N-30D 1 mf16000.txt HIGH YIELD PLUS FUND -- PROSPECTUS -- 5/30/03 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 The Bank of New York One Wall Street New York, NY 10286 Transfer Agent The Equiserve Trust Company, N.A. P.O. Box 43011 High Yield Providence, RI 02940-3011 Plus Fund, Independent Accountants PricewaterhouseCoopers LLP Inc. 1177 Avenue of the Americas New York, NY 10036 Legal Counsel Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, N.W. Washington, D.C. 20036 Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that the Fund may purchase, from time to time, shares of its common stock at market prices. The views expressed in this report and the information about the Fund's portfolio holdings are for the period covered by this report and are subject to change thereafter. This report is for stockholder information. This is not a prospectus intended for use in the purchase or sale of Fund shares. The High Yield Plus Fund, Inc. Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 ANNUAL For information call toll-free (800) 451-6788 REPORT CUSIP 429906100 March 31, 2003 Letter To Shareholders May 2, 2003 Dear Shareholder: The US high yield market experienced a strong quarter, returning 7.6% (as measured by the Lehman High Yield Index). High yield strongly outperformed investment grade bonds, which returned 1.4%, as measured by the Lehman Brothers Aggregate Index. During the quarter, the yield on the 10-year US Treasury fell 2 basis points, and the spread of the Lehman High Yield Index narrowed by 142 basis points to 685 basis points above the 10-year US Treasury. This spread is 16 basis points above the 5-year historical average of 669 basis points, illustrating the extent of the recent rally in the high yield market. High yield valuations remain attractive when compared to longer time periods, however, as the current spread continues to be well above the 10-year historical average of 498 basis points. Although high yield default rates have stubbornly hovered around 7% and uncertainty has weighed on the economy, investors have nevertheless continued to pour money into the high yield market. In the first quarter of 2003, over $10 billion flowed into the high yield market. New issuance in the high yield market has been stronger this quarter than in the recent past, but it has surprisingly not been active enough to match the consistently large investor inflows. As a result, the secondary market has enjoyed a boost in principal returns. Within high yield, lower quality bonds outperformed for the quarter ending March 31, 2003. Double "BB" rated bonds returned 4.9%, while Single "B" rated bonds returned 7.3%. Triple "CCC" rated issuers returned an impressive 19% for the period. Fund Performance The Fund's total returns for periods ended March 31, 2003 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. TOTAL RETURNS For Periods Ended March 31, 2003 6 Months 1 Year 2 Years* High Yield Plus Fund (NAV)1. 21.4% 0.3% -4.0% Lipper CEHY -- Leveraged 19.3 1.3 -2.0 1. 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 The Fund is leveraged and has a $35 million credit line provided by Fleet National Bank. The Fund had drawn $21 million on the line at the fiscal year end; this reflects a reduction of $1 million since the Fund's prior fiscal year end. Borrowings fluctuate depending on investment outlook and opportunities. As of March 31, 2003, the Fund's shares were priced at $3.63. This price reflected a premium of 4.3% to the Fund's net asset value of $3.48 per share. (The average premium of the funds in the Lipper Leveraged Closed-End 1 universe was 15.4% as of March 31, 2003.) The Fund's current monthly dividend rate of $0.0325 per share equates to an annualized yield of 11.3% relative to the stock price. This yield was significantly in excess of the US 10-Year Treasury rate of 3.8% on March 31, 2003. The high yield market behaved very differently in the first half of the fiscal year ended March 31, 2003 than it did in the second half of the year. During the first half of the year the market rewarded investments in more stable, lower risk industries such as Home Building, Healthcare, Consumer Products and Gaming and punished investments in the more volatile sectors such as Technology, Telecommunications and Cable. However, beginning in mid-October of 2002, the market made a rapid about- face and the sectors that had previously been under pressure rallied dramatically while the more stable names lagged. This trend continued through March of 2003. On an absolute return basis, the High Yield Plus Fund followed a very similar pattern to that of the market. Within this broad ebb and flow of the market, there were several important drivers that had an impact on the Fund's returns for the fiscal year relative to a broad market index such as the Lehman Brothers High Yield Index. Our relative underweight to the Utility sector increased over the year as a number of companies were downgraded from the investment grade market to the high yield market. We have been cautious on this sector despite the recent rebound in bond prices, as we believe the macro outlook for many of these companies continues to be very poor, while their balance sheets are excessively levereged. Nevertheless, our underweight pressured the relative results in the later half of the year. Our underweight to the Telecommunications sector had a large positive impact on results in the first part of the year. We added to the Wireless sub-sector later in the year and reduced our negative relative bet before that sector rallied. While the Technology overweight was quite painful in the first half of the year, this sector made up for those declines in the second half of the year, finishing as one of our key gainers. Despite our positive security selection within Energy, Cable, Retail and Grocery Stores over the year, our exposure to certain Airline companies within Transportation detracted from results. As we look forward we would expect corporate balance sheet repair to continue and the market default rate to decline. While we have seen a large rebound in the market over the last several months, these fundamental drivers, along with the technical supply and demand based drivers mentioned above, should keep the market moving in a positive direction. Our focus continues to be on seeking out attractive yields in the high yield market while minimizing credit losses. The Fund continues to be positioned to capture the beneficial effects of an improving economy. 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 March 31, 2003 THE HIGH YIELD PLUS FUND, INC. --------------------------------------------------------------------------------
