As filed with the Securities and Exchange Commission on July 24, 1998.
File Nos. 333-52373
811-8777
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 2 to FORM N-2
(Check appropriate box or boxes)
[ ] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] Pre-Effective Amendment No. 2
[ ] Post-Effective Amendment No. ___
and/or
[ ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 2
DLJ High Yield Bond Fund
(Exact Name of Registrant as Specified in Declaration of Trust)
277 Park Avenue, New York, New York 10172
(Address of Principal Executive Offices)
1-888-520-3615
(Registrant's Telephone Number, including Area Code)
G. Moffett Cochran
Chairman
DLJ Asset Management Group
277 Park Avenue
New York, New York 10172
(Name and Address of Agent for Service)
Copies To:
<TABLE>
<S> <C> <C>
Pierre de Saint Phalle, Esq. Sharon Spodak, Esq. Philip H. Harris, Esq.
Davis Polk & Wardwell General Counsel Skadden, Arps, Slate, Meagher & Flom LLP
450 Lexington Avenue DLJ Asset Management Group 919 Third Avenue
New York, New York 10017 277 Park Avenue New York, New York 10022
New York, New York 10172
</TABLE>
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities offered in connection with a dividend reinvestment plan, check
the following box. [ ]
It is proposed that this filing will become effective (check appropriate box)
[ ] when declared effective pursuant to section 8(c)
If appropriate, check the following box:
[ ] this [post-effective] amendment designates a new effective date for a
previously filed [post-effective amendment] [registration statement].
[ ] This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is______.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
- -------------------------------------------------------------------------------------------------------------
Title of Securities Amount Being Proposed Maximum Proposed Amount of
Being Registered Registered (1)(2) Offering Price Aggregate Maximum Registration Fee(6)
Per Share (3) Offering Price (4)(5)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares of 46,000,000 $10.00 $460,000,000 $106,200
Beneficial
Interest
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 6,000,000 Common Shares of Beneficial Interest subject to
the Underwriters' over-allotment option.
(2) Of such amount, 6,666,667 were previously registered.
(3) A proposed maximum offering price per share of $15.00 was previously
registered.
(4) A proposed aggregate maximum offering price of $100,000,000 was
previously registered.
(5) Estimated solely for purposes of calculating the registration fee.
(6) A fee in the amount of $29,500 was previously paid.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that the registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
DLJ High Yield Bond Fund
Cross Reference Sheet Pursuant to Rule 404(C)
Under the Securities Act of 1933
<TABLE>
<CAPTION>
Item Number,
Form N-2 Location in Prospectus
----------- ----------------------
<S> <C> <C>
PART A
1. Outside Front Cover.....................Outside Front Cover
2. Inside Front and Outside Back
Cover Page......................Inside Front and Outside Back Cover Page
3. Fee Table and Synopsis..................Prospectus Summary; Fee Table
4. Financial Highlights....................Not Applicable
5. Plan of Distribution....................Cover Page; Prospectus Summary; Underwriting
6. Selling Shareholders....................Not Applicable
7. Use of Proceeds.........................Front Cover Pages; Prospectus Summary; Use of Proceeds;
Investment Restrictions
8. General Description of the
Registrant......................Front Cover Pages; Prospectus Summary; The Fund; Investment Objectives and Policies;
Other Investment Practices; Risk Factors and Special Considerations; Investment
Restrictions; Portfolio Transactions; Determination of Net Asset Value;
Dividends and Other Distributions; Taxes
9. Management..............................Inside Front Cover; Prospectus Summary; Management of the
Fund; Trustees and Officers of the Fund; Portfolio Transactions
10. Capital Stock, Long-term Debt,
and Other Securities ...........Prospectus Summary; Dividends and Other Distributions;
Taxes; Automatic Dividend Reinvestment Plan
11. Defaults and Arrears on Senior
Securities......................Not Applicable
12. Legal Proceedings.......................Not Applicable
13. Table of Contents of the Statement
of Additional Information.......Not Applicable
PART B
14. Cover Page..............................Not Applicable
15. Table of Contents.......................Not Applicable
16. General Information and History ........Not Applicable
17. Investment Objectives and
Policies........................Front Cover Pages; Prospectus Summary; Investment
Objectives and Policies; Other Investment Practices;
Risk Factors and Special Considerations; Investment
Restrictions
18. Management..............................Management of the Fund; Trustees and Officers of the Fund
19. Control Persons and Principal
Holders of Securities...........Trustees and Officers of the Fund
20. Investment Advisory and
Other Services..................Prospectus Summary; Trustees and Officers of the Fund;
Management of the Fund; Portfolio Transactions
21. Brokerage Allocation and Other
Practices.......................Portfolio Transactions
22. Tax Status...............................Dividends and Other Distributions; Taxes; Report of Independent
Auditors
23. Financial Statements Statement of Assets, Liabilities and Capital
</TABLE>
PART C
The information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED JULY 24, 1998
, 1998
40,000,000 Shares
DLJ High Yield Bond Fund
Common Shares
DLJ High Yield Bond Fund (the "Fund") is a newly organized,
non-diversified, closed-end management investment company. The Fund's primary
investment objective is to seek high current income. The Fund may, and in
certain market conditions will, seek to maximize return through opportunistic
investment in smaller high yield issues. The Fund will also seek capital
appreciation as a secondary objective to the extent consistent with its
objective of seeking high current income. Under normal market conditions, the
Fund will invest at least 65% of its total assets in fixed income securities of
U.S. issuers rated below investment grade quality (lower than Baa by Moody's
Investors Service, Inc. or lower than BBB by Standard & Poor's Ratings Group or
comparably rated by another nationally recognized rating agency) or in unrated
income securities that DLJ Investment Management Corp. ("DLJIM"), the Fund's
investment manager, determines to be of comparable quality. The Fund may invest
up to 30% of its total assets in securities of issuers domiciled outside the
United States or that are denominated in various foreign currencies or
multinational foreign currency units. There can be no assurance that the Fund
will achieve its objectives.
Investments in lower grade securities are subject to special risks,
including greater price volatility and a greater risk of loss of principal and
non-payment of interest. As a non-diversified investment company, the Fund may
invest a significant portion of its assets in a small number of issuers. The
Fund may engage in various portfolio strategies to seek to enhance income and
hedge its portfolio against investment, interest rate and foreign currency
risks, including the use of leverage and the use of derivative financial
instruments. The Fund is designed for investors willing to assume additional
risk in return primarily for the potential for high current income and
secondarily capital appreciation. An investment in the Fund may be speculative
in that it involves a high degree of risk and should not constitute a complete
investment program. Investors should carefully assess the risks associated with
an investment in the Fund.
See "Risk Factors" beginning on page 27 for information that should be
considered by prospective investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price Proceeds
to the Sales to the
Public(1) Load(1)(2) Fund(3)
---------------- ------------ ----------------
<S> <C> <C> <C>
Per Share ......... $ 10.00 None $ 10.00
Total (4) ......... $400,000,000 None $400,000,000
- -------------------- ------------ ------------ ------------
</TABLE>
(footnotes on the following page)
THE FUND IS NEWLY ORGANIZED AND THEREFORE HAS NO HISTORY OF PUBLIC TRADING.
CLOSED-END FUND SHARES FREQUENTLY TEND TO TRADE AT A DISCOUNT
FROM NET ASSET VALUE WHICH CREATES A RISK OF LOSS
FOR INVESTORS PURCHASING SHARES IN THIS OFFERING.
The Shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters, and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of the Shares will be made against payment in New York,
New York on or about July 31, 1998.
Donaldson, Lufkin & Jenrette
Securities Corporation
<TABLE>
<S> <C> <C>
Advest, Inc. FAC/Equities Fahnestock & Co. Inc.
First of Michigan Corporation Gruntal & Co., L.L.C. Interstate/Johnson Lane
Corporation
Janney Montgomery Scott Inc. Sands Brothers & Co., Ltd. Sutro & Co. Incorporated
Tucker Anthony Incorporated
</TABLE>
[red herring]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
[end red herring]
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES OF THE
FUND. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR AND PURCHASE SHARES IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
--------------
(continued from cover page)
This Prospectus sets forth in concise form the information about the Fund
that a prospective investor should know before investing in the Fund. Investors
should read and retain this Prospectus for future reference. DLJIM will serve
as investment manager to the Fund. The Fund's address is 277 Park Avenue, New
York, New York 10172, and its toll-free telephone number is 1-888-649-5711.
At times, the Fund expects to utilize leverage through borrowings,
including the issuance of debt securities or the issuance of preferred shares
or through other transactions, such as reverse repurchase agreements, which
have the effect of leverage. The Fund intends to utilize leverage in an initial
amount equal to approximately 20% of its total assets (including the amount
obtained through leverage), but the Fund may increase this percentage in the
future. The Fund generally will not utilize leverage if it anticipates that the
Fund's leveraged capital structure would result in a lower return to common
shareholders than that obtainable over time with an unleveraged capital
structure. Use of leverage creates an opportunity for increased income and
capital appreciation for the common shareholders 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. See "Risk
Factors--Leverage" on page 28 for information that should be considered by
prospective investors.
The Fund is offering its common shares of beneficial interest, par value
$.001 per share (the "Shares"). Prior to this offering, there has been no
market for the Shares. The Shares have been approved for listing on the New
York Stock Exchange under the symbol "DHY," subject to official notice of
issuance. Shares of closed-end management investment companies frequently trade
at discounts from their net asset values, and the Shares may also trade at a
discount. The minimum investment in this offering is 200 Shares ($2,000).
(footnotes from cover page)
(1) DLJIM or an affiliate (not the Fund) from its own assets will pay a
commission to the Underwriters in the amount of % of the Price to the
Public per Share in connection with the sale of the Shares offered hereby.
See "Underwriting."
(2) The Fund and DLJIM have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933. See "Underwriting."
(3) Before deducting organizational and offering costs payable by the Fund,
including payment of $ to the Underwriters in partial reimbursement of
their expenses related to the organization of the Fund, estimated at
$925,000 and $60,000, respectively. Offering costs will be deducted from
net proceeds, and organizational costs will be capitalized and amortized to
expense from commencement of operations of the Fund through October 31,
1999.
(4) The Fund has granted to the Underwriters a 60-day option exercisable from
time to time to purchase up to an aggregate of 6,000,000 additional Shares
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to the Public and Proceeds to the Fund will be
$460,000,000. See "Underwriting."
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Investors should carefully
consider information set forth under the heading "Risk Factors."
The Fund............................... DLJ High Yield Bond Fund (the
"Fund") is a newly organized,
non-diversified, closed-end management
investment company. The Fund is
managed by DLJ Investment Management
Corp. ("DLJIM"). See "The Fund."
The Offering........................... The Fund is offering common shares
of beneficial interest, par value
$.001 per share (the "Shares"),
through a group of underwriters
("Underwriters") led by Donaldson,
Lufkin & Jenrette Securities
Corporation ("DLJ"). The Underwriters
have been granted a 60-day option
exercisable from time to time to
purchase up to an aggregate of
6,000,000 additional Shares solely to
cover over-allotments, if any. The
initial public offering price is
$10.00 per Share. The minimum
investment in the offering is 200
Shares ($2,000). See "Underwriting."
No Sales Load.......................... The Shares will be sold in the
offering without any sales load or
underwriting discounts payable by
investors or the Fund. DLJIM or an
affiliate (not the Fund) will pay a
commission from its own assets to the
Underwriters in connection with sales
of the Shares in the offering. See
"Underwriting."
Investment Objectives and Policies..... The Fund's primary investment
objective is to seek high current
income. The Fund may, and in certain
market conditions will, seek to
maximize return through opportunistic
investment in smaller high yield
issues. The Fund will also seek
capital appreciation as a secondary
objective, to the extent consistent
with its objective of seeking high
current income. The Fund is designed
for investors willing to assume
additional risk in return for the
potential for high current income and
capital appreciation. The Fund is not
intended to be a complete investment
program and there can be no assurance
that the Fund will achieve its
objectives.
Under normal market conditions, the
Fund will invest at least 65% of its
total assets in fixed income
securities of U.S. issuers rated
below investment grade quality (lower
than Baa by Moody's Investors
Service, Inc. ("Moody's") or lower
than BBB by Standard & Poor's Ratings
Group ("S&P") or comparably rated by
another nationally recognized rating
agency) or in unrated income
securities that DLJIM determines to
be of comparable quality. Lower grade
income securities are commonly known
as "junk bonds." As a component of
the Fund's investment in "junk
bonds," the Fund may also invest up
to 20% of its total assets in
1
<PAGE>
securities of issuers that are the
subject of bankruptcy proceedings or
in securities otherwise in default or
in significant risk of being in
default ("Distressed Securities").
However, the Fund does not intend
initially to invest in any Distressed
Securities. The Fund may invest up to
30% of its total assets in securities
of issuers domiciled outside the
United States or that are denominated
in various foreign currencies or
multinational currency units. The
Fund may engage in various portfolio
strategies to seek to enhance income
and hedge its portfolio against
investment, interest rate and foreign
exchange risks, including the use of
leverage and the use of derivative
financial instruments. There can be
no assurance that the Fund's
strategies will be successful. The
Fund is designed for investors
willing to assume additional risk in
return primarily for the potential
for high current income and
secondarily capital appreciation. An
investment in the Fund may be
speculative in that it involves a
high degree of risk.
At times, the Fund expects to utilize
leverage through borrowings,
including the issuance of debt
securities, or the issuance of
preferred shares or through other
transactions, such as reverse
repurchase agreements, which have the
effect of leverage. The Fund intends
to utilize leverage in an initial
amount equal to approximately 20% of
its total assets, but it may use
leverage up to 33-1/3% of its total
assets (50% if in the form of
preferred shares) (in each case
including the amount obtained through
leverage). The Fund generally will
not utilize leverage if it
anticipates that the Fund's leveraged
capital structure would result in a
lower return to holders of Shares
(the "Shareholders") than that
obtainable over time with an
unleveraged capital structure. Use of
leverage creates an opportunity for
increased income and capital
appreciation for the Shareholders
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. See "Risk
Factors--Leverage."
In selecting investments for the
Fund's portfolio, DLJIM will seek to
identify issuers and industries that
DLJIM believes are likely to
experience stable or improving
financial conditions. DLJIM believes
that this strategy should enhance the
Fund's ability to earn high current
income while also providing
opportunities for capital
appreciation. DLJIM's analysis may
include consideration of general
industry trends, the issuer's
managerial strength, market position,
financial condition, debt maturity
schedules and liquidity. DLJIM may
also consider relative values based
on cash flow, interest or dividend
coverage, asset coverage and earnings
prospects. Initially, DLJIM will tend
to make investments in larger, more
liquid high yield issues
2
<PAGE>
because of the need to be fully
invested soon after issuance of
Shares to maximize current income.
