the Fund may be delayed or limited. Foreign Currency Translation: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis: (i) market value of investment securities, other assets and liabilities--at the closing daily rate of exchange. (ii) purchases and sales of investment securities, income and expenses--at the rates of exchange prevailing on the respective dates of such transactions. Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the fiscal period, the Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of long-term securities held at the end of the fiscal period. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of long-term portfolio securities sold during the fiscal period. Accordingly, realized foreign currency gains (losses) are included in the reported net realized gains (losses) on investment transactions. Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from the holding of foreign currencies, currency gains (losses) realized between the trade date and settlement date on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains (losses) from valuing foreign currency denominated assets and liabilities (other than investments) at period end exchange rates are reflected as a component of net unrealized appreciation (depreciation) on investments and foreign currencies. Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of domestic origin as a result of, among other factors, the possibility of political and economic instability and the level of governmental supervision and regulation of foreign securities markets. 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: Securities transactions are recorded on the trade date. Realized gains (losses) on sales of securities are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. The Fund amortizes premiums and accretes discounts on purchases of debt securities as adjustments to interest income. Expenses are recorded on the accrual basis which may require the use of certain estimates by management. Dividends and Distributions: The Fund expects to pay dividends of net investment income monthly and distributions of net realized capital and currency gains, if any, annually. Dividends and distributions are recorded on the ex-dividend date. Income distributions and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. Federal Income Taxes: It is the Fund's policy to continue to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable net income and capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. - ------------------------------------------------------------ Note 2. Agreements The Fund has agreements with the Investment Adviser and with Prudential Investments 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, 2002, aggregated $40,419,184 and $40,753,551, respectively. - -------------------------------------------------------------------------------- 14 Notes to Financial Statements (Unaudited) THE HIGH YIELD PLUS FUND, INC. - -------------------------------------------------------------------------------- Note 4. Distributions and Tax Information For federal income tax purposes, the Fund had a capital loss carryforward as of March 31, 2002 of approximately $44,941,000, of which $1,337,000 expires in 2003, $1,806,000 expires in 2004, $500,000 expires in 2007, $8,206,000 expires in 2008, $8,395,000 expires in 2009 and $24,697,000 expires in 2010. Accordingly, no capital gains distribution is expected to be paid to shareholders until net gains have been realized in excess of such carryfoward. In addition, the Fund has elected to treat capital losses of approximately $14,591,000 and net foreign currency losses of approximately $35,200 incurred in the five months ended March 31, 2002, as having been incurred in the current fiscal year. The United States income tax basis of the Fund's investments and the net unrealized depreciation as of September 30, 2002 was as follows: Tax Basis of Net Unrealized Investments Appreciation Depreciation Depreciation - ------------------ ------------ ------------- -------------- $81,217,837 $876,510 $(13,770,787 ) $(12,894,277) The difference between book and tax basis was attributable to deferred losses on wash sales and differences in the treatment of premium amortization for book and tax purposes. - ------------------------------------------------------------ Note 5. Borrowings The Fund has a credit agreement with unaffiliated lenders. The maximum commitment under this agreement is $50,000,000. Interest on any such borrowings is based on market rates and is payable at maturity. The Fund may utilize these borrowings (leverage) in order to increase the potential for gain on amounts invested. There can be no guarantee that these gains will be realized. There are increased risks associated with the use of leverage. The average daily balance outstanding during the six months ended September 30, 2002 was $23,675,824 at a weighted average interest rate of 3.20%. The maximum face amount of borrowings outstanding at any month-end during the six months ended September 30, 2002 was $26,000,000. The current borrowings of $22,000,000 (at a weighted average interest rate of 3.06%) mature throughout the period from October 1, 2002 to November 8, 2002. The Fund pays 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. Effective April 2, 2002, under the renewed credit agreement with unaffiliated lenders, the interest rate spread on any of the Fund's borrowings will be equal to the Eurodollar Loan Rate or Federal Funds Rate plus 0.750%. Under the previous credit agreement, this spread was equal to 0.625%. All other terms and conditions remain unchanged. The renewed credit agreement expires on April 1, 2003. - ------------------------------------------------------------ Note 6. Capital There are 100 million shares of common stock authorized at $.01 par value per share. During the six months ended September 30, 2002 and the fiscal year ended March 31, 2002, the Fund issued 59,612 and 203,297 shares in connection with reinvestment of dividends, respectively. - ------------------------------------------------------------ Note 7. Dividends On November 19, 2002, the Board of Directors of the Fund declared dividends of $0.0325 per share payable on January 10, 2003, February 11, 2003 and March 11, 2003 to shareholders of record on December 31, 2002, January 31, 2003 and February 28, 2003, respectively. - -------------------------------------------------------------------------------- 15 Financial Highlights (Unaudited) THE HIGH YIELD PLUS FUND, INC. - --------------------------------------------------------------------------------