Moody's Principal Rating Interest Maturity Amount Value Description (Unaudited) Rate Date (000) (Note 1) ------------------------------------------------------------------------------------------------------------------------------ LONG-TERM INVESTMENTS--134.3% CORPORATE BONDS--134.3% ------------------------------------------------------------------------------------------------------------------------------ Aerospace/Defense--1.4% Argo-Technology Corp., Gtd. Notes B3 8.625% 10/1/07 $ 355 $ 292,875 Sequa Corp., Sr. Notes Ba3 9.00 8/1/09 500 493,750 ------------ 786,625 ------------------------------------------------------------------------------------------------------------------------------ Automotive--5.0% Accuride Corp., Sr. Sub. Notes, Ser. B Caa1 9.25 2/1/08 1,150 859,625 Cummins, Inc., Sr. Notes Ba2 9.50 12/1/10 50 51,500 Dana Corp., Notes Ba3 10.125 3/15/10 75 76,688 Notes Ba3 9.00 8/15/11 475 467,875 Dura Operating Corp., Sr. Sub. Notes, Ser. B B1 8.625 4/15/12 155 147,250 Sr. Sub. Notes, Ser. D B2 9.00 5/1/09 500 407,500 Ford Motor Credit Co., Notes A3 7.25 10/25/11 380 348,743 TRW Automotive, Inc., Sr. Notes B2 11.00 2/15/13 365 364,087 ------------ 2,723,268 ------------------------------------------------------------------------------------------------------------------------------ Cable--5.8% Charter Communications Holdings LLC, Sr. Notes Ca 9.625 11/15/09 450 195,750 Sr. Notes Ca 11.125 1/15/11 285 126,825 CSC Holdings Corp., Sr. Notes, Ser. B B1 8.125 7/15/09 870 889,575 Insight Midwest L.P., Sr. Notes B2 10.50 11/1/10 1,100 1,171,500 Mediacom Broadband LLC, Sr. Notes B2 11.00 7/15/13 725 810,188 ------------ 3,193,838 ------------------------------------------------------------------------------------------------------------------------------ Chemicals--7.3% ARCO Chemical Co., Debs. Ba3 9.375 12/15/05 700 686,875 Goodyear Tire & Rubber Co., Notes B1 8.50 3/15/07 400 310,000 Notes B1 7.857 8/15/11 510 374,850 IMC Global, Inc., Sr. Sub. Notes, Ser, B Ba1 11.25 6/1/11 835 905,975 Lyondell Chemical Co., Sr. Sub. Notes B2 10.875 5/1/09 655 609,150 Methanex Corp., Sr. Notes (Canada) Ba1 8.75 8/15/12 95 (c) 102,837 Resolution Performance Products, Inc., Sr. Sub. Notes Caa1 13.50 11/15/10 665 701,575
-------------------------------------------------------------------------------- See Notes to Financial Statements. 3 Portfolio of Investments as of March 31, 2003 THE HIGH YIELD PLUS FUND, INC. --------------------------------------------------------------------------------
Moody's Principal Rating Interest Maturity Amount Value Description (Unaudited) Rate Date (000) (Note 1) ------------------------------------------------------------------------------------------------------------------------------ Chemicals (cont'd.) UCAR Finance, Inc., Gtd. Notes B3 10.25% 2/15/12 $ 125 $ 111,250 United Industries Corp., Sr. Sub. Notes B3 9.875 4/1/09 185 192,862 ------------ 3,995,374 ------------------------------------------------------------------------------------------------------------------------------ Consumer Goods & Services--3.6% Corning Consumer Products Co., Sr. Sub. Notes, Ser. B Ca 9.625 5/1/08 1,500 (b) 75,000 Hasbro, Inc., Notes Ba3 6.15 7/15/08 235 235,000 Icon Health & Fitness, Inc., Sr. Sub. Notes B3 11.25 4/1/12 500 515,000 Iron Mountain, Inc., Sr. Sub. Notes B2 8.25 7/1/11 575 609,500 Playtex Products, Inc., Sr. Sub. Notes B2 9.375 6/1/11 300 325,500 Sealy Mattress Co., Sr. Notes, Ser. B B3 9.875 12/15/07 50 51,500 Sr. Sub. Notes, Ser. B B3 10.875 12/15/07 175 183,094 ------------ 1,994,594 ------------------------------------------------------------------------------------------------------------------------------ Containers--3.8% Anchor Glass Container, Inc., Sr. Sec'd. Notes B2 11.00 2/15/13 365 377,775 B-Way Finance Corp., Sr. Sub. Notes B3 10.00 10/15/10 175 183,750 Owens-Brockway Glass Container, Inc., Sr. Sec'd. Notes B2 8.875 2/15/09 500 516,250 Owens-Illinois, Inc., Sr. Notes B3 8.10 5/15/07 300 292,500 Silgan Holdings, Inc., Sr. Sub. Debs. B1 9.00 6/1/09 700 724,500 ------------ 2,094,775 ------------------------------------------------------------------------------------------------------------------------------ Energy & Related Goods & Services--7.6% Clark R&M, Inc., Sr. Notes Ba3 8.625 8/15/08 750 757,500 Forest Oil Corp., Sr. Notes Ba3 8.00 6/15/08 627 652,080 Frontier Oil Corp., Sr. Notes, Ser. A B2 9.125 2/15/06 375 378,750 Peabody Energy Corp., Sr. Notes Ba3 6.875 3/15/13 100 101,250 Giant Industries, Inc., Sr. Sub. Notes B3 11.00 5/15/12 430 380,550 Pioneer Natural Resources Co., Sr. Notes Ba1 9.625 4/1/10 500 596,221 Plains Exploration & Production Co., Sr. Sub. Notes, Ser. B B2 8.75 7/1/12 370 384,800 Tesoro Petroleum Corp., Sr. Sub. Notes B3 9.625 11/1/08 275 237,875 Sr. Sub. Notes B3 9.625 4/1/12 690 589,950 Westport Resources Corp., Sr. Sub. Notes Ba3 8.25 11/1/11 60 64,050 ------------ 4,143,026 ------------------------------------------------------------------------------------------------------------------------------ Financial Services--1.1% Fairfax Financial Holdings Ltd., Notes (Canada) Ba3 7.375 3/15/06 485 (c) 358,900 Ocwen Federal Savings Bank, Sub. Debs. B1 12.00 6/15/05 250 252,500 ------------ 611,400
-------------------------------------------------------------------------------- See Notes to Financial Statements. 4 Portfolio of Investments as of March 31, 2003 THE HIGH YIELD PLUS FUND, INC. --------------------------------------------------------------------------------
Moody's Principal Rating Interest Maturity Amount Value Description (Unaudited) Rate Date (000) (Note 1) ------------------------------------------------------------------------------------------------------------------------------ Food & Lodging--1.6% Dole Foods Co., Sr. Notes B2 8.875% 3/15/11 $ 150 $ 156,000 Host Marriott L.P., Sr. Sub. Notes, Ser. I Ba3 9.50 1/15/07 640 637,600 Sr. Sub. Notes, Ser. G Ba3 9.25 10/1/07 60 59,700 ------------ 853,300 ------------------------------------------------------------------------------------------------------------------------------ Gaming--6.2% Harrahs Operating Co., Inc., Sr. Sub. Notes Ba1 7.875 12/15/05 775 829,250 MGM Mirage, Inc., Sr. Notes Ba1 8.50 9/15/10 700 773,500 Park Place Entertainment, Inc., Sr. Sub. Notes Ba2 8.125 5/15/11 355 366,537 Riviera Holdings Corp., Sr. Sec'd. Notes B2 11.00 6/15/10 625 539,063 Station Casinos, Inc., Sr. Sub. Notes B2 8.875 12/1/08 850 890,375 ------------ 3,398,725 ------------------------------------------------------------------------------------------------------------------------------ General