-----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, GPSuiAdkxHgheb5czErcTTYQsLJHgFVKbn3qptdl/USrIEUeWU7QmuY++Xztm0PR hHbWzDArFGyxE8DDr2HOEA== /in/edgar/work/20000629/0000950116-00-001558/0000950116-00-001558.txt : 20000920 0000950116-00-001558.hdr.sgml : 20000920 ACCESSION NUMBER: 0000950116-00-001558 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000430 FILED AS OF DATE: 20000629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DLJ HIGH YIELD BOND FUND CENTRAL INDEX KEY: 0001061353 STANDARD INDUSTRIAL CLASSIFICATION: [ ] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08777 FILM NUMBER: 664399 BUSINESS ADDRESS: STREET 1: 277 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10172 BUSINESS PHONE: 2128926692 MAIL ADDRESS: STREET 1: 277 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10172 N-30D 1 0001.txt DLJ High Yield Bond Fund TRUSTEES G. MOFFETT COCHRAN ROBERT E. FISCHER WILMOT H. KIDD, III MARTIN JAFFE OFFICERS G. MOFFETT COCHRAN, Chairman and President MARTIN JAFFE, Vice President, Secretary and Treasurer BRIAN A. KAMMERER, Vice President CATHERINE M. NOLAN, Vice President VANCE P. SHAW, Vice President MICHAEL A. SNYDER, Vice President INVESTMENT ADVISER DLJ ASSET MANAGEMENT GROUP, INC 277 Park Avenue, New York, NY 10172 CUSTODIAN CUSTODIAL TRUST COMPANY 101 Carnegie Center, Princeton, NJ 08540 TRANSFER AGENT PFPC INC. P.O. Box 61787 (211 South Gulph Road) King of Prussia, PA 19406 DISTRIBUTOR DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION 277 Park Avenue, New York, NY 10172 INDEPENDENT AUDITORS ERNST & YOUNG LLP 787 Seventh Avenue, New York, NY 10019 LEGAL COUNSEL SULLIVAN & CROMWELL 125 Broad Street, New York, NY 10004 DLJ High Yield Bond Fund Semi-Annual Report April 30, 2000 a division of Donaldson, Lufkin & Jenrette Securities Corporation 277 Park Avenue, New York, New York 10172 (888) 649-5711 Dear Shareholders: Based on the market price per share of the Fund for the four months ending April 2000, the Fund's total return was +19.84%. The Fund's total return based on NAV for that time period was, however, -4.03%, which is slightly below the - -3.46% return on the Lipper Closed End High Yield Bond Fund Average. The substantial difference between market and NAV returns was the result of the sharp boost in the market price of the Fund's shares between 1999's calendar year end ($6.75 per share) and April, 2000 ($7.75 per share). The year-end price had been depressed by a large amount of tax-loss selling. Total return for the six month period ending April 30, 2000, was +2.55% on a market price basis and -0.80% on an NAV basis, which is slightly worse than the -0.15% total return for the Lipper Closed End High Yield Bond Fund Average. The Fund's dividend has held steady at 8.25 cents per share per month. We are generally pleased with the performance of the portfolio which is strongly weighted in the fast-growing Telecom and Media sectors. We believe the Fund under-performed the Lipper average due to over-weighted positions in two sectors: cinema and aerospace. The cinema business has been wracked with overcapacity and difficult fundamentals over the past several months, but we expect that much stronger movie product offerings for the balance of calendar year 2000 may boost the value of these bonds. As of April 30, 2000 we had 2% of the Fund's total investments in this sector. The aerospace suppliers in which we have invested have suffered both from lower aircraft demand and, specifically, from the well-publicized production and organizational problems at Boeing. We believe the sector has probably hit bottom at this point from a fundamental perspective, and, we hope to see future improvement. As of April 30, 2000, we had 2.3% of the Fund's total investments in the aerospace sector. On a more positive note, our investments in the Information Technology sector performed very well during the period due to strong operating performance in semiconductors and related equipment businesses as well as the completion of equity IPOs by a number of our bond issuers. As of April 30, 2000, we had 3.8% of the Fund's portfolio in this sector, which is almost double the DLJ High Yield Index weighting. There were no defaults in the portfolio during the six months ending April, 2000, despite the fact that the default rate for the high-yield market as a whole was roughly 4% according to DLJ High Yield Research. Fund leverage was maintained near the maximum allowable 33% in order to maximize income and take advantage of the high yield debt available in the market. We do not anticipate any change to this policy in the near future. Our focus continues to be on opportunities to enhance yield to take advantage of the oversold position of the high-yield market and to cover the dividend. Unfortunately, these efforts have been significantly hampered by rising interest rates which affect our cost of borrowing. Spreads against U.S. Treasury Bonds are at or over all-time highs on both an absolute and relative basis and we see no sign of recession in the U.S. or in the world economy at this time to justify these levels. This would seem to indicate that the high-yield bond market should have a limited downside in the near future. Accordingly, until the Federal Reserve stops raising interest rates and investors are convinced that we have achieved a "soft landing," risk assets, like high yield bonds, will likely continue to trade at the very high yields we see today. Thank you for your investment in the DLJ High Yield Bond Fund. The Officers and Trustees would like to wish you a most enjoyable summer. Sincerely, /s/ G. Moffett Cochran - ----------------------- G. Moffett Cochran President June, 2000 Fund Highlights (unaudited) DLJ High Yield Bond Fund Top Ten Holdings as of April 30, 2000
% of % of Security Description Net Assets Security Description Net Assets -------------------- ---------- -------------------- ---------- Kaiser Aluminum & Chemical Corp. PTC International Finance II SA 12.75%, 02/01/03 2.54% 11.25%, 12/01/09 1.80% Esat Telecom Group plc Regional Independent Media 11.88%, 12/01/08 2.18% 10.50%, 07/01/08 1.77% @Entertainment, Inc. Rent-A-Center, Inc. 14.50%, 02/01/09 1.86% 11.00%, 08/15/08 1.77% Ono Finance plc LTV Corp. 13.00%, 05/01/09 1.82% 11.75%, 11/15/09 1.76% ICN Pharmaceuticals, Inc. Bell Sports, Inc. 8.75%, 11/15/08 1.80% 11.00%, 08/15/08 1.76%
Portfolio and Fund Information April 30, 2000 Current Yield(1): 12.77% Ticker Symbol: DHY Distribution Rate(2): 12.77% Primary Exchange: NYSE Average Rating: B Average Years to Maturity*: 7.77 years Average Duration*: 5.11 years *weighted average Investment Results