However, DLJIM believes that focusing
on smaller, less liquid high yield
issues over the long term may offer a
return premium that can be captured
through a research-intensive
investment process. Smaller high
yield issues are defined as those of
companies whose total outstanding
high yield debt is $100 million or
less. DLJIM may instead focus on
larger high yield issues if market
conditions warrant. There can be no
assurances that this strategy will be
successful.
The Fund will seek its secondary
objective of capital appreciation by
investing in securities that DLJIM
expects may appreciate in value as a
result of favorable developments
affecting the business or prospects
of the issuer, which may improve the
issuer's financial condition and
credit rating, or as a result of
declines in long-term interest rates.
The Fund may implement various
temporary "defensive" strategies at
times when DLJIM determines that
conditions in the markets make
pursuing the Fund's basic investment
strategy inconsistent with the best
interests of Shareholders. These
strategies may include investing less
than 65% of its total assets in lower
grade income securities by investing
in higher quality debt and/or money
market instruments. See "Investment
Objectives and Policies."
Investment Manager..................... DLJIM is the Fund's investment
manager and is responsible for the
management of the Fund's investment
portfolio, including determining the
composition of the Fund's portfolio,
placing all orders for the purchase
and sale of securities and for other
transactions, and overseeing the
settlement of the Fund's securities
and other portfolio transactions. For
these investment management services,
the Fund will pay DLJIM a monthly fee
(the "Management Fee") in arrears at
an annual rate equal to 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"). 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. DLJIM provides investment
management services primarily to other
investment companies and institutional
and corporate clients. As of June 30,
1998, aggregate assets under the
management of DLJIM exceeded $5
billion. As of June 30, 1998,
Donaldson, Lufkin & Jenrette Asset
Management Group ("DLJAM"), which
includes DLJIM, managed assets of
approximately $17 billion. DLJIM is a
wholly-owned subsidiary of DLJ.
3
<PAGE>
Administrator.......................... The Fund's administrator is First
Data Investor Services Group, Inc.
("First Data"). First Data is
responsible for providing various
services to the Fund, including, among
other things, overseeing the provision
to the Fund of accounting services,
preparing or assisting in preparing
materials for Shareholders and
regulatory agencies and any other
Shareholder servicing activities. For
these administration services, the
Fund will pay First Data a fee (the
"Administration Fee") at the annual
rate of $50,000 per year. First Data
provides administration services to
other investment companies.
Listing................................ Prior to this offering, there has
been no market for the Shares. The
Shares have been approved for listing
on the New York Stock Exchange under
the symbol "DHY," subject to official
notice of issuance.
Dividends and Other Distributions...... The Fund intends to distribute
monthly dividends consisting of
substantially all of its net
investment income to Shareholders. The
initial distribution to Shareholders
is expected to be paid approximately
60 days after the completion of the
offering of the Shares. All net
realized capital gains, if any, are
expected to be distributed to the
Shareholders at least annually. See
"Dividends and Other Distributions."
Automatic Dividend Reinvestment Plan... The Fund has established an
Automatic Dividend Reinvestment Plan
(the "Plan"). Under the Plan, all
dividend and capital gain
distributions will be automatically
reinvested in additional Shares of the
Fund either purchased in the open
market, or issued by the Fund if the
Shares are trading at or above their
net asset value, unless in either case
the Shareholder elects to receive
cash. A Shareholder who intends to
hold Shares through a broker or
nominee should contact its broker or
nominee to determine whether or how
they may participate in the Plan. See
"Automatic Dividend Reinvestment
Plan."
Taxes.................................. The Fund intends to elect to be, and
to qualify as, a regulated investment
company for U.S. federal income tax
purposes. For each taxable year the
Fund so qualifies, the Fund (but not
Shareholders) will be relieved of U.S.
federal income tax on the portion of
its investment company taxable income
and net capital gain that it
distributes to Shareholders. See
"Taxes."
Share Repurchases and Tender
Offers; Conversion to an Open-End
Investment Company.................... In recognition of the possibility
that the Shares might trade at a
discount to net asset value and that
any such discount may not be in the
interest of Shareholders, the Fund's
Board of Trustees (the "Board" or the
"Trustees"), in consultation with
DLJIM, from time to time may consider
the possibility of making open market
repurchases or tender offers for
Shares at net asset
4
<PAGE>
value. There can be no assurance that
the Board will consider or decide to
undertake either of these actions or
that, if undertaken, such actions
would result in the Shares trading at
a price equal to or close to net
asset value per Share. The Board from
time to time also may consider the
conversion of the Fund to an open-end
investment company. Such conversion
would require the affirmative consent
of two-thirds of each class of Shares
outstanding at that time (or a
majority of each class if two-thirds
of the Board vote in favor of such
conversion). See "Conversion to
Open-End Fund."
Custodian and Transfer and
Dividend Disbursing Agent............. Citibank, N.A. will act as custodian
for the Fund and may employ
sub-custodians outside the U.S.
approved by the Custodian of the Fund
in accordance with regulations of the
Securities and Exchange Commission
("SEC"). First Data will act as the
Fund's Transfer and Dividend
Disbursing Agent.
Risk Factors........................... Investors are advised to consider
carefully the special risks involved
in investing in the Fund.
General. The Fund is a newly
organized, non-diversified,
closed-end management investment
company and has no operating history.
Shares of closed-end management
investment companies frequently trade
at a discount from their net asset
value. The Shares are designed
primarily for long-term investors and
should not be considered a vehicle
for trading purposes. The net asset
value of the Shares will fluctuate
with interest rate changes as well as
with price changes of the Fund's
portfolio securities and these
fluctuations are likely to be greater
during periods in which the Fund
utilizes a leveraged capital
structure. See "Other Investment
Practices--Leverage."
Lower Grade Securities. Lower grade
securities are regarded as being
predominantly speculative as to the
issuer's ability to make payments of
principal and interest. Investment in
such securities involves substantial
risk. Lower grade securities are
commonly referred to as "junk bonds."
Issuers of lower grade securities may
be highly leveraged and may not have
available to them more traditional
methods of financing. Therefore, the
risks associated with acquiring the
securities of such issuers generally
are greater than is the case with
higher-rated securities. For example,
during an economic downturn or a
sustained period of rising interest
rates, issuers of lower grade
securities may be more likely to
experience financial stress,
especially if such issuers are highly
leveraged. During periods of economic
downturn, such issuers may not have
sufficient revenues to meet their
interest payment obligations. The
issuer's ability to service its debt
obligations also may be adversely
affected by specific issuer
developments, the issuer's inability
to meet specific pro-
5
<PAGE>
jected business forecasts or the
unavailability of additional
financing. Therefore, there can be no
assurance that in the future there
will not exist a higher default rate
relative to the rates currently
existing in the market for lower
grade securities. The risk of loss
due to default by the issuer is
significantly greater for the holders
of lower grade securities because
such securities may be unsecured and
may be subordinate to other
securities of the issuer. Other than
with respect to Distressed
Securities, discussed below, the
lower grade securities in which the
Fund may invest do not include
instruments which, at the time of
investment, are in default or the
issuers of which are in bankruptcy.
However, there can be no assurance
that such events will not occur after
the Fund purchases a particular
security, in which case the Fund may
experience losses and incur costs.
Lower grade securities frequently
have call or redemption features that
would permit an issuer to repurchase
the security from the Fund. If a call
were exercised by the issuer during a
period of declining interest rates,
the Fund is likely to have to replace
such security with a lower yielding
security, thus decreasing the net
investment income to the Fund and
dividends to Shareholders.
Lower grade securities have been in
the past, and may again in the future
be, more volatile than higher-rated
fixed-income securities, so that
adverse economic events may have a
greater impact on the prices of lower
grade securities than on higher-rated
fixed-income securities. Factors
adversely affecting the market value
of such securities are likely to
affect adversely the Fund's net asset
value. Recently, demand for lower
grade securities has increased
significantly and the difference
between the yields paid by lower
grade securities and investment grade
bonds (i.e., the "spread") has
narrowed. To the extent this
differential increases, the value of
lower grade securities in the Fund's
portfolio could be adversely
affected.
Like higher-rated fixed-income
securities, lower grade securities
generally are purchased and sold
through dealers who make a market in
such securities for their own
accounts. However, there are fewer
dealers in the lower grade securities
market, which market may be less
liquid than the market for
higher-rated fixed-income securities,
even under normal economic
conditions. Also, there may be
significant disparities in the prices
quoted for lower grade securities by
various dealers. As a result, during
periods of high demand in the lower
grade securities market, it may be
difficult to acquire lower grade
securities appropriate for investment
by the Fund. Adverse economic
conditions and investor perceptions
thereof (whether or not based on
6
<PAGE>
economic reality) may impair
liquidity in the lower grade
securities market and may cause the
prices the Fund receives for its
lower grade securities to be reduced.
In addition, the Fund may experience
difficulty in liquidating a portion
of its portfolio when necessary to
meet the Fund's liquidity needs or in
response to a specific economic event
such as deterioration in the
creditworthiness of the issuers.
Under such conditions, judgment may
play a greater role in valuing
certain of the Fund's portfolio
instruments than in the case of
instruments trading in a more liquid
market. In addition, the Fund may
incur additional expense to the
extent that it is required to seek
recovery upon a default on a
portfolio holding or to participate
in the restructuring of the
obligation. See "Investment
Objectives and Policies."
Distressed Securities. As a component
of the Fund's investment in "junk
bonds," the Fund may invest up to 20%
of its total assets in Distressed
Securities. Such securities are the
subject of bankruptcy proceedings or
otherwise in default as to the
repayment of principal and/or payment
of interest at the time of
acquisition by the Fund or are rated
in the lower rating categories (Ca or
lower by Moody's and CC or lower by
S&P) or which, if unrated, are in the
judgment of DLJIM of equivalent
quality. Investment in Distressed
Securities is speculative and
involves significant risk. Distressed
Securities frequently do not produce
income while they are outstanding and
may require the Fund to bear certain
extraordinary expenses in order to
protect and recover its investment.
Therefore, to the extent the Fund
pursues its secondary objective of
capital appreciation through
investment in Distressed Securities,
the Fund's ability to achieve current
income for Shareholders may be
diminished. See "Investment
Objectives and Policies."
Smaller Companies in General. The
Fund may invest in smaller high yield
issues which are those of companies
whose total outstanding high yield
debt is $100 million or less. Such
smaller high yield issues may be
issued by any company but are often
issued by smaller companies. In
addition to the general risks of such
securities, those issued by smaller
companies often have higher market
risks associated with them. They may
have limited product lines, markets,
market share or financial resources,
or they may be dependent on a small
or inexperienced management team. In
addition, their securities may be
less liquid, have more limited volume
or be subject to greater and more
abrupt price swings than securities
of larger companies.
Leverage. The use of leverage by the
Fund creates an opportunity for
increased net income and capital
appreciation for the Shares, but, at
the same time, cre-
7
<PAGE>
ates special risks. 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 Shares and the
risk that fluctuations in interest
rates on borrowings and debt or in
the dividend rates on any preferred
shares may affect the return to the
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, DLJIM in its best
judgment may nevertheless 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. Certain
types of borrowings by the Fund may
result in the Fund being subject to
covenants in credit agreements,
including those relating to asset
coverage and portfolio composition
requirements. The Fund may be subject
to certain restrictions on
investments imposed by guidelines of
one or more Rating Agencies, which
may issue ratings for the debt
securities or preferred shares issued
by the Fund. These guidelines may
impose asset coverage or portfolio
composition requirements that are
more stringent than those imposed by
the Investment Company Act of 1940,
as amended (the "Investment Company
Act"). It is not anticipated that
these covenants or guidelines will
impede DLJIM in managing the Fund's
portfolio in accordance with the
Fund's investment objectives and
policies. Subject to applicable
regulatory requirements, the Fund at
times may borrow from affiliates of
DLJIM, provided that the terms of
such borrowings are no less favorable
than those available from comparable
sources of funds in the marketplace.
See "Other Investment
Practices--Leverage."
Foreign Securities. The Fund may
invest up to 30% of its total assets
in securities of issuers domiciled
outside of the United States or that
are denominated in various foreign
currencies or multinational foreign
currency units. Investing in
securities of foreign entities and
securities denominated in foreign
currencies involves certain risks not
involved in domestic invest-
8
<PAGE>
ments, including, but not limited to,
fluctuations in foreign exchange
rates, future foreign political and
economic developments, different
legal and accounting systems and the
possible imposition of exchange
controls or other foreign
governmental laws or restrictions.
Securities prices in different
countries are subject to different
economic, financial, political and
social factors. Since the Fund may
invest in securities denominated or
quoted in currencies other than the
U.S. dollar, changes in foreign
currency exchange rates may affect
the value of securities in the Fund
and the unrealized appreciation or
depreciation of investments.
Currencies of certain countries may
be volatile and therefore may affect
the value of securities denominated
in such currencies. The Fund may
engage in certain transactions to
hedge the currency-related risks of
investing in non-U.S. dollar
denominated securities. See "Other
Investment Practices." In addition,
with respect to certain foreign
countries, there is the possibility
of expropriation of assets,
confiscatory taxation, difficulty in
obtaining or enforcing a court
judgment, economic, political or
social instability or diplomatic
developments that could affect
investments in those countries.
Moreover, individual foreign
economies may differ favorably or
unfavorably from the U.S. economy in
such respects as growth of gross
domestic product, rates of inflation,
capital reinvestment, resources,
self-sufficiency and balance of
payments position. Certain foreign
investments also may be subject to
foreign withholding taxes. These
risks often are heightened for
investments in smaller, emerging
capital markets. See "Investment
Objectives and Policies."
As a result of these potential risks,
DLJIM may determine that,
notwithstanding otherwise favorable
investment criteria, it may not be
practicable or appropriate to invest
in a particular country. The Fund may
invest in countries in which foreign
investors, including DLJIM, have had
no or limited prior experience.
Other Investment Management
Techniques. The Fund may use various
other investment management
techniques that also involve special
considerations, including engaging in
interest rate transactions,
utilization of options and futures
transactions, making forward
commitments and lending its portfolio
securities. For further discussion of
these and other practices and the
associated risks and special
considerations, see "Other Investment
Practices."
Illiquid Securities. The Fund may
invest in securities for which no
readily available market exists or
which are otherwise illiquid. The
Fund may not be able readily to
dispose of such securities at prices
that approximate those at which the
Fund could sell such securities if
they were more widely traded and, as
a
9
<PAGE>
result of such illiquidity, the Fund
may have to sell other investments or
engage in borrowing transactions if
necessary to raise cash to meet its
obligations. Illiquid securities
generally trade at a discount.