Industrial--9.8% Allied Waste North America, Inc., Sr. Notes Ba3 7.625 1/1/06 600 608,250 Sr. Notes, Ser. B Ba3 8.50 12/1/08 450 473,063 Case Corp., Notes Ba2 7.25 8/1/05 400 378,000 International Wire Group, Inc., Sr. Sub. Notes, Ser. B Caa1 11.75 6/1/05 250 162,500 Lucent Technologies, Inc., Notes Caa1 7.25 7/15/06 240 211,200 Notes Caa1 5.50 11/15/08 425 320,875 Nortel Networks Ltd., Notes (Canada) Ba3 6.125 2/15/06 645 (c) 588,563 Numatics, Inc., Sr. Sub. Notes, Ser. B Caa2 9.625 4/1/08 160 91,200 Remington Arms Co., Gtd. Notes B2 10.50 2/1/11 90 96,300 Tyco International Group S.A., (Luxembourg) Gtd. Notes Ba2 6.375 2/15/06 105 (c) 102,375 Gtd. Notes Ba2 5.80 8/1/06 60 (c) 57,300 Gtd. Notes Ba2 6.125 1/15/09 215 (c) 202,100 Gtd. Notes Ba2 6.75 2/15/11 110 (c) 105,050 Gtd. Notes Ba2 6.375 10/15/11 860 (c) 804,100 United Rentals, Inc., Sr. Sub. Notes B2 9.00 4/1/09 400 344,000 Waste Management, Inc., Sr. Notes Baa3 7.375 8/1/10 300 338,751 WESCO Distribution, Inc., Sr. Sub. Notes, Ser. B B3 9.125 6/1/08 650 487,500 ------------ 5,371,127 ------------------------------------------------------------------------------------------------------------------------------ Grocery Stores--2.3% Delhaize America, Inc., Gtd. Notes Ba1 8.125 4/15/11 525 532,875 Pathmark Stores, Inc., Sr. Sub. Notes B2 8.75 2/1/12 300 288,000 Winn-Dixxie Stores, Inc., Sr. Notes Ba2 8.875 4/1/08 415 435,750 ------------ 1,256,625
-------------------------------------------------------------------------------- See Notes to Financial Statements. 5 Portfolio of Investments as of March 31, 2003 THE HIGH YIELD PLUS FUND, INC. --------------------------------------------------------------------------------
Moody's Principal Rating Interest Maturity Amount Value Description (Unaudited) Rate Date (000) (Note 1) ------------------------------------------------------------------------------------------------------------------------------ Health Care--9.6% Alaris Medical Systems, Inc., Sr. Sub. Notes Caa1 9.75% 12/1/06 $ 300 $ 309,000 Sr. Sec'd. Notes, Ser. B B2 11.625 12/1/06 145 166,388 Athena Neurosciences Finance LLC, Gtd. Notes Caa2 7.25 2/21/08 835 515,612 Beverly Enterprises, Inc., Sr. Notes B1 9.00 2/15/06 500 430,000 Sr. Notes B1 9.625 4/15/09 400 336,000 Conmed Corp., Sr. Sub. Notes B2 9.00 3/15/08 600 621,000 HCA, Inc., Notes Ba1 6.30 10/1/12 700 719,106 NDCHealth Corp., Sr. Notes B(e) 10.50 12/1/12 425 445,188 Radiologix, Inc., Sr. Notes, Ser. B B2 10.50 12/15/08 770 693,000 Sybron Dental Specialties, Inc., Sr. Sub. Notes B2 8.125 6/15/12 100 102,000 Tenet Healthcare Corp., Sr. Notes Baa3 6.375 12/1/11 150 143,625 Sr. Notes Baa3 6.50 6/1/12 50 48,000 Triad Hospitals Holdings, Inc., Sr. Sub. Notes, Ser. B B2 11.00 5/15/09 360 397,800 Universal Hospital Services, Inc., Sr. Notes B3 10.25 3/1/08 350 341,250 ------------ 5,267,969 ------------------------------------------------------------------------------------------------------------------------------ Home Building & Real Estate--5.5% Beazer Homes USA, Inc., Sr. Notes Ba2 8.875 4/1/08 750 783,285 Sr. Notes Ba2 8.625 5/15/11 100 104,500 D.R. Horton, Inc., Sr. Sub. Notes Ba2 9.375 3/15/11 500 525,000 Ryland Group, Inc., Sr. Sub. Notes Ba2 8.25 4/1/08 750 767,812 Standard Pacific Corp., Sr. Notes Ba2 8.50 6/15/07 250 256,562 Sr. Notes, Ser. A Ba2 8.00 2/15/08 575 580,750 ------------ 3,017,909 ------------------------------------------------------------------------------------------------------------------------------ Media & Entertainment--12.9% Canwest Media, Inc., Sr. Sub. Notes (Canada) B2 10.625 5/15/11 350 (c) 385,437 Corus Entertainment, Inc., Sr. Sub. Notes (Canada) B1 8.75 3/1/12 205 (c) 213,456 EchoStar DBS Corp., Sr. Notes B1 9.125 1/15/09 885 966,862 Entravison Communications Corp., Sr. Sub. Notes B3 8.125 3/15/09 110 113,025 Houghton Mufflin Co., Sr. Notes B3 9.875 2/1/13 185 199,800 Lamar Media Corp., Sr. Sub. Notes Ba3 7.25 1/1/13 55 57,131 Moore North America Finance, Inc., Sr. Notes B1 7.875 1/15/11 155 160,425 PRIMEDIA, Inc., Sr. Notes B3 8.875 5/15/11 410 413,075 Quebecor Media, Inc., Sr. Notes (Canada) B2 11.125 7/15/11 1,050 (c) 1,139,250
-------------------------------------------------------------------------------- See Notes to Financial Statements. 6 Portfolio of Investments as of March 31, 2003 THE HIGH YIELD PLUS FUND, INC. --------------------------------------------------------------------------------
Moody's Principal Rating Interest Maturity Amount Value Description (Unaudited) Rate Date (000) (Note 1) ------------------------------------------------------------------------------------------------------------------------------ Media & Entertainment (cont'd.) RH Donnelly Finance Corp. I, Sr. Sub. Notes B2 10.875% 12/15/12 $ 455 $ 519,838 Rogers Communications, Inc., Sr. Notes (Canada) B2 8.875 7/15/07 600 (c) 612,000 Sinclair Broadcast Group, Inc., Sr. Sub. Notes B2 8.00 3/15/12 190 196,175 Time Warner, Inc., Debs. Baa1 9.125 1/15/13 425 501,275 Von Hoffman Press, Inc., Sr. Notes B3 10.375 5/15/07 550 484,000 Sr. Notes B2 10.25 3/15/09 345 343,275 World Color Press, Inc., Sr. Sub. Notes Baa2 8.375 11/15/08 750 780,095 ------------ 7,085,119 ------------------------------------------------------------------------------------------------------------------------------ Metals--3.7% AK Steel Corp., Sr. Sub. Notes B1 7.875 2/15/09 600 552,000 Century Aluminum Co., Sr. Sec'd. First Mtge. Notes B1 11.75 4/15/08 670 670,000 Steel Dynamics, Inc., Sr. Notes B2 9.50 3/15/09 65 66,300 United States Steel LLC, Sr. Notes Ba3 10.75 8/1/08 715 697,125 Weirtron Steel Corp., Sr. Sec'd. Notes Caa3 10.00 4/1/08 413 (b) 41,250 ------------ 2,026,675 ------------------------------------------------------------------------------------------------------------------------------ Paper & Packaging--8.1% Abiti-Consolidated, Inc., Debs. (Canada) Ba1 8.55 8/1/10 525 (c) 576,525 Bowater Canada Finance, Sr. Notes (Canada) Ba1 7.95 11/15/11 175 (c) 180,211 Caraustar Industries, Inc., Sr. Sub. Notes Ba2 9.875 4/1/11 675 678,375 Georgia-Pacific Corp., Debs. Ba3 9.50 12/1/11 895 886,050 Sr. Notes Ba2 9.375 2/1/13 225 237,375 Graphic Packaging Corp., Sr. Notes B2 8.625 2/15/12 105 107,100 Stone Container Corp., Sr. Notes B2 9.25 2/1/08 450 492,750 Sr. Notes B2 8.375 7/1/12 325 347,750 MDP Acquisitions PLC, Sr. Notes (Ireland) B2 9.625 10/1/12 135 (c) 142,256 Pacifica Papers, Inc., Sr. Notes (Canada) Ba2 10.00 3/15/09 750 (c) 778,125 ------------ 4,426,517 ------------------------------------------------------------------------------------------------------------------------------ Retail--6.7% CSK Auto, Inc., Sr. Notes B2 12.00 6/15/06 390 423,150 Sr. Notes B3 11.00 11/1/06 88 88,990 GAP, Inc., Notes Ba3 8.125 12/15/08 370 425,500 Great Atlantic & Pacific Tea, Inc., Sr. Notes B3 9.125 12/15/11 455 367,412