DLJ High Yield Bond Fund(3) Average Annual Total Return - --------------------------- --------------------------- 1 Year Since Inception* ------ --------------- Market Price .............................................. -5.28% -2.87% NAV(4) .................................................... -8.82% -5.04% Fund Index ---------- Lipper Closed-End High Yield Bond Fund Average(5) ......... -5.75% -5.01% * July 31, 1998 through April 30, 2000
------------ (1) Current yield is based on April's dividend per share of $.0825 (annualized) divided by the April 30, 2000 market price ($7.75). (2) Distribution rate is based on dividends per share paid from net investment income during the period November 1, 1998 through April 30, 2000 divided by the April 30, 2000 market price. (3) The performance data quoted represents past performance, which is no indication of future performance. Investment return and principal value will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. No adjustment has been made for any income taxes payable by shareholders on dividends. (4) The total return referenced reflects the change in the Fund's net asset value over the period and assumes that dividends were reinvested. The percentage is not an indication of the performance of a shareholder's investment in the Fund which is based on market price. (5) The Lipper Closed-End High Yield Bond Fund Average is an equally weighted performance average of 35 funds in the Lipper Analytical grouping of closed-end high yield bond funds, adjusted for capital gains and income dividends. DLJ High Yield Bond Fund--Statement of Investments April 30, 2000 (unaudited) - -------------------------------------------------------------------------------- BONDS--140.55% Principal Amount Value ------ ----- AEROSPACE--3.76% Compass Aerospace Corp. 10.13%, 04/15/05 ** .............. $5,150,000 $1,828,250 Fairchild Corp. 10.75%, 04/15/09 ** .............. 7,000,000 3,876,250 Hexcel Corp. 9.75%, 01/15/09 ** ............... 4,000,000 3,380,000 Transdigm, Inc. 10.38%, 12/01/08 ** .............. 4,500,000 3,577,500 ---------- 12,662,000 ---------- CHEMICALS--3.81% Avecia Group plc 11.00%, 07/01/09 ** .............. 3,250,000 3,315,000 Huntsman ICI Chemicals LLC 0.00%, 12/31/09 ** ............... 11,230,000 3,593,600 Lyondell Chemical Co. 10.88%, 05/01/09 ** .............. 5,000,000 4,962,500 Trans-Resources, Inc. 12.00%, 03/15/08 **, *** ......... 5,000,000 975,000 ---------- 12,846,100 ---------- CONSUMER NON-DURABLES--3.15% Albecca, Inc. 10.75%, 08/15/08 ** .............. 3,000,000 2,422,500 Consoltex Group 11.00%, 10/01/03 ** .............. 4,000,000 3,670,000 Polaroid Corp. 11.50%, 02/15/06 ** .............. 4,000,000 4,060,000 Styling Technology Corp. 10.88%, 07/01/08 ** .............. 1,500,000 457,500 ---------- 10,610,000 ---------- ENERGY--5.32% Grey Wolf, Inc. 8.88%, 07/01/07 ** ............... 1,000,000 925,000 8.88%, 07/01/07 ** ................. 2,300,000 2,133,250 Mariner Energy, Inc. 10.50%, 08/01/06 ** .............. 4,000,000 3,580,000 R&B Falcon Corp. 9.50%, 12/15/08 .................. 5,000,000 4,950,000 Swift Energy Co. 10.25%, 08/01/09 ** .............. 2,000,000 1,950,000 Tokheim Corp. 11.38%, 08/01/08 ** .............. 4,000,000 1,700,000 Trico Marine Services, Inc. 8.50%, 08/01/05 ** ............... 3,000,000 2,715,000 ---------- 17,953,250 ---------- FINANCIAL SERVICES--3.61% AmeriCredit Corp. 9.88%, 04/15/06 ** ............... 4,500,000 4,443,750 Metris Companies, Inc. 10.13%, 07/15/06 ** .............. 4,750,000 4,583,750 Principal Amount Value ------ ----- Ocwen Financial Corp. 11.88%, 10/01/03 ** .............. $3,445,000 $3,152,175 ---------- 12,179,675 ---------- FOOD & TOBACCO--7.23% Advantica Restaurant Group, Inc. 11.25%, 01/15/08 ** .............. 6,000,000 3,990,000 Fleming Companies, Inc. 10.63%, 07/31/07 ** .............. 6,420,000 5,392,800 Luigino's, Inc. 10.00%, 02/01/06 ** .............. 4,000,000 3,300,000 National Wine & Spirits Holding Corp. 10.13%, 01/15/09 ** .............. 4,000,000 3,840,000 Triarc Consumer Beverage 10.25%, 02/15/09 ** .............. 5,325,000 5,032,125 Volume Services America, Inc. 11.25%, 03/01/09 ** .............. 3,000,000 2,805,000 ---------- 24,359,925 ---------- FOREST PRODUCTS/CONTAINERS--5.64% American Tissue, Inc. 12.50%, 07/15/06 ** .............. 4,000,000 4,120,000 Packaging Corp. of America 9.63%, 04/01/09 ** ............... 5,550,000 5,619,375 Repap New Brunswick 10.63%, 04/15/05 ** .............. 4,700,000 4,453,250 Riverwood International Corp. 10.63%, 08/01/07 ** .............. 5,000,000 4,825,000 ---------- 19,017,625 ---------- GAMING/LEISURE--6.50% Argosy Gaming Co. 10.75%, 06/01/09 ** .............. 4,000,000 4,180,000 Bell Sports, Inc. 11.00%, 08/15/08 ** .............. 6,000,000 5,925,000 Extended Stay America, Inc. 9.15%, 03/15/08 ** ............... 5,000,000 4,237,500 Hollywood Casino Shreveport 13.00%, 08/01/06 *, ** ........... 2,000,000 2,120,000 Hollywood Casino Corp. 11.25%, 05/01/07 ** .............. 5,350,000 5,457,000 ---------- 21,919,500 ---------- HEALTHCARE--6.23% Alaris Medical, Inc. 11.13%, 08/01/08 **, *** ......... 10,000,000 2,750,000 ICN Pharmaceuticals, Inc. 8.75%, 11/15/08 * ................ 6,500,000 6,077,500 Kinetic Concepts, Inc. 9.63%, 11/01/07 ** ............... 4,500,000 3,307,500 King Pharmaceutical, Inc. 10.75%, 02/15/09 ** .............. 5,000,000 5,125,000 Total Renal Care Holdings, Inc. 7.00%, 05/15/09 *, ** ............ 6,500,000 3,737,500 ---------- 20,997,500 ---------- See notes to financial statements. DLJ High Yield Bond Fund--Statement of Investments April 30, 2000 (unaudited) - -------------------------------------------------------------------------------- Principal Amount Value ------ ----- INFORMATION TECHNOLOGY--6.35% Asat Finance LLC 12.50%, 11/01/06 *, ** ........... $5,000,000 $5,450,000 Details, Inc. 10.00%, 11/15/05 ** .............. 6,000,000 5,640,000 Integrated Circuit Systems 11.50%, 05/15/09 ** .............. 4,000,000 4,420,000 SCG Holding & Semiconductor Co. 12.00%, 08/01/09 ** .............. 5,500,000 5,912,500 ---------- 21,422,500 ---------- MANUFACTURING--6.23% BGF Industries, Inc. 10.25%, 01/15/09 ** .............. 4,000,000 3,605,000 Continental Global Group, Inc. 11.00%, 04/01/07 ** .............. 2,000,000 810,000 Filtronic plc 10.00%, 12/01/05 ** .............. 4,000,000 3,840,000 Gentek, Inc. 11.00%, 08/01/09 ** .............. 4,500,000 4,578,750 Grove Worldwide LLC 9.25%, 05/01/08 ** ............... 5,000,000 2,125,000 Jordan Industries, Inc. 10.38%, 08/01/07 ** .............. 4,500,000 4,207,500 Roller Bearing Company of America 9.63%, 06/15/07 ** ............... 