Non-Diversified Status. The Fund is
classified as a "non-diversified"
management investment company under
the Investment Company Act, which
means that the Fund may invest a
greater portion of its assets in a
limited number of issuers than would
be the case if the Fund were
classified as a "diversified"
management investment company.
Accordingly, the Fund may be subject
to greater risk with respect to its
portfolio securities than a
management investment company that is
"diversified" because changes in the
financial condition or market
assessment of a single issuer may
cause greater fluctuations in the net
asset value of the Shares.
Market Price, Discount and Net Asset
Value of Shares. Shares of closed-end
management investment companies in
the past frequently have traded at a
discount from their net asset values.
Whether investors will realize gains
or losses upon the sale of Shares
will not depend directly upon the
Fund's net asset value, but will
depend upon the market price of the
Shares at the time of sale. Since the
market price of the Shares will be
determined by such factors as
relative demand for and supply of the
Shares in the market, general market
and economic conditions and other
factors beyond the control of the
Fund, the Fund cannot predict whether
the Shares will trade at, below or
above net asset value or at, below or
above the initial offering price. The
Shares are designed primarily for
long-term investors, and investors in
the Shares should not view the Fund
as a vehicle for trading purposes.
See "Risk Factors" and "Description
of Shares."
Anti-Takeover Provisions. The Fund's
Agreement and Declaration of Trust
(the "Declaration of Trust") contains
provisions limiting (i) the ability
of other entities or persons to
acquire control of the Fund, (ii) the
Fund's freedom to engage in certain
transactions, and (iii) the ability
of the Board or Shareholders to amend
the Declaration of Trust. These
provisions of the Declaration of
Trust may be regarded as
"anti-takeover" provisions. These
provisions could have the effect of
depriving the Shareholders of
opportunities to sell their Shares at
a premium over prevailing market
prices by discouraging a third party
from seeking to obtain control of the
Fund in a tender offer or similar
transaction. See "Investment
Objectives and Policies," "Risk
Factors" and "Description of Shares."
10
<PAGE>
FEE TABLE
The following tables are intended to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear, directly or
indirectly.
<TABLE>
<CAPTION>
Assuming
20% Leverage
<S> <C>
Shareholder Transaction Expenses:
Sales Load (as a percentage of offering price) ........................ None
Automatic Dividend Reinvestment Plan Fees ............................. None
Annual Expenses (as a percentage of net assets attributable to Shares):
Investment Management Fee(2) .......................................... 1.25%
Administration Fee .................................................... 0.02
Interest Payments on Borrowed Funds(3) ................................ 1.50
Other Expenses ........................................................ 0.17
-------
Total Annual Expenses ................................................. 2.94%(1)
=========
</TABLE>
(1) Total Annual Expenses would be 1.19% if the Fund were not to utilize
leverage. Total Annual Expenses in the table above reflect the use of 20%
leverage through borrowed funds, and not the use of preferred shares.
"Other Expenses" have been estimated. The Fund will only enter into
leverage if DLJIM anticipates that the returns to investors with its use
will be greater than if such leverage is not utilized. The chart above
reflects leverage in an initial amount equal to approximately 20% of its
total assets (including the amount obtained from leverage); however, the
Fund has the ability to utilize leverage in an amount up to 331/3% of its
total assets from borrowing and 50% through the use of preferred shares
(in each case including the amount obtained from leverage). See "Risk
Factors--Leverage" and "Other Investment Policies--Leverage." In the event
the Fund does not utilize leverage, it is estimated that, as a percentage
of net assets attributable to the Shares, the Management Fee would be
1.00%, the Administration Fee would remain 0.02%, there would be no
Interest Payments on Borrowed Funds, and other Expenses would remain
0.17%. Therefore, Total Annual Expenses would be 1.19%.
(2) DLJIM is paid a Management Fee of 1.00% of Managed Assets (see "Prospectus
Summary--Investment Manager"). The number in the table above reflects the
use of leverage. If the Fund does not utilize leverage, Managed Assets
will equal net assets of the Fund and DLJIM's Management Fee will be 1.00%
of net assets. However, as the Fund's use of leverage increases, the
Management Fee as a percentage of net assets also increases, as shown in
the table above. See "Management of the Fund" for additional information.
(3) Assumes an interest rate of 6%.
Example:
The following Example illustrates the projected dollar amount of
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Fund. These amounts are based upon payment by
the Fund of expenses at the levels set forth in the above table.
An investor would directly or indirectly pay the following expenses on a
$1,000 investment in the Fund, assuming (i) total annual expenses of 1.19%
(assuming no leverage) and 2.94% (assuming leverage of 20% of the Fund's total
assets) and (ii) a 5% annual return throughout the periods and reinvestment of
all dividends and other distributions at net asset value:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assuming No Leverage ........... $12 $38 $ 65 $144
Assuming 20% Leverage .......... $30 $91 $155 $326
</TABLE>
The above tables and the assumption in the Example of a 5% annual return
and reinvestment at net asset value are required by regulation of the SEC
applicable to all investment companies; the assumed 5% annual return is not a
prediction of, and does not represent, the projected or actual performance of
the Shares. Actual expenses and annual rates of return may be more or less than
those assumed for purposes of the Example. In addition, although the Example
assumes reinvestment of all dividends and other distributions at net asset
value, participants in the Fund's Automatic Dividend Reinvestment Plan may
receive Shares obtained by the Plan Agent at or based on the market price in
effect at that time, which may be at, above or below net asset value.
This Example should not be considered a representation of future expenses,
and the Fund's actual expenses may be more or less than those shown.
11
<PAGE>
THE FUND
DLJ High Yield Bond Fund is registered under the Investment Company Act as
a non-diversified, closed-end management investment company. The Fund was
organized as an unincorporated business trust under the laws of the State of
Delaware on April 24, 1998 and has no operating history. The Fund's principal
office is located at 277 Park Avenue, New York, New York 10172, and its
toll-free telephone number is 1-888-649-5711. DLJIM is the Fund's investment
manager.
The Fund has been organized as a closed-end management investment company.
Closed-end management investment companies differ from open-end management
investment companies (commonly referred to as mutual funds) in that closed-end
management investment companies do not redeem their securities at the option of
the shareholder, whereas mutual funds issue securities redeemable at net asset
value at any time at the option of the shareholder and typically engage in a
continuous offering of their shares. Mutual funds are subject to continuous
asset in-flows and out-flows that can complicate portfolio management, whereas
closed-end funds generally can stay more fully invested. To facilitate
redemption obligations, mutual funds are subject to more stringent regulatory
limitations on certain investments, such as investments in illiquid securities,
than are closed-end funds. However, shares of closed-end companies frequently
trade at a discount from net asset value.
DLJIM believes that its affiliation with DLJ will enable the Fund to
benefit from DLJ's market leadership in high yield securities. During the
period from 1993 through 1997, DLJ was the leading high yield lead-underwriter
(measured by dollar volume) with approximately $37.9 billion of securities
offered. DLJ's average monthly trading volume in high yield securities exceeds
$5 billion, and DLJ's traders average over ten years of experience. DLJ's high
yield underwriting and trading position is supported by an award-winning
research group, which will be made available to DLJIM.
USE OF PROCEEDS
The proceeds of this initial public offering are estimated at $400,000,000
($460,000,000 if the Underwriters' overallotment option is exercised in full)
before payment of organizational and offering expenses (estimated at $925,000
and $60,000, respectively). The proceeds will be invested in accordance with
the Fund's investment objectives and policies during a period not to exceed six
months from the closing of the initial public offering. Pending such
investment, the proceeds may be invested in U.S. dollar-denominated, high
quality, short-term instruments. A portion of the Fund's organizational and
offering expenses has been advanced by DLJIM and will be repaid by the Fund
upon completion of the initial public offering. DLJIM or an affiliate (not the
Fund) from its own assets will pay a commission to the Underwriters in
connection with sales of Shares in this offering. See "Underwriting."
12
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives
The Fund's primary investment objective is to seek high current income.
The Fund may seek to maximize return through opportunistic investment in
smaller high yield issues. The Fund will also seek capital appreciation as a
secondary objective to the extent consistent with its objective of seeking high
current income. The Fund is designed for investors willing to assume additional
risk in return primarily for the potential for high current income and
secondarily capital appreciation. The Fund is not intended to be a complete
investment program and there can be no assurance that the Fund will achieve its
objectives.
Investment Policies
Under normal market conditions, the Fund will invest at least 65% of its
total assets in fixed income securities of U.S. issuers rated below investment
grade quality (lower than Baa by Moody's or lower than BBB by S&P or comparably
rated by another nationally recognized rating agency) or in unrated income
securities that DLJIM determines to be of comparable quality. Lower grade
income securities are commonly known as "junk bonds." As a component of the
Fund's investment in "junk bonds," the Fund may also invest up to 20% of its
total assets in Distressed Securities. The Fund may invest up to 30% of its
total assets in securities of issuers domiciled outside the United States or
that are denominated in various foreign currencies and multinational currency
units. The Fund may also invest in money market instruments consisting of U.S.
Government securities, certificates of deposits, time deposits, bankers'
acceptances, short-term investment grade corporate bonds and other short-term
debt instruments and repurchase agreements. Under normal market conditions, the
Fund does not expect to have a substantial portion of its assets invested in
money market instruments.
At times, the Fund expects to utilize leverage through borrowings,
including the issuance of debt securities, or the issuance of preferred shares
or through other transactions, such as reverse repurchase agreements, which
have the effect of leverage. The Fund intends to utilize leverage in an initial
amount equal to approximately 20% of its total assets, but may use leverage up
to 33-1/3% of its total assets through borrowing and 50% through the use of
preferred shares (in each case including the amount obtained through leverage).
The Fund generally will not utilize leverage if it anticipates that the Fund's
leveraged capital structure would result in a lower return to Shareholders than
that obtainable over time with an unleveraged capital structure. Use of
leverage creates an opportunity for increased income and capital appreciation
for the Shareholders but also creates special risks. There can be no assurance
that a leveraging strategy will be successful during any period in which it is
employed. See "Other Investment Practices--Leverage" and "Risk
Factors--Leverage."
The Fund may implement various temporary "defensive" strategies at times
when DLJIM determines that conditions in the markets make pursuing the Fund's
basic investment strategy inconsistent with the best interests of Shareholders.
These strategies may include investing less than 65% of its total assets in
lower grade income securities by investing in higher quality debt and/or money
market instruments.
In selecting investments for the Fund's portfolio, DLJIM will seek to
identify issuers and industries that DLJIM believes are likely to experience
stable or improving financial conditions. DLJIM believes that this strategy
should enhance the Fund's ability to earn high current income while also
providing opportunities for capital appreciation. DLJIM's analysis may include
consideration of general industry trends, the issuer's managerial strength,
market position, financial condition, debt maturity schedules and liquidity.
DLJIM may also consider relative values based on cash flow, interest or
dividend coverage, asset coverage and earnings prospects. Initially, DLJIM will
tend to make investments in larger, more liquid high yield issues because of
the need to be fully invested soon after issuance of Shares to maximize current
income. However, DLJIM believes that focusing on smaller, less liquid high
yield issues over the long term may offer a return premium that can be captured
through a research-intensive investment process. Smaller high yield issues are
defined as those of companies whose total outstanding high yield debt is $100
million or less. DLJIM may instead focus on larger high yield issues if market
conditions warrant. The Fund will seek its secondary objective of capital
appreciation by investing in securities that DLJIM expects may appreciate in
value as a result of favorable developments affecting the business or prospects
of the issuer which may improve the issuer's financial condition and credit
rating or as a result of declines in long-term interest rates. There can be no
assurance the Fund's strategies will be successful.
The market of outstanding lower grade income securities has increased over
the years. The outstanding principal amounts of lower grade income securities
of U.S. issuers in 1984 was $56.5 billion, in 1989 was $241.8 billion, in 1994
was $282.6 billion and in 1997 was over $460 billion. The statistical
information with respect to the principal amounts of outstanding securities is
based on information the Fund obtained from DLJ.
13
<PAGE>
High yield securities historically have been riskier investments than more
highly rated bonds, although in recent years high yield securities have
produced high absolute returns with lower risk in terms of standard deviation
or volatility than equity securities. DLJIM believes that high yield securities
offer diversification to fixed-income and equity portfolios and that the
returns of high yield securities have a relatively low historical correlation
of returns with other asset classes.
Total annual returns for the market for (i) lower-grade income securities,
as measured by the DLJ High Yield Bond Index, an industry index for the high
yield bond market (the "High Yield Bond Index"), (ii) investment-grade income
securities, as measured by the ML Corporate Index and (iii) the U.S. Treasury
Bill market, as measured by the SB U.S. Three-Month Treasury Bill Index, as
well as the default rates on the lower grade income securities as measured by
the Altman Default Study from 1989 through 1996 and DLJ for 1997 are reflected
in the chart below. The Fund will have no direct investment in, nor will its
performance be indicative of, these unmanaged indices, nor are these results
indicative of the future performance of these indices or of the Fund.
The table below is for illustrative purposes only and the past performance
of any security should not be viewed as indicative of the future performance of
the Fund or of the anticipated return to Shareholders.
RETURNS ON INDICES OF FIXED INCOME SECURITIES(1)
<TABLE>
<CAPTION>
SB U.S.
High Yield ML Corporate 3-month
Year Bond Index Index Treasury Bill Default Rate
- ------ ------------ -------------- --------------- -------------
<S> <C> <C> <C> <C>
1989 0.39% 14.12% 8.73% 4.29%
1990 (6.38) 7.37 8.06 10.14
1991 43.75 18.24 6.01 10.27
1992 16.66 9.12 3.74 3.40
1993 18.00 12.43 3.09 1.11
1994 (2.04) (3.34) 4.06 1.45
1995 19.68 21.23 5.81 1.90
1996 13.03 3.66 5.28 1.23
1997 12.21 10.39 5.28 0.84
</TABLE>
(1) The High Yield Bond Index is an unmanaged composite of U.S.
dollar-denominated securities rated below Baa by Moody's or below BBB by
S&P. The ML Corporate Index is an unmanaged composite index which includes
fixed coupon domestic corporate bonds that are rated no lower than Baa by
Moody's or BBB by S&P.
The Fund will invest primarily in bonds, debentures, notes and other debt
instruments. The Fund's portfolio securities may have fixed or variable rates
of interest and may include zero coupon securities, payment-in-kind securities
or other deferred payment securities, preferred stock, convertible debt
obligations and convertible preferred stock, units consisting of debt or
preferred stock with warrants or other equity features, participation interests
in, or assignments of, commercial loans, government securities, stripped
securities, commercial paper and other short-term debt obligations. The issuers
of the Fund's portfolio securities may include domestic and foreign
corporations, partnerships, trusts or similar entities, and governmental
entities or their political subdivisions, agencies or instrumentalities. The
Fund may invest in companies in, or governments of, developing countries. The
Fund may invest up to 30% of its total assets in securities of issuers
domiciled outside the United States or that are denominated in various foreign
currencies and multinational foreign currency units. In connection with its
investments in corporate debt securities, or restructuring of investments owned
by the Fund, the Fund may receive warrants or other non-income producing equity
securities. The Fund may retain such securities, including equity shares
received upon conversion of convertible securities, until DLJIM determines it
is appropriate in light of current market conditions to dispose of such
securities.