Six Months Ended Year Ended March 31, September 30, --------------------------------------------- 2002 2002 2001 2000 1999 ------------- ------- ------- -------- -------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period...................... $ 3.92 $ 5.02 $ 6.42 $ 7.36 $ 9.21 ------ ------- ------- -------- -------- Income from investment operations Net investment income..................................... .20 .62 .81 .89 .88 Net realized and unrealized gain (loss) on investments.... (.86) (1.00) (1.34) (.94) (1.59) ------ ------- ------- -------- -------- Total from investment operations....................... (.66) (.38) (.53) (.05) (.71) ------ ------- ------- -------- -------- Less dividends and distributions Dividends from net investment income...................... (.22) (.72) (.86) (.89) (.88) Distributions in excess of net investment income.......... -- -- (.01) -- -- ------ ------- ------- -------- -------- Total dividends........................................ (.22) (.72) (.87) (.89) (.88) ------ ------- ------- -------- -------- Capital charge in respect to issuance of shares........... -- -- -- -- (.26) ------ ------- ------- -------- -------- Net asset value, end of period(a)......................... $ 3.04 $ 3.92 $ 5.02 $ 6.42 $ 7.36 ------ ------- ------- -------- -------- ------ ------- ------- -------- -------- Market price per share, end of period(a).................. $ 3.00 $ 4.38 $ 6.20 $ 6.1875 $ 7.1875 ------ ------- ------- -------- -------- ------ ------- ------- -------- -------- TOTAL INVESTMENT RETURN(b):............................... (26.90)% (19.20)% 15.49% (2.96)% (12.36)% ------ ------- ------- -------- -------- ------ ------- ------- -------- -------- RATIO/SUPPLEMENTAL DATA: Net assets, end of period (000 omitted)................... $47,734 $61,339 $77,593 $ 98,212 $111,993 Average net assets (000 omitted).......................... $55,810 $67,722 $88,620 $107,803 $ 94,437 Ratio to average net assets: Expenses, before loan interest and commitment fees..... 1.48%(c) 1.33% 1.26% 1.08% 1.11% Total expenses......................................... 2.77%(c) 3.19% 3.92% 3.47% 3.14% Net investment income.................................. 11.12%(c) 14.15% 14.00% 12.60% 11.60% Portfolio turnover rate................................... 54%(d) 76% 68% 83% 94% Total debt outstanding at end of period (000 omitted)..... $22,000 $22,000 $28,000 $ 42,000 $ 35,000 Asset coverage per $1,000 of debt outstanding............. $ 3,170 $ 3,788 $ 3,771 $ 3,338 $ 4,204 1998 -------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period...................... $ 8.54 -------- Income from investment operations Net investment income..................................... .84 Net realized and unrealized gain (loss) on investments.... .67 -------- Total from investment operations....................... 1.51 -------- Less dividends and distributions Dividends from net investment income...................... (.84) Distributions in excess of net investment income.......... -- -------- Total dividends........................................ (.84) -------- Capital charge in respect to issuance of shares........... -- -------- Net asset value, end of period(a)......................... $ 9.21 -------- -------- Market price per share, end of period(a).................. $ 9.125 -------- -------- TOTAL INVESTMENT RETURN(b):............................... 11.25% -------- -------- RATIO/SUPPLEMENTAL DATA: Net assets, end of period (000 omitted)................... $104,558 Average net assets (000 omitted).......................... $100,766 Ratio to average net assets: Expenses, before loan interest and commitment fees..... 1.07% Total expenses......................................... 2.44% Net investment income.................................. 9.41% Portfolio turnover rate................................... 112% Total debt outstanding at end of period (000 omitted)..... $ 30,000 Asset coverage per $1,000 of debt outstanding............. $ 4,485
- --------------- (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. Total returns for periods less than one year are not annualized. (c) Annualized. (d) Not 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 year 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. 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 12, 2002 at the offices of Prudential Investments LLC, 100 Mulberry Street, Newark, New Jersey. The meeting was held for the following purpose:
(1) To elect the following directors to serve as follows: Directors Class Term Expiring ------------------------------- ------ -------- --------- Douglas H. McCorkindale II 3 years 2005 Robert E. La Blanc II 3 years 2005 Directors whose term of office continued beyond this meeting are Eugene C. Dorsey, Thomas T. Mooney and Clay T. Whitehead.
The results of the proxy solicitation on the above matter were as follows:
Directors Votes for Votes against Votes withheld Abstentions ---------------------------- ----------- -------------- --------------- ------------ (1) Douglas H. McCorkindale 13,099,271 -- 523,000 -- Robert E. La Blanc 13,114,927 -- 507,344 --
- -------------------------------------------------------------------------------- 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. Equiserve Trust Company, N.A. (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, Equiserve Trust Company, N.A., P.O. Box 43011, Providence, RI 02940-3011. - -------------------------------------------------------------------------------- 18 Directors Eugene C. Dorsey Robert E. La Blanc Douglas H. McCorkindale Thomas T. Mooney Clay T. Whitehead Investment Adviser Wellington Management Company, llp 75 State Street Boston, MA 02109 Administrator Prudential Investments LLC Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 Custodian State Street Bank and Trust Company One Heritage Drive North Quincy, MA 02171 Transfer Agent Equiserve Trust Company, N.A. P.O. Box 43011 Providence, RI 02940-3011 Independent Accountants PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, NY 10036 Legal Counsel Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, N.W. Washington, D.C. 20036 Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that the Fund may purchase, from time to time, shares of its common stock at market prices. The accompanying financial statements as of September 30, 2002 were not audited and, accordingly, no opinion is expressed on them. The views expressed in this report and the information about the Fund's portfolio holdings are for the period covered by this report and are subject to change thereafter. This report is for stockholder information. This is not a prospectus intended for use in the purchase or sale of Fund shares. The High Yield Plus Fund, Inc. Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 For information call toll-free (800) 451-6788 CUSIP 429906100 -----END PRIVACY-ENHANCED MESSAGE-----