2,000,000 1,850,000 ---------- 21,016,250 ---------- MEDIA/ENTERTAINMENT--25.30% @Entertainment, Inc. 14.50%, 02/01/09 **, *** ......... 10,200,000 6,273,000 AMC Entertainment, Inc. 9.50%, 03/15/09 ** ............... 6,000,000 3,300,000 American Media Operations 10.25%, 05/01/09 ** .............. 3,750,000 3,562,500 Cablevision SA 13.75%, 04/30/07 * ............... 5,000,000 4,862,500 Carmike Cinemas, Inc. Series (B) 9.38%, 02/01/09 ** ............... 4,500,000 3,037,500 Charter Communications Holdings LLC 8.63%, 04/01/09 ** ............... 3,000,000 2,636,250 9.92%, 04/01/11 **, *** ............ 6,500,000 3,591,250 Citadel Broadcasting Company 10.25%, 07/01/07 ** .............. 3,000,000 3,030,000 Echostar DBS Corp. 9.38%, 02/01/09 ** ............... 5,000,000 4,875,000 Globix Corp. 12.50%, 02/01/10 *, ** ........... 5,000,000 4,425,000 Globo Communicacoes e Participacoes S.A. 10.63%, 12/05/08 *, ** ........... 6,000,000 4,965,000 Liberty Group Operating 9.38%, 02/01/08 ** ............... 3,500,000 3,027,500 11.63%, 02/01/09 **, *** ......... 3,000,000 1,665,000 Principal Amount Value ------ ----- Ono Finance plc 13.00%, 05/01/09 ** .............. $5,980,000 $6,129,500 Pegasus Communications Corp. 9.63%, 10/15/05 ** ............... 4,000,000 3,910,000 9.75%, 12/01/06 ** ............... 2,000,000 1,970,000 RCN Corp. 11.13%, 10/15/07 **, *** ......... 9,000,000 5,782,500 Regal Cinemas, Inc. 9.50%, 06/01/08 ** ............... 6,000,000 2,490,000 Regional Independent Media 10.50%, 07/01/08 ** .............. 6,000,000 5,970,000 United International Holdings, Inc. 10.75%, 02/15/08 **, *** ......... 8,000,000 5,240,000 XM Satellite Radio, Inc. 14.00%, 03/15/10 ** .............. 5,000,000 4,525,000 ---------- 85,267,500 ---------- METALS & MINERALS--7.59% Algoma Steel, Inc. 12.38%, 07/15/05 ................. 3,980,000 3,940,200 Great Lakes Carbon Corp. 10.25%, 05/15/08 ** .............. 5,000,000 4,450,000 Kaiser Aluminum & Chemical Corp. 12.75%, 02/01/03 ** .............. 9,000,000 8,550,000 LTV Corp. 11.75%, 11/15/09 *, ** ........... 6,000,000 5,940,000 Renco Steel Holdings 10.88%, 02/01/05 ** .............. 3,000,000 2,715,000 ---------- 25,595,200 ---------- RETAIL--2.61% Big 5 Corp. 10.88%, 11/15/07 ** .............. 4,000,000 3,700,000 J Crew Operating Corp. 10.38%, 10/15/07 ** .............. 3,500,000 3,027,500 MusicLand Group, Inc. 9.88%, 03/15/08 ** ............... 2,500,000 2,062,500 ---------- 8,790,000 ---------- SERVICE--4.86% Allied Waste North America, Inc. 10.00%, 08/01/09 ** .............. 5,750,000 3,924,375 Neff Corp. 10.25%, 06/01/08 ** .............. 3,000,000 2,475,000 Phoenix Color Corp. 10.38%, 02/01/09 ** .............. 4,500,000 4,027,500 Rent-A-Center, Inc. 11.00%, 08/15/08 ** .............. 6,000,000 5,970,000 ---------- 16,396,875 ---------- TELECOMMUNICATIONS--33.87% CapRock Communications Corp. 11.50%, 05/01/09 ** .............. 5,000,000 4,700,000 Covad Communications Group 12.00%, 02/15/10 *, ** ........... 4,500,000 4,252,500 Crown Castle International Corp. 10.38%, 05/15/11 **, *** ......... 7,750,000 4,688,750 9.50%, 08/01/11 ** ............... 1,500,000 1,440,000 See notes to financial statements. DLJ High Yield Bond Fund--Statement of Investments April 30, 2000 (unaudited) - -------------------------------------------------------------------------------- Principal Amount Value ------ ----- Dobson/Sygnet Communications Corp. 12.25%, 12/15/08 ** .............. $4,000,000 $ 4,180,000 Dolphin Telecommunications plc 11.50%, 06/01/08 **, *** ......... 2,250,000 731,250 14.00%, 05/15/09 **, *** ......... 6,000,000 2,010,000 Esat Telecom Group plc Series (B) 11.88%, 12/01/08 ** .............. 6,250,000 7,343,750 GT Group Telecom 13.25%, 02/01/10 *, ** ........... 6,750,000 3,611,250 ICG Holdings, Inc. 13.50%, 09/15/05 **, *** ......... 5,500,000 5,225,000 Impsat Corp. 12.38%, 06/15/08 ** .............. 5,000,000 4,187,500 Impsat Fiber Networks 12.38%, 02/15/05 * ............... 1,000,000 930,000 Intermedia Communications, Inc. 12.25%, 03/01/09 **, *** ......... 7,600,000 4,598,000 Leap Wireless Units 12.50%, 04/15/10 ** .............. 4,000,000 4,020,000 14.50%, 04/15/10 ** .............. 1,000,000 490,000 Netia Holdings II B.V. 13.13%, 06/15/09 *, ** ........... 4,000,000 3,885,000 Netia Holdings B.V. 10.25%, 11/01/07 ** .............. 2,000,000 1,690,000 NTL, Inc. 12.38%, 10/01/08 **, *** ......... 2,000,000 1,315,000 11.50%, 10/01/08 ** .............. 5,000,000 5,100,000 Primus Telecommunications Group, Inc. 11.25%, 01/15/09 ** .............. 5,000,000 4,537,500 12.75%, 10/15/09 ** .............. 1,000,000 970,000 PSINet, Inc. 10.00%, 02/15/05 ** .............. 2,000,000 1,780,000 11.50%, 11/01/08 ** .............. 4,000,000 3,580,000 PTC International Finance II SA 11.25%, 12/01/09 *, ** ........... 6,000,000 6,075,000 Spectrasite Holdings, Inc. 12.88%, 03/15/10 *, **, *** ...... 2,500,000 1,306,250 TeleCorp PCS, Inc. 11.63%, 04/15/09 **, *** ......... 6,500,000 4,290,000 Triton PCS, Inc. 11.00%, 05/01/08 **, *** ......... 5,500,000 3,973,750 Versatel Telecom International N.V. 13.25%, 05/15/08 ** .............. 3,000,000 3,060,000 11.88%, 07/15/09 ** .............. 3,500,000 3,447,500 Viatel, Inc. 11.50%, 03/15/09 ** .............. 6,000,000 5,190,000 WinStar Communications, Inc. 14.50%, 10/15/05 *, ** ........... 6,018,234 5,777,505 11.00%, 03/15/08 **, *** ......... 2,982,910 1,349,767 Worldwide Fiber, Inc. 12.00%, 08/01/09 ** .............. 4,800,000 4,464,000 ----------- 114,199,272 ----------- Principal Amount Value ------ ----- TRANSPORTATION/AUTOMOTIVE--8.49% American Axle & Manufacturing Holdings, Inc. 9.75%, 03/01/09 ** ............... $5,000,000 $ 4,800,000 Amtran, Inc. 9.63%, 12/15/05 ** ............... 5,500,000 4,633,750 Great Lakes Dredge & Dock 11.25%, 08/15/08 ** .............. 4,500,000 4,612,500 JPS Automotive Products Corp. 11.13%, 06/15/01 ................. 3,000,000 3,075,000 JL French Automotive Casting 11.50%, 06/01/09 ** .............. 4,000,000 3,880,000 North American Van Lines 13.38%, 12/01/09 *, ** ........... 2,500,000 2,362,500 Venture Holdings Trust 11.00%, 06/01/07 ** .............. 2,000,000 1,690,000 Worldwide Flight Service 12.25%, 08/15/07 ** .............. 4,000,000 3,580,000 ----------- 28,633,750 ----------- Total Bonds (cost--$529,346,155)................. 473,866,922 ----------- COMMERCIAL PAPER--0.51% UBS Finance 5.30%, 04/30/00 **** ............ 1,720,000 1,720,000 ----------- Total Commercial Paper (cost--$1,720,000) .................. 1,720,000 ----------- REPURCHASE AGREEMENTS--21.70% Bear Stearns & Co., 6.04%, dated 4/28/00, due 5/1/00, proceeds at maturity $73,155,744 +++......... 