Portfolio Securities
Lower Grade Securities
Under normal market conditions, the Fund will invest at least 65% of its
total assets in fixed-income securities of U.S. issuers rated below investment
grade quality (lower than Baa by Moody's or lower than BBB by S&P or comparably
rated by another rating agency) or in unrated fixed-income securities that
DLJIM determines to be of comparable quality. Securities rated Ba by Moody's or
BB by S&P and lower are considered to have speculative elements, with higher
vulnerability to default than corporate securities with higher ratings. See
"Appendix A--Ratings of Corporate Bonds" for additional information concerning
rating categories of Moody's and S&P.
14
<PAGE>
Lower grade securities, though high yielding, are characterized by high
risk. They may be subject to certain risks with respect to the issuing entity
and to greater market fluctuations than certain lower yielding, higher rated
securities. The retail secondary market for lower grade securities may be less
liquid than that of higher rated securities; adverse conditions could make it
difficult at times for the Fund to sell certain securities or could result in
lower prices than those used in calculating the Fund's net asset value.
Bond prices generally are inversely related to interest rate changes;
however, bond price volatility also is inversely related to coupon.
Accordingly, lower grade securities may be relatively less sensitive to
interest rate changes than higher quality securities of comparable maturity,
because of their higher coupon. This higher coupon is what the investor
receives in return for bearing greater credit risk. The higher credit risk
associated with lower grade securities potentially will have a greater effect
on the value of such securities than may be the case with higher quality issues
of comparable maturity, and will be a substantial factor in the Fund's relative
Share price volatility.
Lower grade securities may be particularly susceptible to economic
downturns. It is likely that an economic recession could disrupt severely the
market for such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn could
adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and increase the incidence of default for
such securities. The ratings of Moody's, S&P and the other rating agencies
represent their opinions as to the quality of the obligations which they
undertake to rate. Ratings are relative and subjective and, although ratings
may be useful in evaluating the safety of interest and principal payments, they
do not evaluate the market value risk of such obligations. Although these
ratings may be an initial criterion for selection of portfolio investments,
DLJIM also will evaluate these securities and the ability of the issuers of
such securities to pay interest and principal. To the extent that the Fund
invests in lower grade securities that have not been rated by a rating agency,
the Fund's ability to achieve its investment objectives will be more dependent
on DLJIM's credit analysis than would be the case when the Fund invests in
rated securities.
The Fund may also invest in zero coupon, pay-in-kind or deferred payment
lower grade securities. Zero coupon securities are securities that are sold at
a discount to par value and on which interest payments are not made during the
life of the security. Upon maturity, the holder is entitled to receive the par
value of the security. While interest payments are not made on such securities,
holders of such securities are deemed annually to have received "phantom
income." Because the Fund will distribute this "phantom income" to
Shareholders, to the extent that Shareholders elect to receive dividends in
cash rather than reinvesting such dividends in additional Shares, the Fund will
have fewer assets with which to purchase income-producing securities. The Fund
accrues income with respect to these securities prior to the receipt of cash
payments. Pay-in-kind securities are securities that have interest payable by
delivery of additional securities. Upon maturity, the holder is entitled to
receive the aggregate par value of the securities. Deferred payment securities
are securities that remain zero coupon securities until a predetermined date,
at which time the stated coupon rate becomes effective and interest becomes
payable at regular intervals. Zero coupon, pay-in-kind and deferred payment
securities are subject to greater fluctuation in value and may have less
liquidity in the event of adverse market conditions than comparably rated
securities paying cash interest at regular interest payment periods.
Preferred Stock
Preferred stock represents a share of ownership in a company. Generally,
preferred stock has a specified dividend and ranks after bonds but before
common stock on its claim on a company's income for dividend payments and on a
company's assets should the company's assets be liquidated. While most
preferred stocks pay a dividend, the Fund may purchase preferred stock where
the issuer has failed to pay, or is in danger of failing to pay, the dividends
on such preferred stock, or may purchase preferred stock that pays a dividend
in kind.
Convertible Securities
Convertible securities may be converted at either a stated price or stated
rate into underlying shares of common stock. Convertible securities have
characteristics similar to both fixed-income and equity securities. Convertible
securities generally are subordinated to other similar but non-convertible
securities of the same issuer, although convertible bonds, as corporate debt
obligations, enjoy seniority in right of payment to all equity securities, and
convertible preferred stock is senior to shares of common stock of the same
issuer. Because of the subordination feature, however, convertible securities
typically have lower ratings than similar non-convertible securities.
Although to a lesser extent than with fixed-income securities, the market
value of convertible securities tends to decline as interest rates increase
and, conversely, tends to increase as interest rates decline. In addition,
because of the conversion feature, the market value of convertible securities
tends to vary with fluctuations in the market value of the underlying common
stock. As the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and so may not
experience market value declines to the same
15
<PAGE>
extent as the underlying common stock. When the market price of the underlying
common stock increases, the prices of the convertible securities tend to rise
as a reflection of the value of the underlying common stock. While no
securities investments are without risk, investments in convertible securities
generally entail less risk than investments in common stock of the same issuer.
Convertible securities provide for a stable stream of income with
generally higher yields than common stock and offer the potential for capital
appreciation through the conversion feature, which enables the holder to
benefit from increases in the market price of the underlying common stock. In
return, however, convertible securities generally offer lower interest or
dividend yields than non-convertible securities of similar quality.
Participation Interests
The Fund may invest in corporate obligations denominated in U.S. and
foreign currencies that are originated, negotiated and structured by a
syndicate of lenders ("Co-Lenders") consisting of commercial banks, thrift
institutions, insurance companies, financial companies or other financial
institutions one or more of which administer the security on behalf of the
syndicate (the "Agent Bank"). Co-Lenders may sell such securities to third
parties called "Participants." The Fund may invest in such securities either by
participating as a Co-Lender at origination or by acquiring an interest in the
security from a Co-Lender or a Participant (collectively, "participation
interests"). Co-Lenders and Participants interposed between the Fund and the
corporate borrower (the "Borrower"), together with Agent Banks, are referred to
herein as "Intermediate Participants." The Fund also may purchase a
participation interest in a portion of the rights of an Intermediate
Participant, which would not establish any direct relationship between the Fund
and the Borrower. In such cases, the Fund would be required to rely on the
Intermediate Participant that sold the participation interest not only for the
enforcement of the Fund's rights against the Borrower but also for the receipt
and processing of payments due to the Fund under the security. Because it may
be necessary to assert through an Intermediate Participant such rights as may
exist against the Borrower, in the event the Borrower fails to pay principal
and interest when due, the Fund may be subject to delays, expenses and risks
that are greater than those that would be involved if the Fund would enforce
its rights directly against the Borrower. Moreover, under the terms of a
participation interest, the Fund may be regarded as a creditor of the
Intermediate Participant (rather than of the Borrower), so that the Fund may
also be subject to the risk that the Intermediate Participant may become
insolvent. Similar risks may arise with respect to the Agent Bank if, for
example, assets held by the Agent Bank for the benefit of the Fund were
determined by the appropriate regulatory authority or court to be subject to
the claims of the Agent Bank's creditors. In such case, the Fund might incur
certain costs and delays in realizing payment in connection with the
participation interest or suffer a loss of principal and/or interest. Further,
in the event of the bankruptcy or insolvency of the Borrower, the obligation of
the Borrower to repay the loan may be subject to certain defenses that can be
asserted by such Borrower as a result of improper conduct by the Agent Bank or
Intermediate Participant.
Distressed Securities
As a component of the Fund's investment in "junk bonds," the Fund may
invest up to 20% of its total assets in Distressed Securities, including
participation interests purchased in the secondary market. Investment in
Distressed Securities is speculative and involves significant risk. Distressed
Securities frequently do not produce income while they are outstanding and may
require the Fund to bear certain extraordinary expenses in order to protect and
recover its investment. Therefore, to the extent the Fund pursues its secondary
objective of capital appreciation through investment in Distressed Securities,
the Fund's ability to achieve current income for Shareholders may be
diminished. The Fund also will be subject to significant uncertainty as to when
and in what manner and for what value the obligations evidenced by the
Distressed Securities will eventually be satisfied (e.g., through a liquidation
of the obligor's assets, an exchange offer or plan of reorganization involving
the Distressed Securities or a payment of some amount in satisfaction of the
obligation). In addition, even if an exchange offer is made or plan of
reorganization is adopted with respect to Distressed Securities held by the
Fund, there can be no assurance that the securities or other assets received by
the Fund in connection with such exchange offer or plan of reorganization will
not have a lower value or income potential than may have been anticipated when
the investment was made. Moreover, any securities received by the Fund upon
completion of an exchange offer or plan of reorganization may be restricted as
to resale. As a result of the Fund's participation in negotiations with respect
to any exchange offer or plan of reorganization with respect to an issuer of
Distressed Securities, the Fund may be restricted from disposing of such
securities. See "Risk Factors."
Foreign Securities
The Fund may invest up to 30% of its total assets in securities of issuers
domiciled outside the United States or that are denominated in various foreign
currencies or multinational foreign currency units. Foreign securities
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<PAGE>
markets generally are not as developed or efficient as those in the United
States. Securities of some foreign issuers are less liquid and more volatile
than securities of comparable U.S. issuers. Similarly, volume and liquidity in
most foreign securities markets are less than in the United States and, at
times, volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held outside
the United States, the Fund will be subject to additional risks which include
possible adverse political and economic developments, seizure or
nationalization of foreign deposits and adoption of governmental restrictions
which might adversely affect or restrict the payment of principal and interest
on the foreign securities to investors located outside the country of the
issuer, whether from currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Fund have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain of these countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency rates
and exchange control regulations. The Fund may engage in certain transactions
to hedge the currency related risks of investing in non-U.S. dollar denominated
securities. See "Other Investment Practices."
Variable and Floating Rate Securities
Variable and floating rate securities provide for a periodic adjustment in
the interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an interest
rate adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily up to annually, or may be event
based, such as based on a change in the prime rate.
The Fund may invest in floating rate debt instruments ("floaters"). The
interest rate on a floater is a variable rate which is tied to another interest
rate, such as a money-market index or Treasury Bill rate. The interest rate on
a floater resets periodically, typically every six months. Because of the
interest rate reset feature, floaters provide the Fund with a certain degree of
protection against rises in interest rates, although the Fund will participate
in any declines in interest rates as well. The Fund also may invest in inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed or inversely to a multiple of
the applicable index. An inverse floating rate security may exhibit greater
price volatility than a fixed rate obligation of similar credit quality.
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include U.S. Treasury securities that differ in their
interest rates, maturities and times of issuance. Some obligations issued or
guaranteed by U.S. Government agencies and instrumentalities are supported by
the full faith and credit of the U.S. Treasury; others by the right of the
issuer to borrow from the Treasury; others by discretionary authority of the
U.S. Government to purchase certain obligations of the agency or
instrumentality; and others only by the credit of the agency or
instrumentality. These securities bear fixed, floating or variable rates of
interest. While the U.S. Government provides financial support to such U.S.
Government-sponsored agencies and instrumentalities, no assurance can be given
that it will always do so since it is not so obligated by law.
Foreign Government Obligations; Securities of Supranational Entities
The Fund may invest in obligations issued or guaranteed by one or more
foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by DLJIM to be of comparable quality to
the other obligations in which the Fund may invest. Supranational entities
include international organizations designated or supported by governmental
entities to promote economic reconstruction or development and international
banking institutions and related government agencies.
Stripped Securities
The Fund may invest in zero coupon U.S. Treasury securities, which are
Treasury Notes and Treasury Bonds that have been stripped of their unmatured
interest coupons, the coupons themselves and receipts or certificates
representing interests in such stripped debt obligations and coupons. Such
stripped securities also are issued by
17
<PAGE>
corporations and financial institutions which constitute a proportionate
ownership of the issuer's pool of underlying securities. A stripped security
pays no interest to its holder during its life and is sold at a discount to its
face value at maturity. The market prices of such securities generally are more
volatile than the market prices of securities that pay interest periodically
and are likely to respond to a greater degree to changes in interest rates than
coupon securities having similar maturities and credit qualities.
Money Market Instruments
The Fund may invest in the following types of money market instruments.
Repurchase Agreements. In a repurchase agreement, the Fund buys, and the
seller agrees to repurchase, a security at a mutually agreed upon time and
price (usually within seven days). The repurchase agreement thereby determines
the yield during the purchaser's holding period, while the seller's obligation
to repurchase is secured by the value of the underlying security. Repurchase
agreements could involve risks in the event of a default or insolvency of the
other party to the agreement, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities. The Fund may enter
into repurchase agreements with certain banks or non-bank dealers.
Bank Obligations. The Fund may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign subsidiaries or foreign branches of domestic banks,
domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions. With respect to such securities
issued by foreign subsidiaries or foreign branches of domestic banks, and
domestic and foreign branches of foreign banks, the Fund may be subject to
additional investment risks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven days)
at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
Commercial Paper. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Fund will consist only of direct obligations which, at
the time of their purchase, are (a) rated not lower than Prime-1 by Moody's or
A-1 by S&P, (b) issued by companies having an outstanding unsecured debt issue
currently rated at least A3 by Moody's or A- by S&P, or (c) if unrated,
determined by DLJIM to be of comparable quality to those rated obligations
which may be purchased by the Fund.
Other Short-Term Corporate Obligations. These instruments include
variable amount master demand notes, which are obligations that permit the Fund
to invest fluctuating amounts at varying rates of interest pursuant to direct
arrangements between the Fund, as lender, and the borrower. These notes permit
daily changes in the amounts borrowed. Because these obligations are direct
lending arrangements between the lender and borrower, it is not contemplated
that such instruments generally will be traded, and there generally is no
established secondary market for these obligations, although they are
redeemable at face value, plus accrued interest, at any time. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, the Fund's right to redeem is dependent on the ability of
the borrower to pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies, and the Fund may invest in
them only if at the time of an investment DLJIM determines that such investment
is of comparable quality to those rated obligations which may be purchased by
the Fund.
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<PAGE>
OTHER INVESTMENT PRACTICES
The Fund may utilize other investment practices and portfolio management
techniques as set forth below.