-------------------------------------------------------------------------------- See Notes to Financial Statements. 7 Portfolio of Investments as of March 31, 2003 THE HIGH YIELD PLUS FUND, INC. --------------------------------------------------------------------------------
Moody's Principal Rating Interest Maturity Amount Value Description (Unaudited) Rate Date (000) (Note 1) ------------------------------------------------------------------------------------------------------------------------------ Retail (cont'd.) J.C. Penney, Inc., Notes Ba3 7.60% 4/1/07 $ 350 $ 358,750 Notes Ba3 7.375 8/15/08 100 101,000 Levi Strauss & Co., Sr. Notes B3 11.625 1/15/08 850 803,250 Rite Aid Corp., Notes Caa3 7.125 1/15/07 1,125 991,406 Sr. Notes Caa3 11.25 7/1/08 100 99,000 ------------ 3,658,458 ------------------------------------------------------------------------------------------------------------------------------ Technology--6.6% Amkor Technologies, Inc., Sr. Notes B3 9.25 5/1/06 450 441,000 Sr. Sub. Notes B3 10.50 5/1/09 750 712,500 Avaya, Inc., Sr. Sec'd. Notes Ba2 11.125 4/1/09 520 530,400 ChipPac International Co., Ltd., Sr. Sub. Notes, Ser. B B3 12.75 8/1/09 200 222,000 Sanmina-SCI Corp., Sr. Sec'd. Notes Ba2 10.375 1/15/10 270 291,600 SCG Holdings Corp., Sr. Sub. Notes Caa2 12.00 8/1/09 1,180 837,800 Selectron Corp., Sr. Notes Ba3 9.625 2/15/09 255 266,475 Xerox Corp., Sr. Notes B1 9.75 1/15/09 305 325,969 ------------ 3,627,744 ------------------------------------------------------------------------------------------------------------------------------ Telecommunications--11.2% American Tower Corp., Sr. Notes Caa1 9.375 2/1/09 285 256,500 Crown Castle International Corp., Sr. Notes B3 9.375 8/1/11 245 224,175 Sr. Notes B3 10.75 8/1/11 345 336,375 Fairpoint Communications, Inc., Sr. Notes B3 11.875 3/1/10 45 47,250 GCI, Inc., Sr. Notes B2 9.75 8/1/07 1,000 960,000 Nextel Communications, Inc., Sr. Notes B3 9.375 11/15/09 50 52,500 Sr. Notes B3 9.50 2/1/11 1,475 1,559,813 Nextel Partners, Inc., Sr. Notes Caa1 12.50 11/15/09 425 435,625 Qwest Capital Funding, Inc., Sr. Notes Caa2 7.90 8/15/10 250 192,500 Sr. Notes Caa2 7.25 2/15/11 700 532,000 Sr. Notes Caa2 14.00 12/15/14 550 592,625 Rogers Wireless, Inc., Sr. Sec'd. Notes (Canada) Baa3 9.625 5/1/11 450 (c) 479,250 Triton PCS, Inc., Sr. Sub. Notes B3 9.375 2/1/11 280 243,600 Sr. Sub. Notes B3 8.75 11/15/11 150 126,750 U.S. West Capital Funding, Inc., Sr. Notes Ca1 6.375 7/15/08 100 75,000 ------------ 6,113,963
-------------------------------------------------------------------------------- See Notes to Financial Statements. 8 Portfolio of Investments as of March 31, 2003 THE HIGH YIELD PLUS FUND, INC. --------------------------------------------------------------------------------
Moody's Principal Rating Interest Maturity Amount Value Description (Unaudited) Rate Date (000) (Note 1) ------------------------------------------------------------------------------------------------------------------------------ Transportation--4.6% Air Canada, Inc., Sr. Notes (Canada) B3 10.25% 3/15/11 $ 935 (a)(c) $ 224,400 Atlas Air, Inc., Sr. Notes B2 10.75 8/1/05 560 (b) 106,400 Delta Air Lines, Inc., Notes B3 7.90 12/15/09 880 457,600 Debs. B3 10.375 2/1/11 45 22,950 Kansas City Southern Railway Co., Sr. Sub. Notes Ba2 9.50 10/1/08 750 836,250 Navistar International Corp., Sr. Notes, Ser. B Ba3 9.375 6/1/06 620 626,200 Northwest Air Lines, Inc., Sr. Sub. Notes Caa1 8.875 6/1/06 330 168,300 Sr. Sub. Notes Caa1 9.875 3/15/07 165 84,975 ------------ 2,527,075 ------------------------------------------------------------------------------------------------------------------------------ Utilities--9.9% AES Corp. Sr. Sub. Notes B3 8.875 2/15/11 825 676,500 Avista Corp., Sr. Notes Ba1 9.75 6/1/08 380 410,400 Calpine Canada Energy Finance LLC, Gtd. Notes (Canada) B1 8.50 5/1/08 45 (c) 25,875 Calpine Corp., Sr. Notes B1 8.50 2/15/11 400 224,000 CMS Energy Corp., Sr. Notes B3 9.875 10/15/07 700 647,500 Sr. Notes B3 8.90 7/15/08 160 140,800 El Paso Energy Corp., Sr. Notes Caa1 6.75 5/15/09 870 700,350 Sr. Notes Caa1 7.00 5/15/11 605 477,950 Energy Corporation of America, Sr. Sub. Notes, Ser. A Caa3 9.50 5/15/07 465 290,625 Illinois Power Corp., Sr. Notes B3 11.50 12/15/10 155 163,525 Mirant Americas Generation LLC, Sr. Notes B3 7.20 10/1/08 550 280,500 TNP Enterprises, Inc., Sr. Sub. Notes Ba3 10.25 4/1/10 500 512,500 Western Resources, Inc., Sr. Notes Ba2 9.75 5/1/07 200 213,500 Sr. Notes Ba2 7.125 8/1/09 705 664,463 ------------ 5,428,488 ------------ Total long-term corporate bonds 73,602,594 ------------------------------------------------------------------------------------------------------------------------------ COMMON STOCK Shares ---------- Mediq, Inc.(a) 3,205 (d) 0 ------------------------------------------------------------------------------------------------------------------------------ PREFERRED STOCK Weirtron Steel Corp., Ser. C, PIK 12.50 6,750 10,125 ------------ Total long-term investments (cost $78,053,250) 73,612,719
-------------------------------------------------------------------------------- See Notes to Financial Statements. 9 Portfolio of Investments as of March 31, 2003 THE HIGH YIELD PLUS FUND, INC. --------------------------------------------------------------------------------
Principal Interest Maturity Amount Value Description Rate Date (000) (Note 1) ------------------------------------------------------------------------------------------------------------------------------ SHORT-TERM INVESTMENT--1.4% REPURCHASE AGREEMENT UBS Warburg, dated 3/31/03, due 4/1/03 in the amount of $789,029 (cost $789,000; collateralized by $485,000 U.S. Treasury Bonds, 11.25%, due 2/15/15, value of collateral including accrued interest is $802,701) 1.31% 4/1/03 $ 789 $ 789,000 ------------------------------------------------------------------------------------------------------------------------------ Total Investments--135.7% (cost $78,842,250; Note 4) 74,401,719 Liabilities in excess of other assets--(35.7%) (19,592,090) ------------ Net Assets--100% $ 54,809,629 ------------ ------------
--------------- (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. (e)--Standard & Poor's Rating. PIK--Payment-in-Kind. -------------------------------------------------------------------------------- See Notes to Financial Statements. 10 Statement of Assets and Liabilities THE HIGH YIELD PLUS FUND, INC. --------------------------------------------------------------------------------