73,143,467 73,143,467 ----------- Total Repurchase Agreements (cost--$73,143,467) ................. 73,143,467 ----------- Shares ---------- PREFERRED STOCKS--2.70% INFORMATION TECHNOLOGY--1.18% Viasystems Group, Inc. .............. 220,816 3,974,691 ----------- MEDIA/ENTERTAINMENT--1.52% Paxson Communications Corp. ......... 5,221 5,116,766 ----------- Total Preferred Stocks (Cost--$8,259,466)................... 9,091,457 ----------- WARRANTS--0.70% MEDIA/ENTERTAINMENT--0.27% Ono Finance plc ++ (expires 05/31/09) ............... 5,980 899,990 ----------- TELECOMMUNICATIONS--0.43% Versatel Telecom International N.V. *++ (expires 05/15/08) ............... 3,000 1,441,500 ----------- See notes to financial statements. DLJ High Yield Bond Fund--Statement of Investments April 30, 2000 (unaudited) - -------------------------------------------------------------------------------- Shares Value -------- ------------ TRANSPORTATION/AUTOMOTIVE--0.00%+ Worldwide Flight Service ++ (expires 05/15/08) ........... 4,000 $ 2,000 ---------- Total Warrants (cost--$165,000) ................ 2,343,490 ---------- Value ----------------- TOTAL INVESTMENTS (cost--$612,634,088) .......... $ 560,165,336 -------------- Liabilities Net of Cash and Other Assets--(66.16%) ......... (223,034,347) -------------- NET ASSETS--100.00% .............. $ 337,130,989 ============== NOTES: * Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At April 30, 2000, the value of these securities amounted to $67,219,005 or 19.94% of net assets. ** Security has an effective maturity date less than the stated maturity date due to a call feature. *** Zero coupon until a specified date at which time the stated coupon rate becomes effective until maturity. **** Commerical paper is traded on a discount basis; the interest rate shown reflects the discount rate paid at the time of purchase by the fund. + Percentage rounds to less than .01 percent. ++ Non income producing. +++ Collateralized by Fannie Mae and Federal Home Loan Mortgage Corp. notes, 0.00% to 6.50%, due 2/25/22 to 8/25/29, market values total $73,773,798. See notes to financial statements. DLJ High Yield Bond Fund--Statement of Assets and Liabilities April 30, 2000 (unaudited) - -------------------------------------------------------------------------------- ASSETS: Investments in securities at value (cost $612,634,088)........ $ 560,165,336 Cash ......................................................... 19,409 Dividends and interest receivable ............................ 14,422,804 Receivable for investments sold .............................. 2,869,885 Other assets ................................................. 93,035 ------------- Total assets .............................................. 577,570,469 ------------- LIABILITIES: Loan payable ................................................. 160,500,000 Collateral on securities loaned .............................. 73,143,467 Payable for securities purchased ............................. 5,288,569 Interest payable ............................................. 858,234 Payable to advisor ........................................... 411,821 Accrued expenses ............................................. 237,389 ------------- Total liabilities ......................................... 240,439,480 ------------- NET ASSETS: Applicable to 45,452,836 shares outstanding .................. $ 337,130,989 ============= NET ASSETS CONSIST OF: Capital paid-in .............................................. $ 449,259,486 Accumulated distributions in excess of net investment income . (590,675) Accumulated net realized loss on investments ................. (59,069,070) Net unrealized depreciation on investments ................... (52,468,752) ------------- $ 337,130,989 ============= Net asset value per share ..................................... $ 7.42 ============= See notes to financial statements. DLJ High Yield Bond Fund--Statement of Operations For the Six Months Ended April 30, 2000+ - -------------------------------------------------------------------------------- INVESTMENT INCOME: Interest ................................................ $ 28,786,437 Dividends ............................................... 1,133,485 ------------- Total investment income .............................. 29,919,922 ------------- EXPENSES: Investment advisory fees (Note 2) ....................... 2,613,562 Interest and leveraging fees (Note 5) ................... 5,446,221 Fund accounting fees .................................... 32,540 Administration fees ..................................... 25,298 Custodian fees .......................................... 25,232 Legal fees .............................................. 23,883 Transfer agent fees ..................................... 23,088 Auditing fees ........................................... 17,979 Registration expenses ................................... 17,290 Trustees fees (Note 2) .................................. 14,924 Postage expense ......................................... 14,679 Printing fees ........................................... 5,389 Insurance expense ....................................... 2,555 Miscellaneous expenses .................................. 500 ------------- Total expenses ....................................... 8,263,140 ------------- NET INVESTMENT INCOME .................................... 21,656,782 ------------- REALIZED AND UNREALIZED GAIN / (LOSS) ON INVESTMENTS: Net realized loss on investments ........................ (14,607,369) Net unrealized depreciation on investments .............. (10,125,508) ------------- Net realized and unrealized loss on investments ......... (24,732,877) ------------- NET DECREASE IN NET ASSETS FROM OPERATIONS ............... $ (3,076,095) ============= Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended Year Ended 4/30/00+ 10/31/1999 ------------- ------------- OPERATIONS: Net investment income ....................................................... $ 21,656,782 $ 43,058,379 Net realized loss on investments ............................................ (14,607,369) (30,606,551) Net unrealized appreciation (depreciation) on investments ................... (10,125,508) 12,681,862 ------------- ------------- Net increase (decrease) in net assets ....................................... (3,076,095) 25,133,690 ------------- ------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: From net investment income .................................................. (22,353,633) (42,990,100) CAPITAL SHARE TRANSACTIONS: Reinvestment of dividends ................................................... 3,881,385 16,685,722 Offering costs charged to capital paid-in ................................... 0 (106,056) ------------- ------------- Net increase in net assets from capital share transactions .................. 3,881,385 16,579,666 ------------- ------------- Total decrease in net assets ................................................ (21,548,343) (1,276,744) NET ASSETS: Beginning of period ......................................................... 358,679,332 359,956,076 ------------- ------------- End of period ............................................................... $ 337,130,989 $ 358,679,332 ============= ============= Accumulated undistributed (distributions in excess of) net investment income $ (590,675) $ 106,176 ============= =============