Leverage
At times, the Fund expects to utilize leverage through borrowings or
issuance of debt securities or preferred shares. The Fund intends to utilize
leverage in an initial amount equal to approximately 20% of its total assets
(including the amount obtained from leverage); however, the Fund has the
ability to utilize leverage in an amount up to 33-1/3% of its total assets if
borrowing and 50% through the use of preferred shares (in each case including
the amount obtained from leverage). The Fund generally will not utilize
leverage if it anticipates that the Fund's leveraged capital structure would
result in a lower return to Shareholders than that obtainable if the Shares
were unleveraged for any significant amount of time.
The Fund currently expects that it may enter into a definitive agreement
with respect to a credit facility within a week after the closing of the offer
and sale of the Shares offered hereby. The Fund is currently in negotiations
with a major money center bank to arrange a revolving credit facility pursuant
to which the Fund expects to be entitled to borrow up to $150 million. Any such
borrowings would constitute financial leverage. The terms of any agreement
relating to such a credit facility have not been determined and are subject to
definitive agreement and other conditions. Under such agreement, the Fund may be
required to prepay outstanding amounts under the facility or incur a penalty
rate of interest in the event of the occurrence of certain events of default.
The Fund expects to indemnify the lender under the facility against liabilities
it may incur in connection with the facility. In addition, the Fund expects that
such a credit facility would contain covenants which, among other things, likely
will limit the Fund's ability to pay dividends in certain circumstances, incur
additional debt, change its fundamental investment policies and engage in
certain transactions including mergers and consolidations, and may require asset
coverage ratios in addition to those required by the Investment Company Act. The
Fund expects that any credit facility would have customary covenants, negative
covenants and default provisions. There can be no assurances that the Fund will
enter into an agreement for a credit facility on terms and conditions
representative of the foregoing, or that additional material terms will not
apply. In addition, if entered into, any such credit facility may in the future
be replaced or refinanced by one or more credit facilities having substantially
different terms or by the issuance of preferred shares or debt securities.
Under the Investment Company Act, the Fund is not permitted to incur
indebtedness unless immediately after such incurrence the Fund's total assets
(less any liabilities and indebtedness not related to the issuance of senior
securities) are at least 300% of the aggregate amount of all senior securities
representing such indebtedness (i.e., such indebtedness may not exceed 33-1/3%
of the Fund's total assets). Additionally, under the Investment Company Act,
the Fund may not declare any dividend or other distribution upon any class of
its capital shares, or purchase any such capital shares, unless the aggregate
indebtedness of the Fund has, at the time of the declaration of any such
dividend or distribution or at the time of any such purchase, an asset coverage
of at least 300% after deducting the amount of such dividend, distribution, or
purchase price, as the case may be. Under the Investment Company Act, the Fund
is not permitted to issue preferred shares unless immediately after such
issuance the Fund's total assets (less any liabilities and indebtedness not
related to the issuance of senior securities) are at least 200% of the
aggregate amount of (i) all senior securities representing indebtedness plus
(ii) the involuntary liquidation preference of all senior securities
representing preferred shares (i.e., such liquidation value may not exceed 50%
of the Fund's total assets). The involuntary liquidation preference shall be
the amount in which such preferred shares would be entitled upon the
involuntary liquidation of the Fund. In addition, the Fund is not permitted to
declare any cash dividend or other distribution on Shares unless, at the time
of such declaration, the net asset value of the Fund's portfolio (determined
after deducting the amount of such dividend or other distribution) is at least
200% of such liquidation value. If preferred shares are issued, the Fund
intends, to the extent possible, to purchase or redeem preferred shares from
time to time to maintain coverage of any preferred shares of at least 200%.
The Fund also may borrow money as a temporary measure for extraordinary or
emergency purposes, including the payment of dividends and the settlement of
securities transactions which otherwise may require untimely dispositions of
Fund securities. Subject to applicable regulatory requirements, the Fund at
times may borrow from affiliates of DLJIM, provided that the terms of such
borrowings are no less favorable than those available from comparable sources
of funds in the marketplace.
The concept of leveraging is based on the premise that the cost of the
assets to be obtained from leverage will be based on short-term rates which
normally will be lower than the return earned by the Fund on its longer term
portfolio investments. Since it is anticipated that the total assets of the
Fund (including the assets obtained from leverage) will be invested in the
higher yielding portfolio investments or portfolio investments with the
potential for capital appreciation, the Shareholders should be the
beneficiaries of any incremental return. Should the differential between the
return on the underlying assets and cost of leverage narrow, the incremental
return "pick up" will be reduced.
Leverage creates risks for Shareholders including the likelihood of
greater volatility of net asset value and market price of the Shares, and the
risk that fluctuations in interest rates on borrowings and short-term debt or
in the dividend rates on any preferred shares may affect the return to the
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 on
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, DLJIM 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. As discussed under
"Management of the Fund," the Management Fee paid to DLJIM will be calculated
on the basis of the Fund's Managed Assets which includes proceeds from
borrowings for leverage and the issuance of preferred shares.
Capital raised through leverage will be subject to interest costs or
dividend payments which may or may not exceed the income and appreciation on
the assets purchased. The Fund, among other things, also may be required
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<PAGE>
to maintain minimum average balances in connection with borrowings or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements will increase the cost of borrowing over the stated interest rate.
The issuance of classes of preferred shares involves offering expenses and
other costs and may limit the Fund's freedom to pay dividends on Shares or to
engage in other activities.
Certain types of borrowings may result in the Fund being subject to
covenants in credit agreements, including those relating to asset coverage and
portfolio composition requirements. The Fund may be subject to certain
restrictions on investments imposed by guidelines of one or more Rating
Agencies which may issue ratings for the corporate debt securities or preferred
shares issued by the Fund. These guidelines 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 DLJIM from managing the Fund's portfolio in accordance
with the Fund's investment objectives and policies.
The Fund's willingness to borrow money and issue new securities for
investment purposes, and the amount the Fund will borrow or issue, will depend
on many factors, the most important of which are investment outlook, market
conditions and interest rates. Successful use of a leveraging strategy depends
on DLJIM's ability to predict correctly interest rates and market movements,
and there is no assurance that a leveraging strategy will be successful during
any period in which it is employed.
Assuming the utilization of leverage by borrowings in the amount of
approximately 20% of the Fund's total assets, and an annual interest rate of 6%
payable on such leverage based on market rates as of the date of this
Prospectus, the annual return that the Fund's portfolio must experience (net of
expenses) in order to cover such interest payments would be 1.5%.
The following table is designed to illustrate the effect on the return to
a Shareholder of the leverage obtained by borrowings in the amount of
approximately 20% of the Fund's total assets, assuming hypothetical annual
returns of the Fund's portfolio of minus 10% to plus 10%. As the table shows,
the leverage generally increases the return to Shareholders when portfolio
return is positive and greater than the cost of leverage and decreases the
return when the portfolio return is negative or less than the cost of leverage.
The figures appearing in the table are hypothetical and actual returns may be
greater or less than those appearing in the table.
<TABLE>
<S> <C> <C> <C> <C> <C>
Assumed Portfolio Return (net of expenses) ......... (10)% (5)% 0% 5% 10%
Corresponding Share Return ......................... (14)% (8)% (1.5)% 5% 11%
</TABLE>
Until the Fund borrows or issues preferred shares, the Shares will not be
leveraged, and the risks and special considerations related to leverage
described in this Prospectus will not apply. Such leveraging of the Shares
cannot be fully achieved until the proceeds resulting from the use of leverage
have been invested in longer-term debt instruments in accordance with the
Fund's investment objectives and policies.
Short-Selling
In these transactions, the Fund sells a security it does not own in
anticipation of a decline in the market value of the security. To complete the
transaction, the Fund must borrow the security to make delivery to the buyer.
The Fund is obligated to replace the security borrowed by purchasing it
subsequently at the market price at the time of replacement. The price at such
time may be more or less than the price at which the security was sold by the
Fund, which would result in a loss or gain, respectively.
Securities will not be sold short if, after effect is given to any such
short sale, the total market value of all securities sold short would exceed
25% of the value of the Fund's net assets. The Fund may not make a short sale
which results in the Fund having sold short in the aggregate more than 10% of
the outstanding securities of any class of an issuer.
The Fund also may make short sales "against the box" in which the Fund
enters into a short sale of a security it owns. See "Taxes."
Until the Fund closes out its short position or replaces the borrowed
security, it will: (a) maintain a segregated account, containing permissible
liquid assets, at such a level that the amount deposited in the account plus
the amount deposited with the broker as collateral always equals the current
value of the security sold short; or (b) otherwise cover its short position.
Lending Portfolio Securities
The Fund may lend securities from its portfolio to brokers, dealers and
other financial institutions needing to borrow securities to complete certain
transactions. The Fund continues to be entitled to payments in amounts
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<PAGE>
equal to the interest, dividends or other distributions payable on the loaned
securities, which affords the Fund an opportunity to earn interest on the
amount of the loan and on the loaned securities' collateral. Loans of portfolio
securities may not exceed 331/3% of the value of the Fund's total assets, and
the SEC currently requires the Fund to receive collateral consisting of cash,
U.S. Government securities or irrevocable letters of credit which will be
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. According to the SEC, such loans
currently must be terminable by the Fund at any time upon specified notice. The
Fund might experience risk of loss if the institution with which it has engaged
in a portfolio loan transaction breaches its agreement with the Fund. In
connection with its securities lending transactions, the Fund may return to the
borrower or a third party which is acting as a "placing broker," a part of the
interest earned from the investment of collateral received for securities
loaned.
Generally, the SEC currently requires that the following conditions must
be met whenever portfolio securities are loaned: (1) the Fund must receive at
least 100% cash or equivalent collateral from the borrower; (2) the borrower
must increase such collateral whenever the market value of the securities rises
above the level of such collateral; (3) the Fund must be able to terminate the
loan at any time; (4) the Fund must receive reasonable interest on the loan, as
well as any dividends, interest or other distributions payable on the loaned
securities, and any increase in market value; (5) the Fund may pay only
reasonable custodian fees in connection with the loan; and (6) while voting
rights on the loaned securities may pass to the borrower, the Board must
terminate the loan and regain the right to vote the securities if a material
event adversely affecting the investment occurs. If the regulatory requirements
pertaining to portfolio securities lending were to change, the Fund would
comply with such changes as required.
Illiquid Securities
The Fund may purchase securities subject to legal or contractual
restriction, or that are otherwise illiquid, without limitation. When
purchasing securities that have not been registered under the Securities Act of
1933, as amended, and are not readily marketable, the Fund will endeavor, to
the extent practicable, to obtain the right to registration at the expense of
the issuer. Generally, there will be a lapse of time between the Fund's
decision to sell any such security and the registration of the security
permitting sale. During any such period, the price of the securities will be
subject to market fluctuations. However, where a substantial market of
qualified institutional buyers has developed for certain unregistered
securities purchased by the Fund pursuant to Rule 144A under the Securities Act
of 1933, as amended, the Fund intends to treat such securities as liquid
securities in accordance with procedures approved by the Board. Because it is
not possible to predict with assurance how the market for specific restricted
securities sold pursuant to Rule 144A will develop, the Board has directed
DLJIM to monitor carefully the Fund's investments in such securities with
particular regard to trading activity, availability of reliable price
information and other relevant information. To the extent that, for a period of
time, qualified institutional buyers cease purchasing restricted securities
pursuant to Rule 144A, the Fund's investing in such securities may have the
effect of increasing the level of illiquidity in its investment portfolio
during such period. Substantial illiquid positions in the Fund could adversely
impact its ability to convert to open-end status.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements with respect to its
portfolio investments subject to the investment restrictions set forth herein.
Reverse repurchase agreements involve the sale of securities held by the Fund
with an agreement by the Fund to repurchase the securities at an agreed upon
price, date and interest payment. The use by the Fund of reverse repurchase
agreements involves many of the same risks of leverage described under "Risk
Factors" and "--Leverage" since the proceeds derived from such reverse
repurchase agreements may be invested in additional securities. At the time the
Fund enters into a reverse repurchase agreement, it may establish and maintain
a segregated account with the custodian containing liquid instruments having a
value not less than the repurchase price (including accrued interest). If the
Fund establishes and maintains such a segregated account, a reverse repurchase
agreement will not be considered a borrowing by the Fund; however, under
circumstances in which the Fund does not establish and maintain such a
segregated account, such reverse repurchase agreement will be considered a
borrowing for the purpose of the Fund's limitation on borrowings. Reverse
repurchase agreements involve the risk that the market value of the securities
acquired in connection with the reverse repurchase agreement may decline below
the price of the securities the Fund has sold but is obligated to repurchase.
Also, reverse repurchase agreements involve the risk that the market value of
the securities retained in lieu of sale by the Fund in connection with the
reverse repurchase agreement may decline in price.
If the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
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<PAGE>
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
decision. Also, the Fund would bear the risk of loss to the extent that the
proceeds of the reverse repurchase agreement are less than the value of the
securities subject to such agreement.
Derivatives
The Fund may invest in, or use, derivatives ("Derivatives"). These are
financial instruments that derive their performance, at least in part, from the
performance of an underlying asset, index or interest rate. The Derivatives the
Fund may use include options, futures contracts, forward contracts, securities
and swaps. The Fund may invest in, or enter into, Derivatives for a variety of
reasons, including to hedge certain market risks, to provide a substitute for
purchasing or selling particular securities or to increase potential income
gain. Derivatives may provide a cheaper, quicker or more specifically focused
way for the Fund to invest than "traditional" securities would.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by purchasing or
selling specific securities.
Derivatives may entail investment exposures that are greater than their
cost would suggest, meaning that a small investment in Derivatives could have a
large potential impact on the Fund's performance.
If the Fund invests in Derivatives at inopportune times or judges market
conditions incorrectly, such investments may lower the Fund's return or result
in a loss. The Fund also could experience losses if its Derivatives were poorly
correlated with its other investments, or if the Fund were unable to liquidate
its position because of an illiquid secondary market. The market for many
Derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid and unpredictable changes in the prices for
Derivatives.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter Derivatives.
Exchange-traded Derivatives generally are guaranteed by the clearing agency
that is the issuer or counterparty to such Derivatives. This guarantee usually
is supported by a daily payment system (i.e., variation margin requirements)
operated by the clearing agency in order to reduce overall credit risk. As a
result, unless the clearing agency defaults, there is relatively little
counterparty credit risk associated with Derivatives purchased on an exchange.
By contrast, no clearing agency guarantees over-the-counter Derivatives.
Therefore, each party to an over-the-counter Derivative bears the risk that the
counterparty will default. Accordingly, DLJIM will consider the
creditworthiness of counterparties to over-the-counter Derivatives in the same
manner as it would review the credit quality of a security to be purchased by
the Fund. Over-the-counter Derivatives are less liquid than exchange-traded
Derivatives since the other party to the transaction may be the only investor
with sufficient understanding of the Derivative to be interested in bidding for
it.