Assets March 31, 2003 ------------------------------------------------------------------------------------------------------------------------------- Investments, at value (cost $78,842,250)...................................................................... $ 74,401,719 Cash.......................................................................................................... 799 Interest receivable........................................................................................... 1,989,129 Receivable for investments sold............................................................................... 180,375 Other assets.................................................................................................. 53,636 -------------- Total assets............................................................................................... 76,625,658 -------------- Liabilities Loan payable (Note 5)......................................................................................... 21,000,000 Dividends payable............................................................................................. 511,918 Accrued expenses.............................................................................................. 174,661 Loan interest payable (Note 5)................................................................................ 65,523 Deferred directors' fees payable.............................................................................. 31,705 Advisory fee payable.......................................................................................... 23,016 Administration fee payable.................................................................................... 9,206 -------------- Total liabilities.......................................................................................... 21,816,029 -------------- Net Assets.................................................................................................... $ 54,809,629 -------------- -------------- Net assets were comprised of: Common stock, at par....................................................................................... $ 157,513 Paid-in capital in excess of par........................................................................... 130,618,900 -------------- 130,776,413 Overdistribution of net investment income.................................................................. (511,918 ) Accumulated net realized loss on investment and foreign currency transactions.............................. (71,014,335 ) Net unrealized depreciation on investments and foreign currencies.......................................... (4,440,531 ) -------------- Net assets, March 31, 2003................................................................................. $ 54,809,629 -------------- -------------- Net asset value per share ($54,809,629 / 15,751,314 shares of common stock issued and outstanding)............ $3.48 -------------- --------------
-------------------------------------------------------------------------------- See Notes to Financial Statements. 11 THE HIGH YIELD PLUS FUND, INC. Statement of Cash Flows ------------------------------------------------------------
Year Ended March 31, Net Investment Income 2003 Income Interest.................................... $ 7,766,830 ------------ Expenses Investment advisory fee..................... 267,770 Administration fee.......................... 107,108 Legal fees and expenses..................... 118,000 Custodian's fees and expenses............... 116,000 Reports to shareholders..................... 50,000 Listing fee................................. 44,000 Directors' fees and expenses................ 33,000 Transfer agent's fees and expenses.......... 32,000 Audit fee................................... 30,000 Insurance expense........................... 15,000 Miscellaneous............................... 5,263 ------------ Total operating expenses................. 818,141 Loan interest expense (Note 5).............. 637,128 ------------ Total expenses........................... 1,455,269 ------------ Net investment income.......................... 6,311,561 ------------ Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies Net realized loss on: Investment transactions..................... (11,739,855) Foreign currency transactions............... (1,308) ------------ (11,741,163) ------------ Net change in unrealized depreciation on: Investments................................. 4,974,722 Foreign currencies.......................... 159 ------------ 4,974,881 ------------ Net loss on investments and foreign currencies.................................. (6,766,282) ------------ Net Decrease in Net Assets Resulting from Operations...................... $ (454,721) ------------ ------------
THE HIGH YIELDPLUS FUND, INC. Statement ofCash Flows ------------------------------------------------------------
Year Ended Increase (Decrease) in Cash March 31, (Including Foreign Currency) 2003 Cash flows from operating activities: Interest and dividends received.............. $ 7,611,190 Operating expenses paid...................... (911,653) Loan interest and commitment fee paid........ (569,821) Purchases of long-term portfolio investments............................... (65,285,580) Proceeds from disposition of short-term portfolio investments..................... 1,555,000 Proceeds from disposition of long-term portfolio investments..................... 64,831,612 Increase in other assets..................... (2,001) ------------ Net cash used in operating activities........ 7,228,747 ------------ Cash flows from financing activities Net decrease in loan payable................. (1,000,000) Cash dividends paid (excluding reinvestment of dividends of $364,950)................. (6,228,085) ------------ Net cash provided by financing activities.... (7,228,085) ------------ Net increase in cash......................... 662 Cash at beginning of year.................... 137 ------------ Cash at end of year.......................... $ 799 ------------ ------------ 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................................... $ (454,721) ------------ Decrease in investments......................... 1,798,813 Net realized gain (loss) on investment and foreign currency transactions................ 11,741,163 Net increase in unrealized appreciation on investments and foreign currencies........... (4,974,881) Decrease in receivable for investments sold..... 88,585 Decrease in interest receivable................. 299,871 Increase in other assets........................ (2,001) Decrease in payable for investments purchased... (1,241,877) Decrease in accrued expenses and other liabilities.................................. (26,205) ------------ Total adjustments............................ 7,683,468 ------------ Net cash flows provided from operating activities................................ $ 7,228,747 ------------ ------------