+ Unaudited. See notes to financial statements. DLJ High Yield Bond Fund--Statement of Cash Flows for the Six Months Ended April 30, 2000+ - --------------------------------------------------------------------------------
Cash flows from operating activities: Interest and dividends received .................................................. $ 24,831,966 Operating expenses paid .......................................................... (3,168,374) -------------- Net cash provided by operating activities ......................................... $ 21,663,592 Cash flows from investing activities: Decrease in short-term securities, net ........................................... $ 2,421,962 Purchases of long-term securities ................................................ (129,280,662) Proceeds from sales of long-term securities ...................................... 138,709,656 -------------- Net cash provided by investing activities ......................................... 11,850,956 Cash flows from financing activities: Interest paid on notes payable ................................................... (5,436,810) Cash dividends paid .............................................................. (19,062,923) Proceeds from borrowings ......................................................... 15,800,000 Repayments of borrowings ......................................................... (24,800,000) -------------- Net cash used for financing activities ............................................ (33,499,733) ------------- Net increase in cash .............................................................. 14,815 Cash -- beginning of year ......................................................... 4,594 ------------- Cash -- end of year ............................................................... $ 19,409 ============= RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net decrease in net assets resulting from operations .............................. $ (3,076,095) Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities: Interest expense and leveraging fees ............................................. $ 5,446,221 Increase in dividends and interest receivable .................................... (318,254) Decrease in accrued expenses ..................................................... (32,730) Decrease in other assets ......................................................... 8,892 Decrease in advisory fees payable ................................................ (60,577) Net realized loss on investments ................................................. 14,607,369 Net unrealized depreciation on investments ....................................... 10,125,508 Net amortization of discount on investments ...................................... (5,036,742) -------------- Total adjustments ............................................................. 24,739,687 ------------- Net cash provided by operating activities ......................................... $ 21,663,592 =============
+ Unaudited See notes to financial statements DLJ High Yield Bond Fund--Notes to Financial Statements April 30, 2000 (unaudited) - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES DLJ High Yield Bond Fund is a business trust under the laws of the State of Delaware organized on April 30, 1998. The Fund is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the "1940 Act"), as a non-diversified, closed-end management investment company. The Fund's shares trade on the New York Stock Exchange under the ticker symbol DHY. Prior to the commencement of operations on July 28, 1998, the Fund had no operations other than those relating to organizational matters and the sale of 10,000 shares of beneficial interest on July 2, 1998 to DLJ Investment Management Corp. ("DLJIM") for $100,000. Effective January 1, 2000, DLJIM merged into DLJ Asset Management Group (DLJAM). DLJAM assumed the investment advisory responsibilities formerly undertaken by DLJIM. The Fund's primary objective is to seek high current income. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Portfolio valuation: Fixed-income securities (other than short-term obligations, but including listed issues) are valued based on prices obtained by one or more independent pricing services approved by the Board of Trustees. Securities (other than fixed-income securities) for which the principal market is one or more securities exchanges are valued at the last reported sale price (or if there has been no current sale, at the closing bid price) on the primary exchange on which such securities are traded. If a securities exchange is not the principal market for a security, such security will, if market quotations are readily available, be valued at the closing bid price in the over-the-counter market (or the last sale price in the case of securities reported on the NASDAQ national market system for which any sales occurred during the day). Portfolio securities for which there are no such valuations are valued at fair value as determined in good faith by or at the direction of the Board of Trustees. Short-term obligations with maturities of less than 60 days are valued at amortized cost, which approximates market value. Securities transactions and investment income: Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, including, where applicable, accretion of discount on investments is recorded on the accrual basis. Dividends and distributions to shareholders: The Fund distributes monthly to shareholders substantially all of its net investment income. Capital gains, if any, net of capital losses, are distributed annually. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences and differing characterization of distributions made by the Fund. Federal income taxes: It is the Fund's policy to comply with the requirements of the Internal Revenue Service applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no provisions for federal income or excise taxes have been made in the accompanying financial statements. Cash flow information: Cash, as used in the Statement of Cash Flows, is the amount reported in the Statement of Assets and Liabilities. The Fund invests in securities and distributes dividends from net investment income and net realized gains (which are either paid in cash or reinvested at the discretion of shareholders). These activities are reported in the Statement of Changes in Net Assets. Information on cash payments is presented in the Statement of Cash Flows. Accounting practices that do not affect reporting activities on a cash basis include unrealized gain or loss on investment securities and accretion income recognized on investment securities. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. Actual results could differ from those estimates. DLJ High Yield Bond Fund--Notes to Financial Statements April 30, 2000 (continued) - -------------------------------------------------------------------------------- 2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER RELATED PARTY TRANSACTIONS The Fund has entered into an investment management agreement (the "Management Agreement") with DLJAM. The Agreement provides that the Fund will pay DLJAM a fee, computed and payable monthly, at the annual rate of 1% of the average weekly value of the Fund's total assets minus the sum of accrued liabilities (other than the aggregate indebtedness constituting leverage) (the "Managed Assets"). The Fund has also entered into an Administration and Support Agreement with PFPC Inc., to provide all administrative services to the Fund other than those related to investment decisions. For these administration services, the Fund will pay PFPC Inc. a fee at the annual rate of $50,000 per year. Effective May 16, 2000, the Fund pays each non-affiliated Trustee $1,500 per board meeting attended, a $500 fee for each special meeting attended, $250 per audit committee meeting attended, an annual retainer of $500 and reimburses each such Trustee for travel and out-of-pocket expenses relating to their attendance at such meetings. The Fund pays the actual out-of-pocket expenses of the affiliated Trustees relating to their attendance at such meetings. Effective April, 10, 2000, Custodial Trust Co. (CTC) serves as the Fund's custodian. PFPC Inc. serves as the Fund's shareholder servicing agent (transfer agent). 3. INVESTMENTS For federal income tax purposes, the cost of securities owned at April 30, 2000, was substantially the same as the cost of securities for financial statement purposes. At April 30, 2000, the aggregate gross unrealized appreciation amounted to $8,859,076, and the aggregate gross unrealized depreciation amounted to $61,327,828, resulting in net unrealized depreciation of $52,468,752. Cost of purchases and proceeds from sales of investment securities, excluding short-term investments, during the six months ended April 30, 2000, amounted to $130,458,454 and $141,579,541, respectively. 4. FUND SHARES The Fund has one class of shares of beneficial interest, par value $0.001 per share. 200,000,000 shares are authorized. Transactions in shares of beneficial interest were as follows:
Six Months Ended Year Ended April 30, 2000 October 31, 1999 ------------------ ----------------- Shares issued through reinvestment of dividends ......... 499,729 1,907,819 ------- --------- Net Increase ............................................ 499,729 1,907,819 ======= =========
5. NOTES PAYABLE The Fund currently has a $200 million ("commitment amount") line of credit provided by Citibank North America, Inc., under an Amended and Restated Revolving Credit and Security Agreement (the "Agreement") dated April 7, 2000, primarily to leverage its investment portfolio. Under this Agreement the Fund may borrow up to the lesser of $200 million or 331/3% of its gross assets. Interest is payable at the Bank's Base Rate plus a commission of 0.05%. The Fund is charged a structuring fee of $19,000 per quarter, a program fee of 0.20% of the average daily amount leveraged, an administration fee of 0.02% of the average daily amount leveraged and a liquidity fee of 0.13% of the maximum borrowing limit (currently $200 million). The Agreement requires, among other provisions, that the percentage obtained by dividing total indebtedness for money borrowed by total assets of the Fund shall not exceed 331/3%. The Fund's investment portfolio serves as collateral for borrowing. The average daily amount of borrowings during the year ended April 30, 2000 was $168,348,352, with a related weighted average annualized interest rate of 6.49%. DLJ High Yield Bond Fund--Notes to Financial Statements April 30, 2000 (continued) - -------------------------------------------------------------------------------- 6. CAPITAL LOSS CARRYFORWARD At October 31, 1999, the Fund had available for Federal tax purposes an unused captial loss carryforward of $44,461,701, of which $13,855,150 expires in 2006 and $30,606,551 expires in 2007. Capital loss carryforwards are available to offset future realized capital gains. To the extent that these carryforwards are used to offset future capital gains, it is probable that the amount which is offset will not be distributed to shareholders. 7. CONCENTRATION OF RISK The Fund invests in securities offering high current income which generally will be in the lower rating categories of recognized ratings agencies (so-called "junk bonds"). These securities generally involve more credit risk than securities in the higher rating categories. In addition, the trading market for high yield securities may be relatively less liquid than the market for higher-rated securities. The Fund's use of leverage also increases exposure to capital risk. 8. LOANS OF PORTFOLIO SECURITIES DLJ High Yield Bond Fund loaned securities during the year to certain brokers, with the Funds' custodian acting as lending agent. Upon such loans, the Fund receives collateral which is maintained by the custodian and earns income, in the form of negotiated lender's fees, which is included in interest income. On a daily basis, the Fund monitors the market value of securities loaned and maintains collateral against the securities loaned in an amount not less than the value of the securities loaned. The Fund may receive collateral in the form of cash or other eligible securities. Risks may arise upon entering into securities lending to the extent that the value of the collateral is less than the value of the securities loaned due to changes in the value of collateral or the loaned securities. The value of loaned securities and related collateral outstanding at April 30, 2000, was as follows: Value of Value of Fund Securities Loaned Collateral - ---------------------------------- ------------------- -------------- DLJ High Yield Bond Fund $68,443,312 $73,143,467 The collateral for the DLJ High Yield Bond Fund consisted of cash which was invested in repurchase agreements with Bear Stearns due May 1, 2000, collateralized by Fannie Mae and Federal Home Loan Mortgage Corp. notes. DLJ High Yield Bond Fund--Financial Highlights - -------------------------------------------------------------------------------- The table below sets forth financial data for a share of beneficial interest outstanding throughout the periods presented. This information has been derived form the Fund's financial statements.