Futures and Options on Futures Transactions
In General. The Fund may enter into futures contracts and options on
futures contracts in U.S. domestic markets, such as the Chicago Board of Trade
and the International Monetary Market of the Chicago Mercantile Exchange or on
exchanges located outside the United States, such as the London International
Financial Futures Exchange and the Sydney Futures Exchange Limited. Foreign
markets may offer advantages such as trading opportunities or arbitrage
possibilities not available in the United States. Foreign markets, however, may
have greater risk potential than domestic markets. For example, some foreign
exchanges are principal markets so that no common clearing facility exists and
an investor may look only to the broker for performance of the contract. In
addition, any profits that the Fund might realize in trading could be
eliminated by adverse changes in the exchange rate, or the Fund could incur
losses as a result of those changes. Transactions on foreign exchanges may
include both commodities which are traded on domestic exchanges and those that
are not. Unlike trading on domestic commodity exchanges, trading on foreign
commodity exchanges is not regulated by the Commodity Futures Trading
Commission ("CFTC").
Engaging in these transactions involves risk of loss to the Fund that
could adversely affect the value of the Fund's net assets. Although the Fund
intends to purchase or sell futures contracts and options thereon only if there
is an active market for such contracts, no assurance can be given that a liquid
market will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract or option prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be made
that day at a price beyond that limit or trading may be suspended for specified
periods during the trading day. Futures contract or option prices could move to
the limit for several consecutive
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trading days with little or no trading, thereby preventing prompt liquidation
of futures or option positions and potentially subjecting the Fund to
substantial losses. Successful use of futures and options on futures by the
Fund also is subject to the ability of DLJIM to predict correctly movements in
the direction of the relevant market and, to the extent the transaction is
entered into for hedging purposes, to ascertain the appropriate correlation
between the transaction being hedged and the price movements of the futures
contract or option thereon. For example, if the Fund uses futures to hedge
against the possibility of a decline in the market value of securities held in
its portfolio and the prices of such securities instead increase, the Fund will
lose part or all of the benefit of the increased value of securities that it
has hedged because it will have offsetting losses in its futures positions.
Furthermore, if in such circumstances the Fund has insufficient cash, it may
have to sell securities to meet daily variation margin requirements. The Fund
may have to sell such securities at a time when it may be disadvantageous to do
so.
Pursuant to regulations and/or published positions of the SEC, the Fund
may be required to segregate cash or other liquid assets in connection with its
futures and options on futures transactions in an amount generally equal to the
value of the underlying commodity. The segregation of such assets will have the
effect of limiting the Fund's ability otherwise to invest those assets.
To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange, that are not for bona fide hedging purposes (as defined by the CFTC),
the aggregate initial margin and premiums required to establish these positions
(excluding the amount by which options are "in-the-money" at the time of
purchase) may not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. (In general, a call option on a futures
contract is "in-the-money" if the value of the underlying futures contract
exceeds the exercise ("strike") price of the call; a put option on a futures
contract is "in-the-money" if the value of the underlying futures contract is
exceeded by the strike price of the put). This policy does not limit to 5% the
percentage of the Fund's assets that are at risk in futures contracts, options
on futures contracts and currency options.
Specific Futures Transactions. The Fund may purchase and sell interest
rate futures contracts. An interest rate future obligates the Fund to purchase
or sell an amount of a specific debt security at a future date at a specific
price.
The Fund may purchase and sell currency futures. A foreign currency future
obligates the Fund to purchase or sell an amount of a specific currency at a
future date at a specific price. The Fund may purchase and sell stock index and
debt futures contracts. An index future obligates the Fund to pay or receive an
amount of cash equal to a fixed dollar amount specified in the futures contract
multiplied by the difference between the settlement price of the contract on
the contract's last trading day and the value of the index based on the prices
of the securities that comprise it at the opening of trading in such securities
on the next business day.
The Fund may also purchase and sell options on interest rate, currency and
index futures. When the Fund writes an option on a futures contract, it becomes
obligated, in return for the premium paid, to assume a position in the futures
contract at a specified exercise price at any time during the terms of the
option. If the Fund writes a call, it assumes a short futures position. If it
writes a put, it assumes a long futures position. When the Fund purchases an
option on a futures contract, it acquires the right, in return for the premium
it pays, to assume a position in the futures contract (a long position if the
option is a call and a short position if the option is a put).
Forward Currency Contracts. The Fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (term) from the date of the forward currency
contract agreed upon by the parties, at a price set at the time the forward
currency contract is entered into. Forward currency contracts are traded
directly between currency traders (usually large commercial banks) and their
customers.
The Fund may purchase a forward currency contract to lock in the U.S.
dollar price of a security denominated in a foreign currency that the Fund
intends to acquire. The Fund may sell a forward currency contract to lock in
the U.S. dollar equivalent of the proceeds from the anticipated sale of a
security or a dividend or interest payment denominated in a foreign currency.
The Fund may also use forward currency contracts to shift the Fund's exposure
to foreign currency exchange rate changes from one currency to another. For
example, if the Fund owns securities denominated in a foreign currency and
DLJIM believes that currency will decline relative to another currency, it
might enter into a forward currency contract to sell the appropriate amount of
the first foreign currency with payment to be made in the second currency. The
Fund may also purchase forward currency contracts to enhance income when DLJIM
anticipates that the foreign currency will appreciate in value but securities
denominated in that currency do not present attractive investment
opportunities.
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The Fund may also use forward currency contracts to hedge against a
decline in the value of existing investments denominated in foreign currency.
Such a hedge would tend to offset both positive and negative currency
fluctuations, but would not offset changes in security values caused by other
factors. The Fund could also hedge the position by entering into a forward
currency contract to sell another currency expected to perform similarly to the
currency in which the Fund's existing investments are denominated. This type of
hedge could offer advantages in terms of cost, yield or efficiency, but may not
hedge currency exposure as effectively as a simple hedge into U.S. dollars.
This type of hedge may result in losses if the currency used to hedge does not
perform similarly to the currency in which the hedged securities are
denominated.
The Fund may also use forward currency contracts in one currency or a
basket of currencies to attempt to hedge against fluctuations in the value of
securities denominated in a different currency if DLJIM anticipates that there
will be a correlation between the two currencies.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When the Fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the counterparty to do so would result in
the loss of some or all of any expected benefit of the transaction.
Secondary markets generally do not exist for forward currency contracts,
with the result that closing transactions generally can be made for forward
currency contracts only by negotiating directly with the counterparty. Thus,
there can be no assurance that the Fund will in fact be able to close out a
forward currency contract at a favorable price prior to maturity. In addition,
in the event of insolvency of the counterparty, the Fund might be unable to
close out a forward currency contract. In either event, the Fund would continue
to be subject to market risk with respect to the position, and would continue
to be required to maintain a position in securities denominated in the foreign
currency or to maintain cash or liquid assets in a segregated account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the
forward currency contract has been established. Thus, the Fund might need to
purchase or sell foreign currencies in the spot (cash) market to the extent
such foreign currencies are not covered by forward currency contracts. The
projection of short-term currency market movements is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
Interest Rate Swaps. Interest rate swaps involve the exchange by the Fund
with another party of their respective commitments to pay or receive interest
(for example, an exchange of floating rate payments for fixed rate payments).
The exchange commitments can involve payments to be made in the same currency
or in different currencies. The use of interest rate swaps is a highly
specialized activity that involves investment techniques and risks different
from those associated with ordinary portfolio security transactions. If DLJIM
is incorrect in its forecasts of market values, interest rates and other
applicable factors, the investment performance of the Fund would diminish
compared with what it would have been if these investment techniques were not
used. Moreover, even if DLJIM is correct in its forecasts, there is a risk that
the swap position may correlate imperfectly with the price of the asset or
liability being hedged. There is no limit on the amount of interest rate swap
transactions that may be entered into by the Fund. These transactions do not
involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate swaps is limited to
the net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate swap defaults, the Fund's risk of
loss consists of the net amount of interest payments that the Fund
contractually is entitled to receive.
Credit Derivatives. The Fund may engage in credit derivative transactions.
There are two broad categories of credit derivatives: default price risk
derivatives and market spread derivatives. Default price risk derivatives are
linked to the price of reference securities or loans after a default by the
issuer or borrower, respectively. Market spread derivatives are based on the
risk that changes in market factors, such as credit spreads, can cause a
decline in the value of a security, loan or index. There are three basic
transactional forms for credit derivatives: swaps, options and structured
instruments. The use of credit derivatives is a highly specialized activity
which involves strategies and risks different from those associated with
ordinary portfolio security transactions. If DLJIM is incorrect in its
forecasts of default risks, market spreads or other applicable factors, the
investment performance of the Fund would diminish compared with what it would
have been if these techniques were not used. Moreover, even if DLJIM is correct
in its forecasts, there is a risk that a credit derivative position, may
correlate imperfectly with the price of the asset or liability being hedged.
There is no limit on the amount of credit derivative transactions
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that may be entered into by the Fund. The Fund's risk of loss in a credit
derivative transaction varies with the form of the transaction. For example, if
the Fund purchases a default option on a security, and if no default occurs
with respect to the security, the Fund's loss is limited to the premium it paid
for the default option. In contrast, if there is a default by the grantor of a
default option, the Fund's loss will include both the premium that it paid for
the option and the decline in value of the underlying security that the default
option hedged.
Options--In General. The Fund may purchase and write (i.e., sell) call or
put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, the
underlying security or securities at the exercise price at any time during the
option period, or at a specific date. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security or securities at the exercise price at any time during the
option period, or at a specific date.
A covered call option written by the Fund is a call option with respect to
which the Fund owns the underlying security or otherwise covers the transaction
by segregating cash or other liquid assets. A put option written by the Fund is
covered when, among other things, cash or liquid assets having a value equal to
or greater than the exercise price of the option are placed in a segregated
account with the Fund's custodian to fulfill the obligation undertaken. The
principal reason for writing covered call and put options is to realize,
through the receipt of premiums, a greater return than would be realized on the
underlying securities alone. The Fund receives a premium from writing covered
call or put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, at times have rendered certain of
the clearing facilities inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Specific Options Transactions. The Fund may purchase and sell call and put
options on foreign currency. These options convey the right to buy or sell the
underlying currency at a price which is expected to be lower or higher than the
spot price of the currency at the time the option is exercised or expires.
The Fund may purchase and sell call and put options in respect of specific
securities (or groups or "baskets" of specific securities) or indices listed on
national securities exchanges or traded in the over-the-counter market. An
option on an index is similar to an option in respect of specific securities,
except that settlement does not occur by delivery of the securities comprising
the index. Instead, the option holder receives an amount of cash if the closing
level of the index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the
option. Thus, the effectiveness of purchasing or writing index options will
depend upon price movements in the level of the index rather than the price of
a particular security.
The Fund also may purchase cash-settled options on swaps in pursuit of its
investment objectives. A cash settled option on a swap gives the purchaser the
right, but not the obligation, in return for the premium paid, to receive an
amount of cash equal to the value of the underlying swap as of the exercise
date. These options typically are purchased in privately negotiated
transactions from financial institutions, including securities brokerage firms.
Successful use by the Fund of options will be subject to the ability of
DLJIM to predict correctly movements in the prices of individual securities,
the securities markets generally, foreign currencies, or interest rates. To the
extent such predictions are incorrect, the Fund may incur losses.
Future Developments. The Fund may take advantage of opportunities in the
area of options and futures contracts and options on futures contracts and any
other Derivatives that are not presently contemplated for use by the Fund or
that are not currently available but that may be developed, to the extent such
opportunities are both consistent with the Fund's investment objectives and
legally permissible for the Fund.
Forward Commitments; When-Issued Securities
The Fund may purchase securities on a forward commitment or when-issued
basis, which means that delivery and payment take place a number of days after
the date of the commitment to purchase. The payment obligation and the interest
rate receivable on a forward commitment or when-issued security are fixed when
the Fund enters
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into the commitment, but the Fund does not make payment until it receives
delivery from the counterparty. The Fund will commit to purchase such
securities only with the intention of actually acquiring the securities, but
the Fund may sell these securities before the settlement date if it is deemed
advisable. The Fund will set aside in a segregated account of the Fund
permissible liquid assets at least equal at all times to the amount of the
commitments.
Securities purchased on a forward commitment or when-issued basis are
subject to changes in value (generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when interest rates
rise) based upon the public's perception of the creditworthiness of the issuer
and changes, real or anticipated, in the level of interest rates. Securities
purchased on a forward commitment or when-issued basis may expose the Fund to
risks because they may experience such fluctuations prior to their actual
delivery. Purchasing securities on a when-issued basis can involve the
additional risk that the yield available in the market when the delivery takes
place actually may be higher than that obtained in the transaction itself.
Purchasing securities on a forward commitment or when-issued basis when the
Fund is fully or almost fully invested may result in greater potential
fluctuation in the value of the Fund's net assets and its net asset value per
Share.
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RISK FACTORS
Investors are advised to consider carefully the special risks involved in
investing in the Fund.
General
The Fund is a newly organized, non-diversified, closed-end management
investment company and has no operating history. Shares of closed-end
management investment companies frequently trade at a discount from their net
asset value. The Shares are designed primarily for long-term investors and
should not be considered a vehicle for trading purposes. The net asset value of
the Shares will fluctuate with interest rate changes as well as with price
changes of the Fund's portfolio securities and these fluctuations are likely to
be greater in the case of a fund having a leveraged capital structure, as
contemplated for the Fund.
Lower Grade Securities
Lower grade securities are regarded as being predominantly speculative as
to the issuer's ability to make payments of principal and interest. Investment
in such securities involves substantial risk. Lower grade securities are
commonly referred to as "junk bonds." Issuers of lower grade securities may be
highly leveraged and may not have available to them more traditional methods of
financing. Therefore, the risks associated with acquiring the securities of
such issuers generally are greater than is the case with higher-rated
securities. For example, during an economic downturn or a sustained period of
rising interest rates, issuers of lower grade securities may be more likely to
experience financial stress, especially if such issuers are highly leveraged.
During periods of economic downturn, such issuers may not have sufficient
revenues to meet their interest payment obligations. The issuer's ability to
service its debt obligations also may be adversely affected by specific issuer
developments, the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. Therefore, there can
be no assurance that in the future there will not exist a higher default rate
relative to the rates currently existing in the market for lower grade
securities. The risk of loss due to default by the issuer is significantly
greater for the holders of lower grade securities because such securities may
be unsecured and may be subordinate to other creditors of the issuer. Other
than with respect to Distressed Securities, discussed below, the lower grade
securities in which the Fund may invest do not include instruments which, at
the time of investment, are in default or the issuers of which are in
bankruptcy. However, there can be no assurance that such events will not occur
after the Fund purchases a particular security, in which case the Fund may
experience losses and incur costs.