-------------------------------------------------------------------------------- See Notes to Financial Statements. 12 THE HIGH YIELD PLUS FUND, INC. Statement of Changes in Net Assets ------------------------------------------------------------
Year Ended March 31, Increase (Decrease) ------------------------------ in Net Assets 2003 2002 ------------ ------------ Operations Net investment income....... $ 6,311,561 $ 9,582,239 Net realized loss on investment and foreign currency transactions.... (11,741,163) (29,515,535) Net change in unrealized depreciation on investments and foreign currencies............... 4,974,881 13,844,030 ------------ ------------ Net decrease in net assets resulting from operations............... (454,721) (6,089,266) Dividends from net investment income (Note 1)....................... (6,439,615) (11,197,187) Value of Fund shares issued to shareholders in reinvestment of dividends (Note 6)................. 364,950 1,032,315 ------------ ------------ Total decrease................. (6,529,386) (16,254,138) Net Assets Beginning of year.............. 61,339,015 77,593,153 ------------ ------------ End of year.................... $ 54,809,629 $ 61,339,015 ------------ ------------ ------------ ------------
THE HIGH YIELD PLUS FUND, INC. Notes to Financial Statements -------------------------------------------------------------------------- The High Yield Plus Fund, Inc. (the 'Fund') was organized in Maryland on February 3, 1988, as a diversified, closed-end management investment company. The Fund's primary objective is to provide a high level of current income to shareholders. The Fund seeks to achieve this objective through investment of at least 80% of its investable assets 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: Securities for which market quotations are readily available--including securities listed on national securities exchanges and those traded over-the-counter--are valued at the last quoted sales price on the valuation date on which the security is traded. If such securities were not traded on the valuation date, but market quotations are readily available, they are valued at the most recently quoted bid price provided by an independent pricing service or by principal market makers. Securities traded via NASDAQ are valued at the official closing price provided by NASDAQ. Securities for which market quotations are not readily available or for which the pricing agent or market maker does not provide a valuation or methodology, or provides a valuation or methodology that, in the judgment of the adviser, does not represent fair value, are valued by a Valuation Committee appointed by the Board of Directors, in consultation with the advisor. 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 -------------------------------------------------------------------------------- 13 Notes to Financial Statements THE HIGH YIELD PLUS FUND, INC. -------------------------------------------------------------------------------- or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited. 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 and premiums on debt obligations. Cash, as used in the Statement of Cash Flows, is the amount reported as 'Cash' or 'Payable to Custodian' 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; interest income including amortization of premium and accretion of discount on debt securities, as required is recorded on the accrual basis. 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 to shareholders, which are determined in accordance with federal income tax regulations and which may differ from generally acccepted accounting principles, are recorded on the ex-dividend date. Permanent book/tax differences relating to income and gains are reclassified to paid-in capital when they arise. 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, among others, Wellington Management Company, LLP (the 'Investment Adviser') and 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. -------------------------------------------------------------------------------- 14 Notes to Financial Statements THE HIGH YIELD PLUS FUND, INC. -------------------------------------------------------------------------------- Note 3. Portfolio Securities Purchases and sales of investment securities, other than short-term investments for the year ended March 31, 2003, aggregated $64,043,703 and $64,743,027, respectively. ------------------------------------------------------------ Note 4. Tax Information In order to present undistributed (overdistribution of) net investment income (loss) and accumulated net realized gains (losses) on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital in excess of par, overdistribution of net investment income and accumulated net realized gain (loss) on investments. For the year ended March 31, 2003, the adjustments were to decrease overdistribution of net investment income by $316,408, decrease accumulated net realized loss on investments and foreign currency transactions by $1,038,953 and decrease paid-in capital by $1,355,361 due primarily to the federal income tax treatment of defaulted securities, the expiration of capital loss carryforward and certain other differences between financial and tax reporting. Net investment income, net realized losses and net assets were not affected by this change. For the years ended March 31, 2003 and March 31, 2002, the tax character of total dividends paid of $6,439,615 and $11,197,187, respectively were from ordinary income. As of March 31, 2003, the Fund did not have any tax basis accumulated undistributed net investment income or accumulated net realized gains. The tax basis differs from the amount shown on the Statement of Assets and Liabilities primarily due to the tax treatment of certain securities in default and other cumulative timing differences. In addition, the capital loss carryforward as of March 31, 2003 was approximately $69,744,000, of which $1,806,000 expires in 2004, $500,000 expires in 2007, $8,206,000 expires in 2008, $8,395,000 expires in 2009, $24,697,000 expires in 2010 and $26,140,000 expires in 2011. Accordingly, no capital gains distribution is expected to be paid to shareholders until net gains have been realized in excess of such carryfoward. The capital loss carryforward differs from the amount on the Statement of Assets and Liabilities primarily due to the Fund electing to treat post-October capital losses of approximately $751,000 as having occurred in the following fiscal year and differences in the treatment of discount and premium amortization for book and tax purposes. The United States federal income tax basis of the Fund's investments and the net unrealized depreciation as of March 31, 2003 was as follows:
Tax Basis of Net Unrealized Investments Appreciation Depreciation Depreciation --------------- ------------ ------------- -------------- $79,361,756 $3,483,333 $ 8,443,370 $4,960,037
The difference between book basis and tax basis was primarily 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 an unaffiliated lender. The maximum commitment under this agreement is $50,000,000. Interest on any such borrowings is based on market rates and is payable quarterly and 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 year ended March 31, 2003 was $21,841,096 at a weighted average interest rate of 3.02%. The maximum face amount of borrowings outstanding at any month-end during the year ended March 31, 2003 was $25,000,000. The current borrowings of $21,000,000 (at a weighted average interest rate of 2.16%) will mature on April 1, 2003. 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 1, 2003, under the renewed credit agreement with an unaffiliated lender, the maximum commitment is $35,000,000. Under the previous credit agreement, the maximum commitment was $50,000,000. All other terms and conditions remain unchanged. The renewed credit agreement expires on March 30, 2004. ------------------------------------------------------------ Note 6. Capital There are 100 million shares of common stock authorized at $.01 par value per share. During the years ended March 31, 2003 and March 31, 2002, the Fund issued 99,359 and 203,297 shares in connection with reinvestment of dividends, respectively. -------------------------------------------------------------------------------- 15 Notes to Financial Statements THE HIGH YIELD PLUS FUND, INC. -------------------------------------------------------------------------------- Note 7. Dividends On March 4, 2003, the Board of Directors of the Fund declared dividends of $0.0325 per share payable on April 10, May 9 and June 10 to shareholders of record on March 31, April 30 and May 30, respectively. On May 28, 2003, the Board of Directors of the Fund declared dividends of $0.035 per share payable on July 10, August 11 and September 10 to shareholders of record on June 30, July 31 and August 29, respectively. -------------------------------------------------------------------------------- 16 Financial Highlights THE HIGH YIELD PLUS FUND, INC. --------------------------------------------------------------------------------
Year Ended March 31, ------------------------------------------------------------- 2003 2002 2001 2000 1999 --------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year........................ $ 3.92 $ 5.02 $ 6.42 $ 7.36 $ 9.21 --------- -------- -------- -------- -------- Income from investment operations Net investment income..................................... .42 .62 .81 .89 .88 Net realized and unrealized loss on investments........... (.45) (1.00) (1.34) (.94) (1.59) --------- -------- -------- -------- -------- Total from investment operations....................... (.03) (.38) (.53) (.05) (.71) --------- -------- -------- -------- -------- Less dividends and distributions Dividends from net investment income...................... (.41) (.72) (.86) (.89) (.88) Distributions in excess of net investment income.......... -- -- (.01) -- -- --------- -------- -------- -------- -------- Total dividends........................................ (.41) (.72) (.87) (.89) (.88) --------- -------- -------- -------- -------- Capital charge in respect to issuance of shares........... -- -- -- -- (.26) --------- -------- -------- -------- -------- Net asset value, end of year(a)........................... $ 3.48 $ 3.92 $ 5.02 $ 6.42 $ 7.36 --------- -------- -------- -------- -------- --------- -------- -------- -------- -------- Market price per share, end of year(a).................... $ 3.63 $ 4.38 $ 6.20 $ 6.1875 $ 7.1875 --------- -------- -------- -------- -------- --------- -------- -------- -------- -------- TOTAL INVESTMENT RETURN(b):............................... (6.41)% (19.20)% 15.49% (2.96)% (12.36)% --------- -------- -------- -------- -------- --------- -------- -------- -------- -------- RATIO/SUPPLEMENTAL DATA: Net assets, end of year (000 omitted)..................... $54,810 $ 61,339 $ 77,593 $ 98,212 $111,993 Average net assets (000 omitted).......................... $53,407 $ 67,722 $ 88,620 $107,803 $ 94,437 Ratio to average net assets: Expenses, before loan interest and commitment fees..... 1.53% 1.33% 1.26% 1.08% 1.11% Total expenses......................................... 2.72% 3.19% 3.92% 3.47% 3.14% Net investment income.................................. 11.82% 14.15% 14.00% 12.60% 11.60% Portfolio turnover rate................................... 87% 76% 68% 83% 94% Total debt outstanding at end of year (000 omitted)....... $21,000 $ 22,000 $ 28,000 $ 42,000 $ 35,000 Asset coverage per $1,000 of debt outstanding............. $ 3,610 $ 3,788 $ 3,771 $ 3,338 $ 4,204
--------------- (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 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. 17 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, 2003, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as 'financial statements') are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York May 28, 2003 -------------------------------------------------------------------------------- 18 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, 2003) as to the federal tax status of dividends and distributions paid by the Fund during such fiscal year. Accordingly, we are advising you that during the fiscal year ended March 31, 2003, the Fund paid dividends of $0.41 per share, which are taxable as ordinary income. In January 2004, shareholders will receive a Form 1099-DIV or substitute Form 1099-DIV which reflects the amount of dividends to be used by calendar year taxpayers on their 2003 federal income tax returns. Shareholders are advised to consult their own tax advisers with respect to the tax consequences of their investment in the Fund. 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 430011, Providence, RI 02940-3011. -------------------------------------------------------------------------------- 19 Management of the Fund (Unaudited) THE HIGH YIELD PLUS FUND, INC. -------------------------------------------------------------------------------- Information pertaining to the Directors of the Fund is set forth below. Directors ----------