Six Months Ended 04/30/2000 Year Ended Period Ended (unaudited) 10/31/1999 10/31/1998* ----------- ------------ ------------- Net asset value, beginning of period .............. $ 7.98 $ 8.36 $ 10.00 -------- -------- --------- Income from Investment Operations: Net investment income ............................ 0.50 0.98 0.24 Net realized and unrealized loss on investments ..................................... (0.56) (0.38) (1.62) -------- -------- --------- Total from investment operations ................ (0.07) 0.60 (1.38) -------- -------- --------- Less Distributions: From net investment income ....................... (0.50) (0.98) (0.24) -------- -------- --------- Offering costs charged to paid-in capital ......... 0.00+ 0.00+ (0.02) -------- -------- --------- Net asset value, end of period .................... $ 7.42 $ 7.98 $ 8.36 ======== ======== ========= Market value, end of period ....................... $ 7.75 $ 8.06 $ 9.56 ======== ======== ========= Total return (market value) *** ................... 2.55% (5.71)% (1.74)% Ratios/Supplemental Data: Net assets, end of period (000) .................. $337,131 $358,679 $ 359,956 Average debt per share ........................... $ 3.73 $ 3.18 $ 1.02 Ratio of operating expenses to average net assets 1.58%** 1.53% 1.16%** Ratio of interest and leveraging expenses to average net assets .............................. 3.06%** 2.09% 0.65%** Ratio of net investment income to average net assets .......................................... 11.97%** 11.24% 10.48%** Portfolio turnover ............................... 25.55% 60.23% 15.26%
* The DLJ High Yield Bond Fund commenced operations on July 28, 1998. ** Annualized *** Total return (market value) is based on the change in market price of a share during the period and assumes reinvestment of dividends and distributions at actual prices pursuant to the Fund's Dividend Reinvestment Plan. Total return for periods of less than one year are not annualized. Total return based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. + Amount rounds to less than $0.01. See notes to financial statements. DLJ High Yield Bond Fund--Additional Information April 30, 2000 (unaudited) - -------------------------------------------------------------------------------- Dividend Reinvestment Plan Referenced below are policies related to the Fund's Automatic Dividend Reinvestment Plan ("The Plan"). These policies referenced apply to shareholders whose shares are registered directly with the Fund in their own name. Shareholders whose shares are purchased through a broker-dealer or nominee should contact such broker-dealer or nominee regarding questions related to the reinvestment of the Fund's dividends. Pursuant to the Fund's Plan, unless a shareholder otherwise elects, all dividends and capital gain distributions will be automatically reinvested by PFPC Inc. as agent for Shareholders in administering the Plan (the "Plan Agent"), in additional shares of the Fund. Shareholders who elect not to participate in the Plan will receive all dividends and other distributions in cash paid by check mailed directly to the shareholder of record (or, if the shares are held in street or other nominee name, then to such nominee) by PFPC Inc. as the Dividend Disbursing Agent. Such participants may elect not to participate in the Plan and to receive all dividends and capital gain distributions in cash by sending written instructions to PFPC Inc., as the Dividend Disbursing Agent, at the DLJ High Yield Bond Fund--Additional Information April 30, 2000 (continued) - -------------------------------------------------------------------------------- address set forth below. Participation in the Plan is com-pletely voluntary and may be terminated or resumed at any time without penalty by written notice if received by the Plan Agent not less than ten days prior to any dividend record date; otherwise such termination will be effective with respect to any subsequently declared dividend or other distribution. Whenever the Fund declares an income dividend or a capital gain distribution (collectively referred to as "dividends") payable either in shares or in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in shares. The shares will be acquired by the Plan Agent for the participants' accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized shares from the Fund ("newly issued shares") or (ii) by purchase of outstanding shares on the open market ("open-market purchases") on the NYSE or elsewhere. If on the record date for the dividend, the net asset value per share is equal to or less than the market price per share plus estimated brokerage commissions (such condition being referred to herein as "market premium"), the Plan Agent will invest the dividend amount in newly issued shares on behalf of the participants. The number of newly issued shares to be credited to each participant's account will be determined by dividing the dollar amount of the dividend by the net asset value per share on the date the shares are issued. If on the dividend record date the net asset value per share is greater than the market value (such condition being referred to herein as "market-discount"), the Plan Agent will invest the dividend amount in shares acquired on behalf of the participants in open-market purchases. In the event of a market discount on the dividend record date, the Plan Agent will have until the last business day before the next date on which the shares trade on an "ex-dividend" basis or in no event more than 30 days after the dividend record date (the "last purchase date") to invest the dividend amount in shares acquired in open-market purchases. It is contemplated that the Fund will pay monthly income dividends. Therefore, the period during which open-market purchases can be made will exist only from the record date of the dividend through the date before the next "ex-dividend" date. If, before the Plan Agent has completed its open-market purchases, the market price of a share exceeds the net asset value per share, the average per share purchase price paid by the Plan Agent may exceed the net asset value of the shares, resulting in the acquisition of fewer shares than if the dividend had been paid in newly issued shares on the dividend record date. Because of the foregoing difficulty with respect to open market purchases, the Plan provides that if the Plan Agent is unable to invest the full dividend amount in open market purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent may cease making open-market purchases and may invest the uninvested portion of the dividend amount in newly issued shares at the net asset value per share at the close of business on the last purchase date. The Plan Agent maintains all shareholders' accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax records. Shares in the account of each Plan participant will be held by the Plan Agent on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Agent will forward all proxy solicitation materials to participants and vote proxies for shares held pursuant to the Plan in accordance with the instructions of the participants. In the case of shareholders such as banks, brokers or nominees that hold shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by the record shareholder and held for the account of beneficial owners who participate in the Plan. There will be no brokerage charges with respect to shares issued directly by the Fund as a result of dividends or capital gains distributions payable either in shares or in cash. 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. The automatic reinvestment of dividends will not relieve participants of any Federal, state or local income tax that may be payable (or required to be withheld) on such dividends. Shareholders participating in the Plan may receive benefits not available to shareholders not participating in the Plan. If the market price (plus commissions) of the shares is above their net asset value, participants in the Plan will receive shares of the Fund at less than they could otherwise - DLJ High Yield Bond Fund--Additional Information April 30, 2000 (continued) - -------------------------------------------------------------------------------- purchase them and will have shares with a cash value greater than the value of any cash distribution they would have received on their shares. If the market price plus commissions is below the net asset value, participants will receive distributions in shares with a net asset value greater than the value of any cash distribution they would have received on their shares. However, there may be insufficient shares available in the market to make distributions in shares at prices below the net asset value. Also, since the Fund does not redeem shares, the price on resale may be more or less than the net asset value. Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. All correspondence concerning the Plan should be directed to the Plan Agent at P.O. Box 8030, Boston, MA 02266-8030, 1-800-331-1710. Managed Dividend Policy The Fund's dividend policy is to distribute substantially all of its net investment income to its shareholders on a monthly basis. However, in order to provide shareholders with a more consistent yield to the current trading price of shares of Common Stock of the Fund, the Fund may at times pay out less than the entire amount of net investment income earned in any particular month and may at times in any month pay out such accumulated but undistributed income in addition to net investment income earned in that month. As a result, the dividends paid by the Fund for any particular month may be more or less than the amount of net investment income earned by the Fund during such month. The Fund's current accumulated but undistributed net investment income, if any, is disclosed in the Statement of Assets and Liabilities, which comprises part of the Financial Information included in this report. Leverage--Benefits and Risks The use of leverage by the Fund creates an opportunity for increased net income and capital appreciation for the Fund, but, at the same time, creates special risks, and there can be no assurance that a leveraging strategy will be successful during any period in which it is employed. The Fund intends to utilize leverage to provide the Shareholders with a potentially higher return. Leverage creates risks for Shareholders including the likelihood of greater volatility of net asset value and market price of the Fund's shares and the risk that fluctuations in interest rates on borrowings and short-term debt may affect the return to Shareholders. To the extent the income or capital appreciation derived from securities purchased with funds received from leverage exceeds the cost of leverage, the Fund's return will be greater than if leverage had not been used. Conversely, if the income or capital appreciation from the securities purchased with such funds is not sufficient to cover the cost of leverage, the return to the Fund will be less than if leverage had not been used, and therefore the amount available for distribution to Shareholders as dividends and other distributions will be reduced. In the latter case, DLJAM in its best judgment nevertheless may determine to maintain the Fund's leveraged position if it deems such action to be appropriate under the circumstances. During periods in which the Fund is utilizing leverage, the Management Fee will be higher than if the Fund did not utilize a leveraged capital structure because the fee is calculated as a percentage of the Managed Assets including those purchased with leverage. Certain types of borrowings by the Fund may result in the Fund's being subject to covenants in credit agreements, including those relating to asset coverage and portfolio composition requirements. The Fund's lenders may establish guidelines for borrowing which may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the Investment Company Act. It is not anticipated that these covenants or guidelines will impede DLJAM in managing the Fund's portfolio in accordance with the Fund's investment objectives and policies. Supplemental Information Since the filing there have been (i) no material changes in the Fund's investment objectives or policies, (ii) no changes in the Fund's charter or by-laws that would delay or prevent a change of control of the Fund, and (iii) no material changes in the principal risk factors associated with investment in the Fund.
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