Lower grade securities frequently have call or redemption features that
would permit an issuer to repurchase the security from the Fund. If a call were
exercised by the issuer during a period of declining interest rates, the Fund
is likely to have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Fund and dividends
to Shareholders.
Lower grade securities have been in the past, and may again in the future
be, more volatile than higher-rated fixed-income securities, so that adverse
economic events may have a greater impact on the prices of lower grade
securities than on higher-rated fixed income securities. Factors adversely
affecting the market value of such securities are likely to affect adversely
the Fund's net asset value. Recently, demand for lower grade securities has
increased significantly and the difference between the yields paid by lower
grade securities and investment grade bonds (i.e., the "spread") has narrowed.
To the extent this differential increases, the value of lower grade securities
in the Fund's portfolio could be adversely affected.
Like higher-rated fixed-income securities, lower grade securities
generally are purchased and sold through dealers who make a market in such
securities for their own accounts. However, there are fewer dealers in the
lower grade securities market, which market may be less liquid than the market
for higher-rated fixed-income securities, even under normal economic
conditions. Also, there may be significant disparities in the prices quoted for
lower grade securities by various dealers. As a result, during periods of high
demand in the lower grade securities market, it may be difficult to acquire
lower grade securities appropriate for investment by the Fund. Adverse economic
conditions and investor perceptions thereof (whether or not based on economic
reality) may impair liquidity in the lower grade securities market and may
cause the prices the Fund receives for its lower grade securities to be
reduced. In addition, the Fund may experience difficulty in liquidating a
portion of its portfolio when necessary to meet the Fund's liquidity needs or
in response to a specific economic event such as deterioration in the
creditworthiness of the issuers. Under such conditions, judgment may play a
greater role in valuing certain of the Fund's portfolio instruments than in the
case of instruments trading in a more liquid market. In addition, the Fund may
incur additional expense to the extent that it is required to seek recovery
upon a default on a portfolio holding or to participate in the restructuring of
the obligation.
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Distressed Securities
As a component of the Fund's investment in "junk bonds," the Fund may
invest up to 20% of its total assets in Distressed Securities. Investment in
Distressed Securities is speculative and involves significant risk. Distressed
Securities frequently do not produce income while they are outstanding and may
require the Fund to bear certain extraordinary expenses in order to protect and
recover its investment. Therefore, to the extent the Fund pursues its secondary
objective of capital appreciation through investment in Distressed Securities,
the Fund's ability to achieve current income for Shareholders may be
diminished.
Smaller Companies in General
The Fund may invest in smaller high yield issues which are those of
companies whose total outstanding high yield debt is $100 million or less. Such
smaller high yield issues may be issued by any company but are often issued by
smaller companies. In addition to the general risks of such securities, those
issued by smaller companies often have higher market risks associated with
them. They may have limited product lines, markets, market share and financial
resources, or they may be dependent on a small or inexperienced management
team. In addition, their securities may be less liquid, have more limited
volumes and be subject to greater and more abrupt price swings than securities
of larger companies.
Leverage
The use of leverage by the Fund creates an opportunity for increased net
income and capital appreciation for the Shares, 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 Shares and the risk that
fluctuations in interest rates on borrowings and short-term debt or in the
dividend rates on any preferred shares may affect the return to the
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, DLJIM 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 may be subject
to certain restrictions on investments imposed by guidelines of one or more
Rating Agencies, which may issue ratings for the corporate debt securities or
preferred shares issued by the Fund. These guidelines 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 DLJIM in managing the Fund's portfolio in
accordance with the Fund's investment objectives and policies. Subject to
applicable regulatory requirements, the Fund at times may borrow from
affiliates of DLJIM, provided that the terms of such borrowings are no less
favorable than those available from comparable sources of funds in the
marketplace.
Foreign Securities
The Fund may invest up to 30% of its total assets in securities of issuers
domiciled outside of the United States or that are denominated in various
foreign currencies and multinational foreign currency units. Investing in
securities of foreign entities and securities denominated in foreign currencies
involves certain risks not involved in domestic investments, including, but not
limited to, fluctuations in foreign exchange rates, future foreign political
and economic developments, different legal and accounting systems and the
possible imposition of exchange controls or other foreign governmental laws or
restrictions. Securities prices in different countries are subject to different
economic, financial, political and social factors. Since the Fund may invest in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates may affect the value of securities
in the Fund and the unrealized appreciation or depreciation of investments.
Currencies of certain countries may be volatile and therefore may affect the
value of securities denominated in such currencies. In addition, with respect
to certain foreign countries, there is the possibility of expropriation of
assets, confiscatory taxation, difficulty in obtaining or enforcing a court
judgment, economic, political or social instability or diplomatic developments
that
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could affect investments in those countries. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross domestic product, rates of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments position.
Certain foreign investments also may be subject to foreign withholding taxes.
These risks often are heightened for investments in smaller, emerging capital
markets.
As a result of these potential risks, DLJIM may determine that,
notwithstanding otherwise favorable investment criteria, it may not be
practicable or appropriate to invest in a particular country. The Fund may
invest in countries in which foreign investors, including DLJIM, have had no or
limited prior experience.
Illiquid Securities
The Fund may invest in securities for which no readily available market
exists or are otherwise considered illiquid. The Fund may not be able readily
to dispose of such securities at prices that approximate those at which the
Fund could sell such securities if they were more widely traded and, as a
result of such illiquidity, the Fund may have to sell other investments or
engage in borrowing transactions if necessary to raise cash to meet its
obligations.
Non-Diversified Status
The Fund is classified as a "non-diversified" management investment
company under the Investment Company Act, which means that the Fund may invest
a greater portion of its assets in a limited number of issuers than would be
the case if the Fund were classified as a "diversified" management investment
company. Accordingly, the Fund may be subject to greater risk with respect to
its portfolio securities than a management investment company that is
"diversified" because changes in the financial condition or market assessment
of a single issuer may cause greater fluctuations in the net asset value of the
Shares.
Market Price, Discount and Net Asset Value of Shares
Shares of closed-end management investment companies in the past
frequently have traded at a discount from their net asset values. Whether
investors will realize gains or losses upon the sale of Shares will not depend
directly upon the Fund's net asset value, but will depend upon the market price
of the Shares at the time of sale. Since the market price of the Shares will be
determined by such factors as relative demand for and supply of the Shares in
the market, general market and economic conditions and other factors beyond the
control of the Fund, the Fund cannot predict whether the Shares will trade at,
below or above the net asset value or at, below or above the initial offering
price. The Shares are designed primarily for long-term investors, and investors
in the Shares should not view the Fund as a vehicle for trading purposes.
Anti-Takeover Provisions
The Fund's Declaration of Trust contains provisions limiting (i) the
ability of other entities or persons to acquire control of the Fund, (ii) the
Fund's freedom to engage in certain transactions, and (iii) the ability of the
Board or Shareholders to amend the Declaration of Trust. These provisions of
the Declaration of Trust may be regarded as "anti-takeover" provisions. These
provisions could have the effect of depriving the Shareholders of opportunities
to sell their Shares at a premium over prevailing market prices by discouraging
a third party from seeking to obtain control of the Fund in a tender offer or
similar transaction.
Year 2000 Risks
Like other investment companies, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by DLJIM and the Fund's other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." DLJIM is
taking steps to address the Year 2000 Problem with respect to the computer
systems that it uses and to obtain assurances that comparable steps are being
taken by the Fund's other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Fund.
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<PAGE>
INVESTMENT RESTRICTIONS
In addition to its investment objectives, the Fund has adopted investment
restrictions numbered 1 through 6 as fundamental policies, which cannot be
changed without approval by the holders of a majority (as defined in the
Investment Company Act) of the Fund's outstanding voting shares. Unless
expressly designated as fundamental, all other policies of the Fund may be
changed by the Board without Shareholder approval. The percentage restrictions
set forth below, as well as those contained elsewhere in this Prospectus, apply
at the time a transaction is effected, and a subsequent change in a percentage
resulting from market fluctuations or any other cause other than an action by
the Fund will not require the Fund to dispose of portfolio securities or take
other action to satisfy the percentage restriction. The Fund may not:
1. Invest more than 25% of the value of its total assets in the securities
of issuers in a single industry, provided that there shall be no limitation on
the purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
2. Invest in commodities or commodity contracts, except that the Fund may
purchase and sell commodities to the maximum extent permitted by regulations of
the CFTC (or any successor) that would not require registration of the Fund as
a commodity pool.
3. Purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs, but the Fund may purchase and
sell securities that are secured by real estate or issued by companies that
invest or deal in real estate or real estate investment trusts. If real estate
is delivered as a result of foreclosure, the Fund may hold such property until
it can dispose of it in an orderly manner at a reasonable price.
4. Issue senior securities or borrow money except as permitted by the
Investment Company Act.
5. Make loans to others, except through the purchase of debt obligations
and the entry into repurchase agreements. However, the Fund may lend its
portfolio securities in an amount not to exceed 331/3% of the value of its
total assets. Any loans of portfolio securities will be made according to
guidelines established by the SEC and the Board.
6. Act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed an underwriter under the Securities Act of 1933,
as amended, by virtue of disposing of portfolio securities.
7. Invest in the securities of a company for the purpose of exercising
management or control, but the Fund will vote the securities it owns in its
portfolio as a shareholder in accordance with its views.
8. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings or leverage and to the extent
necessary related to the purchase of securities on a when-issued or forward
commitment basis, the deposit of assets in escrow in connection with writing
covered options, and collateral and initial or variation margin or similar
arrangements with respect to options, forward contracts, futures contracts,
options on futures contracts, swaps, caps, collars, floors and other derivative
instruments.
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<PAGE>
MANAGEMENT OF THE FUND
Investment Manager
DLJIM, located at 277 Park Avenue, New York, New York 10172, was formed in
1996 and serves as the Fund's investment manager. DLJIM is a wholly-owned
subsidiary of DLJ. As of June 30, 1998, aggregate assets under the management of
DLJIM exceeded $5 billion. As of June 30, 1998, DLJAM, which includes DLJIM,
managed or administered assets of approximately $17 billion.
DLJ, a member of the New York Stock Exchange, is a wholly-owned subsidiary
of Donaldson, Lufkin & Jenrette, Inc. ("DLJ, Inc."), a major international
supplier of financial services. DLJ, Inc. is an independently operated,
indirect subsidiary of The Equitable Companies Incorporated, a holding company
controlled by AXA-UAP ("AXA"), a member of a large French insurance group. AXA
is indirectly controlled by a group of four French mutual insurance companies.
DLJIM supervises and assists in the overall management of the Fund's
affairs under an investment management agreement with the Fund, subject to the
authority of the Board in accordance with Delaware law. The Fund's primary
portfolio manager is Lars M. Berkman. Mr. Berkman has been employed by DLJIM as
Senior Vice President and Director of High Yield Investments since March 1998.
Previously, Mr. Berkman spent 19 years at The Prudential Insurance Company of
America ("Prudential"), most recently as Managing Director in charge of High
Yield in Prudential Investments, the investment management subsidiary of
Prudential. In that capacity, Mr. Berkman managed a $4.5 billion high yield
mutual fund and supervised the management of seven other high yield portfolios
for pension and mutual fund clients. In 1997, the class A shares of the high
yield mutual fund managed by Mr. Berkman carried a Morningstar rating of 5
stars for the risk and return profile over the last five years. Before that,
Mr. Berkman worked in various investment management business units at
Prudential, primarily involved in leveraged buyout investing.
In selecting investments for the Fund's portfolio, DLJIM will seek to
identify issuers and industries that DLJIM believes are likely to experience
stable or improving financial conditions. DLJIM believes that this strategy
should enhance the Fund's ability to earn high current income while also
providing opportunities for capital appreciation. DLJIM's analysis may include
consideration of general industry trends, the issuer's managerial strength,
market position, financial condition, debt maturity schedules and liquidity.
DLJIM may also consider relative values based on cash flow, interest or
dividend coverage, asset coverage and earnings prospects. The Fund will seek
its secondary objective of capital appreciation by investing in securities that
DLJIM expects may appreciate in value as a result of favorable developments
affecting the business or prospects of the issuer which may improve the
issuer's financial condition and credit rating or as a result of declines in
long-term interest rates. There can be no assurance the Fund's strategies will
be successful.
DLJIM and its affiliates may sponsor and advise new investment vehicles
with investment objectives, policies and restrictions similar or identical to
those of the Fund.
Management and Administration Agreements
DLJIM provides investment management services pursuant to the Investment
Management Agreement (the "Management Agreement") dated July 27, 1998 with the
Fund. As compensation for DLJIM's management services to the Fund, the Fund has
agreed to pay DLJIM a Management Fee at the annual rate of 1% of the value of
the Managed Assets. During the period in which the Fund is utilizing leverage,
the Management Fee payable to DLJIM will be higher than if the Fund did not
utilize a leveraged capital structure because the fees are calculated as a
percentage of the Managed Assets, including those purchased with leverage. A
majority of the Trustees who are not "interested persons" shall monitor and
resolve any potential conflict that exists regarding DLJIM and the calculation
of its fees as described herein. The Management Agreement is subject to annual
approval by (i) the Fund's Board or (ii) vote of a majority (as defined in the
Investment Company Act) of the outstanding voting securities of the Fund,
provided that in either event the continuance is also approved by a majority of
the Board members who are not "interested persons" (as defined in the
Investment Company Act) of the Fund or DLJIM, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Management
Agreement was approved by the Fund's Board, including a majority of the Board
members who are not "interested persons" of any party to the Management
Agreement, at a meeting held on July 16, 1998. The Management Agreement was
approved by the Fund's initial shareholder on July 16, 1998. The Management
Agreement is terminable without penalty, on 60 days' notice, by the Fund's
Board or by vote of the holders of a majority of the Shares, or, on not less
than 90 days' notice, by DLJIM. The Management Agreement will terminate
automatically in the event of its assignment (as defined in the Investment
Company Act). First Data provides administration services to the Fund pursuant
to the Services Agreement (the "Administration Agreement") dated July 27, 1998
with the Fund. As
31
<PAGE>
compensation for First Data's administration services to the Fund, the Fund has
agreed to pay an Administration Fee at the rate of $50,000 per year.
DLJIM manages the Fund's investments in accordance with the stated
policies of the Fund, subject to the approval of the Fund's Board. DLJIM is
responsible for investment decisions, and provides the Fund with portfolio
managers who are authorized by the Board to execute purchases and sales of
securities. DLJIM and its affiliates also maintain a research department with a
professional staff of portfolio managers and securities analysts who provide
research services for the Fund as well as for other funds and investment
advisory clients advised by DLJIM and its affiliates.