Term of Office Position and Length Name, Address and Age With Fund of Time Served* ---------------------------------------------------------------------- Eugene C. Dorsey (76) Director Since 1996 2010 Harbourside Drive, Pound2003 (Class I) Longboat Key, FL 34228 Robert E. La Blanc (69) Director Since 1999 323 Highland Avenue (Class II) Ridgewood, NJ 07450 Douglas H. McCorkindale (63) Director Since 1996 7950 Jones Branch Drive (Class II) McLean, VA 22107 Principal Occupations and Other Name, Address and Age Directorships Held** ----------------------------------------------------------------------------------- Eugene C. Dorsey (76) Retired. Director of First Financial 2010 Harbourside Drive, Pound2003 Fund, Inc.; formerly President, Chief Longboat Key, FL 34228 Executive Officer and Trustee, Gannett Foundation (now Freedom Forum) (1981-1989); former publisher of four Gannett newspapers and Vice President of Gannett Co., Inc. (publishing) (1978-1981); past Chairman, Independent Sector, Washington, D.C. (national coalition of philanthropic organizations) (1989-1992); and former Chairman of the American Council for the Arts; and former Director, Advisory Board of Chase Manhattan Bank of Rochester. Robert E. La Blanc (69) President of Robert E. La Blanc 323 Highland Avenue Associates, Inc. (information Ridgewood, NJ 07450 technologies consulting) (since 1981); Director or Trustee of 77 portfolios within the Prudential Fund Complex; Director of First Financial Fund, Inc.; formerly Vice-Chairman of Continental Telecom, Inc. (1979-1981); formerly General Partner at Salomon Brothers (1969-1979); Director of Salient 3 Communications, Inc. (telecommunications). Storage Technology Corp. (computer equipment), Titan Corp. (electronics), and Chartered Semiconductor Manufacturing, Ltd. (semiconductors); and Trustee of Manhattan College. Douglas H. McCorkindale (63) Chairman, President and CEO of Gannett 7950 Jones Branch Drive Co., Inc. (publishing and media) (since McLean, VA 22107 February 2001); Director or Trustee of 77 portfolios within the Prudential Fund Complex; previously President and CEO of Gannett Co., Inc. (June 2000-January 2001) and Vice Chairman of Gannett Co., Inc. (1984-1997); Director of Lockheed Martin Corp. (aerospace), Continental Airlines, Inc., and Mutual Insurance Company, Ltd.
-------------------------------------------------------------------------------- 20 Management of the Fund (Unaudited) THE HIGH YIELD PLUS FUND, INC. --------------------------------------------------------------------------------
Term of Office Position and Length Name, Address and Age With Fund of Time Served* ---------------------------------------------------------------------- Thomas T. Mooney (61)*** Director and Since 1988 930 East Avenue President (as Director) Rochester, NY 14607 (Class III) Clay T. Whitehead (64) Director Since 2000 P.O. Box 8090 (Class III) McLean, VA 22106 Principal Occupations During Past 5 Years and Other Name, Address and Age Directorships Held** ------------------------------------------------------------------------------- Thomas T. Mooney (61)*** President of the Greater Rochester Metro 930 East Avenue Chamber of Commerce (since 1976); Rochester, NY 14607 Director or Trustee 97 portfolios within the Prudential Fund Complex; President, Director and Treasurer of First Financial Fund, Inc.; former Rochester City Manager (during 1973); Trustee of Center for Governmental Research, Inc. (volunteer consulting); and Director of Blue Cross of Rochester, Executive Service Corps of Rochester, Monroe County Water Authority and Rural/Metro Medical Services, Inc. (ambulance service). Clay T. Whitehead (64) President of Clay Whitehead Associates P.O. Box 8090 (telecommunications) (since 1987) and McLean, VA 22106 National Exchange Inc. (new business development firm) (since May 1983); Director or Trustee of 94 portfolios within the Prudential Fund Complex; Director of First Financial Fund, Inc., GTC Telecom, Inc. (telecommunications), and Crosswalk.com (website).
Information pertaining to the officers of the Fund, other than Mr. Mooney (who is listed above), is set forth below. Officers --------
Term of Office Position and Length Name, Address and Age With Fund of Time Served* ---------------------------------------------------------------------- Arthur J. Brown (54) Secretary Since 1986 1800 Massachusetts Avenue, NW Washington, D.C. 20036 R. Charles Miller (45) Assistant Since 1999 1800 Massachusetts Avenue, NW Secretary Washington, D.C. 20036 Grace C. Torres (43) Treasurer and Since 2000 Principal Financial and Accounting Officer Principal Occupations Name, Address and Age During Past 5 Years ------------------------------------------------------------------------------------ Arthur J. Brown (54) Partner, Kirkpatrick & Lockhart LLP (law 1800 Massachusetts Avenue, NW firm and counsel to the Fund) Washington, D.C. 20036 R. Charles Miller (45) Partner, Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, NW Washington, D.C. 20036 Grace C. Torres (43) Senior Vice President (since January 2000) of PI; formerly First Vice President (December 1996-January 2000) of PI and First Vice President (March 1993-1999) of Prudential Securities.
------------------ * The Board of Directors is divided into three classes, each of which has three year terms. Class III term expires this year. Officers are generally elected by the Board to one year terms. ** This column includes only directorships of companies required to report to the Securities and Exchange Commission under the Securities Exchange Act of 1934 (that is, 'public companies') or other investment companies registered under the Investment Company Act of 1940 ('1940 Act'). Each Director of the Fund, except Mr. McCorkindale, oversees three other portfolios within the Fund's 'Fund Complex'. The Fund's Fund Complex consists of a group of investment companies and series of investment companies that are advised by the Investment Adviser. *** Indicates an 'interested person' of the Fund, as defined in the 1940 Act. Mr. Mooney is deemed to be an 'interested person' solely by reason of his service as an officer of the Fund.
-------------------------------------------------------------------------------- 21