DLJIM and its affiliates may have deposit, loan and commercial banking or
other relationships with the issuers of securities purchased by the Fund. DLJIM
has informed the Fund that in making its investment decisions it does not
obtain or use material non-public information that DLJ, or its affiliates, may
possess with respect to such issuers.
DLJIM maintains office facilities on behalf of the Fund, and furnishes
statistical, and research data, clerical help, accounting, data processing,
bookkeeping and internal auditing and certain other required services to the
Fund. DLJIM also may make such advertising and promotional expenditures, using
its own resources, as it deems appropriate.
Expenses
All expenses incurred in the operation of the Fund are borne by the Fund,
except to the extent specifically assumed by DLJIM. The expenses borne by the
Fund include: organizational costs, taxes, interest, brokerage fees and
commissions, if any, fees of Board members who are not officers, trustees,
employees or holders of 5% or more of the outstanding voting securities of
DLJIM or any of its affiliates, SEC fees, state Blue Sky qualification fees,
exchange listing fees, advisory and administration fees, shareholder servicing
fees, charges of custodians, transfer and dividend disbursing agents' fees,
certain insurance premiums, industry association fees, outside auditing and
legal expenses, costs of maintaining the Fund's existence, expenses of
reacquiring Shares, expenses in connection with the Fund's Automatic Dividend
Reinvestment Plan, costs of maintaining the required books and accountings
(including the costs of calculating the net asset value of the Shares), costs
of independent pricing services, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), a pro rata
portion of certain employment costs for time spent on Fund operations (other
than the provision of investment advice) of all personnel employed by the
Adviser who devote substantial time to Fund operations, costs of preparing and
printing prospectuses, and mailing Share certificates, proxy statements and
costs of Shareholders' reports and meetings, any extraordinary expenses and
other expenses properly payable by the Fund.
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<PAGE>
TRUSTEES AND OFFICERS OF THE FUND
The Board is composed of five Trustees who supervise the Fund's investment
activities and review contractual arrangements with companies that provide the
Fund with services. The following lists the Trustees and officers and their
positions with the Fund and their present and principal occupations during the
past five years. Each Trustee who is an "interested person" of the Fund (as
defined in the Investment Company Act) is indicated by an asterisk (*). Each
Trustee who is not an "interested person" serves on the Audit Committee of the
Board. Each Trustee serves as a trustee for registered investment companies
which are affiliates of the Fund and DLJAM.
*G. Moffett Cochran, 47, Chairman of the Board and President of the Fund,
is Chairman of DLJAM, with which he has been associated since prior to 1993.
Prior to his association with the Fund and DLJAM, Mr. Cochran was a Senior Vice
President with Bessemer Trust Companies.
Robert E. Fischer, 68, Trustee of the Fund, has been a partner at the law
firm of Wolf, Block, Schorr and Solis-Cohen LLP (or its predecessor firm) since
prior to 1993.
*Martin Jaffe, 51, Trustee, Vice President, Secretary and Treasurer of the
Fund, is Chief Operating Officer of DLJAM, with which he has been associated
since prior to 1993.
Wilmot H. Kidd, III, 56, Trustee of the Fund, has been President of
Central Securities Corporation since prior to 1993.
John W. Waller, III, 46, Trustee of the Fund, has been Chairman of Waller
Capital Corporation, an investment banking firm, since prior to 1993.
Lars M. Berkman, 49 , Vice President of the Fund, has been associated with
DLJAM since March 1998. Prior to his association with DLJAM, Mr. Berkman was a
Managing Director with Prudential since prior to 1993.
Brian Kammerer, 40, Vice President of the Fund, has been associated with
DLJAM since prior to 1993.
The address of each officer of the Fund is 277 Park Avenue, New York, New
York 10172.
The officers and Trustees of the Fund as a group owned beneficially less
than 1% of the total Shares of the Fund outstanding as of July 27, 1998.
No officer or employee of the Fund receives any compensation from the Fund
for serving as an officer or Trustee of the Fund. The Fund pays each Trustee
who is not an "interested person" $ 2,000 per Board meeting attended, $1,000
per audit committee meeting attended and reimbursement for travel and
out-of-pocket expenses.
Compensation Table
<TABLE>
<CAPTION>
Total
Compensation
Pension or from the
Aggregate Retirement Benefits Estimated Fund Complex
Compensation Accrued as Part Annual Benefits Paid to Board
Name of Board Member from Fund(1) of Fund Expenses upon Retirement Member
- --------------------------------------- -------------- --------------------- ----------------- --------------
<S> <C> <C> <C> <C>
G. Moffett Cochran, Trustee .......... $ 0 None None $ 0
Robert E. Fischer, Trustee ........... 10,000 None None 20,000
Martin Jaffe, Trustee ................ 0 None None 0
Wilmot H. Kidd, III, Trustee ......... 10,000 None None 20,000
John W. Waller, III, Trustee ......... 10,000 None None 20,000
</TABLE>
(1) The Fund anticipates paying each independent Trustee approximately
$10,000 in each calendar year.
33
<PAGE>
PORTFOLIO TRANSACTIONS
DLJIM assumes general supervision over placing orders on behalf of the
Fund for the purchase or sale of portfolio securities. Allocation of brokerage
transactions, including their frequency is made in the best judgment of DLJIM
and in a manner deemed fair and reasonable to Shareholders. The primary
consideration is prompt execution of orders at the most favorable net price.
Subject to this consideration, the brokers selected will include those that
supplement DLJIM's research facilities with statistical data, investment
information, economic facts and opinions. Information so received is in
addition to and not in lieu of services required to be performed by DLJIM and
DLJIM's fees are not reduced as a consequence of the receipt of such
supplemental information. Such information may be useful to DLJIM in serving
both the Fund and other investment advisory clients and funds which it advises
and, conversely, supplemental information obtained by the placement of business
of other clients may be useful to DLJIM in carrying out its obligations to the
Fund.
In allocating brokerage transactions, DLJIM seeks to obtain the best
execution of orders at the most favorable net price. Subject to this
determination, DLJIM may consider, among other things, the receipt of research
services and/or the sale of other funds managed, advised or administered by
DLJIM or its affiliates as factors in the selection of broker-dealers to
execute portfolio transactions for the Fund. The Fund has no obligation to deal
with any broker or dealer in execution of transactions. While DLJIM generally
seeks reasonably competitive fees, commissions or spreads, the Fund does not
necessarily pay the lowest fee, commission or spread available. DLJIM may
allocate brokerage transactions to DLJ pursuant to procedures adopted by the
Board which comply with the Investment Company Act. Such procedures state that
any commissions charged by DLJ will be fair and reasonable and will not exceed
DLJ's usual and customarily charged commissions.
Securities in which the Fund may invest are traded primarily in the
over-the-counter markets, and the Fund intends to deal directly with the
dealers who make markets in the securities involved, except in those
circumstances where better prices and execution are available elsewhere.
Because of the affiliation of DLJ with the Fund, the Fund is prohibited from
engaging in certain transactions involving DLJ and its affiliates except
pursuant to an exemptive order or otherwise in compliance with the provisions
of the Investment Company Act and the rules and regulations promulgated
thereunder. Included among such restricted transactions will be purchases from
or sales to DLJ and its affiliates of securities in transactions in which it
acts as principal. In addition, the Fund is prohibited from engaging in any
transaction in which DLJIM may possess, or has access to through DLJ, material
non-public information. DLJIM believes that these restrictions will not
materially inhibit the ability of the Fund to seek to achieve its investment
objectives. The Fund may purchase securities for the Fund during the existence
of any underwriting syndicate of which DLJ is a member pursuant to procedures
approved by the Board which comply with the rules adopted by the SEC.
Brokers will be selected because of their ability to handle special
executions such as are involved in large block trades or broad distributions,
provided the primary consideration is met. Large block trades may, in certain
cases, result from two or more funds or investment advisory clients advised by
DLJIM or its affiliates being engaged simultaneously in the purchase or sale of
the same security. Certain of the Fund's transactions in securities of foreign
issuers may not benefit from the negotiated commission rates available to the
Fund for transactions in securities of domestic issuers. When transactions are
executed in the over-the-counter market, the Fund will deal with the primary
market makers unless a more favorable price or execution otherwise is
obtainable. Foreign exchange transactions are made with banks or institutions
in the interbank market at prices reflecting a mark-up or mark-down and/or
commission.
Portfolio turnover may vary from year to year as well as within a year. It
is anticipated that in any fiscal year the turnover rate may approach the 300%
level for the Fund. In periods in which extraordinary market conditions
prevail, DLJIM will not be deterred from changing the Fund's investment
strategy as rapidly as needed, in which case higher turnover rates can be
anticipated which would result in greater brokerage expenses. The overall
reasonableness of brokerage commissions paid is evaluated by DLJIM based upon
its knowledge of available information as to the general level of commissions
paid by other institutional investors for comparable services. A turnover rate
of 100% is equivalent to the Fund buying and selling all of the securities in
its portfolio once in the course of a year. Higher portfolio turnover rates
usually generate additional brokerage commissions and expenses, and the
short-term gains realized from these transactions are taxable to Shareholders
as ordinary income when distributed to them.
Investment decisions for the Fund are made independently from those of
other investment companies and investment advisory clients advised by DLJIM.
If, however, such other investment companies or investment
34
<PAGE>
advisory clients desire to invest in, or dispose of, the same securities as the
Fund, available investments or opportunities for sales will be allocated
equitably to each investment company and investment advisory client. In some
cases, this procedure may adversely affect the size of the position obtained
for or disposed of by the Fund or the price paid or received by the Fund.
Securities held by the Fund also may be held by or be appropriate
investments for other funds or investment advisory clients for which DLJIM or
an affiliate acts as an adviser. Because of different investment objectives or
other factors, a particular security may be bought for one or more clients when
one or more clients are selling the same security. If purchases or sales of
securities for the Fund or other funds for which DLJIM or an affiliate acts as
investment adviser or for their advisory clients arise for consideration at or
about the same time, transactions in such securities will be made, insofar as
feasible, for the respective funds and clients in a manner deemed equitable to
all. To the extent that transactions on behalf of more than one client during
the same period may increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price.
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<PAGE>
DETERMINATION OF NET ASSET VALUE
The Fund's investments are valued after the close of regular trading on
the New York Stock Exchange on the last business day of each week, using
available market quotations or at fair value. For purposes of determining the
net asset value, the value of the securities held by the Fund plus any cash or
other assets (including interest accrued but not yet received) minus all
liabilities (including accrued expenses) is divided by the total number of
Shares outstanding at such time. The Fund determines and makes available for
publication the net asset value of its Shares weekly. Currently, the net values
of shares of publicly traded closed-end investment companies investing in debt
securities are published in Barron's, the Monday edition of The Wall Street
Journal and the Monday and Saturday editions of The New York Times.
Substantially all of the Fund's investments (excluding short-term
investments) are valued by one or more independent pricing services (the
"Service") approved by the Board. Securities valued by the Service for which
quoted bid prices in the judgment of the Service are readily available and are
representative of the bid side of the market are valued at the mean between the
quoted bid prices (as obtained by the Service from dealers in such securities)
and asked prices (as calculated by the Service based upon its evaluation of the
market for such securities). Other investments valued by the Service are
carried at fair value as determined by the Service, based on methods which
include consideration of: yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions. Debt securities which mature in less than 60 days are valued
at amortized cost (unless the Board determines that this method does not
represent fair value), if their original maturity was 60 days or less or by
amortizing the value as of the 61st day prior to maturity, if their original
term to maturity exceeded 60 days. Other investments that are readily
marketable portfolio securities listed on an exchange are valued at the last
sale price at the close of the exchange on the business day as of which such
value is being determined. If there has been no sale on such day, the
securities are valued at the mean of the closing bid and asked prices on such
day. If no bid or asked prices are quoted on such day, then the security is
valued by such method as the Board shall determine in good faith to reflect its
fair value. Readily marketable securities, including certain options, not
listed on an exchange but admitted to trading on the National Association of
Securities Dealers Automated Quotations, Inc. ("NASDAQ") National List (the
"List") are valued in like manner. Portfolio securities traded on more than one
exchange are valued at the last sale price on the business day as of which such
value is being determined at the close of the exchange representing the
principal market for such securities. Readily marketable securities, including
certain options traded only in the over-the-counter market and listed
securities whose primary market is believed by DLJIM to be over-the-counter
(excluding those admitted to trading on the List) are valued at the mean of the
current bid and asked prices as reported by such sources as the Board deem
appropriate to reflect their fair market value.
Options, futures contracts and options thereon which are traded on
exchanges are valued at their last sale or settlement price as of the close of
the exchanges or, if no sales are reported, at the average of the quoted bid
and asked prices as of the close of the exchange. Portfolio securities
underlying listed call options will be valued at their market price and
reflected in net assets accordingly. Premiums received on call options written
by the Fund will be included in the liability section of the financial
statements as a deferred credit and subsequently adjusted (marked-to-market) to
the current market value of the option written.
Any assets or liabilities initially expressed in terms of foreign currency
will be translated into U.S. dollars at the prevailing rates of exchange or, if
no such rate is quoted on such date, at the exchange rate utilized on the
previous business day or at such other quoted market exchange rate as may be
determined to be appropriate by DLJIM. Expenses and fees, including the
Management Fee, are accrued weekly and taken into account for the purpose of
determining the net asset value of the Shares.
Securities that are not valued by the Service are valued at fair value as
determined in good faith by the Board utilizing such factors as the Board deems
appropriate. The Board will review the method of such valuations on a current
basis.
The holidays (as observed) on which the New York Stock Exchange is closed
currently are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
36
<PAGE>
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment
income monthly. All net realized capital gains, if any, are expected to be
distributed to the Shareholders at least annually. The Fund will distribute to
the Shareholders at least annually all net realized gains from foreign currency
transactions, if any. The Fund may make additional distributions if necessary
to avoid a 4% excise tax on certain undistributed income and capital gain. See
"Taxes." The Fund may change the foregoing distribution policy if its
experience indicates, or its Board for any reason determines, that changes are
desirable.
Under the Investment Company Act, the Fund is not permitted to incur
indebtedness unless after such incurrence the Fund has an asset coverage of at
least 300% of the aggregate outstanding principal balance of indebtedness.
Additionally, under the Investment Company Act, the Fund may not declare any
dividend or other distribution upon any class of its capital shares, or
purchase any such capital shares, unless the aggregate indebtedness of the Fund
has, at the time of the declaration of any such dividend or other distribution
or at the time of any such purchase, an asset coverage of at least 300% after
deducting the amount of such dividend, other distribution, or purchase price,
as the case may be. While any preferred shares are outstanding, the Fund may
not declare any cash dividend or other distribution on Shares, unless at the
time of such declaration, (1) all accumulated preferred share dividends have
been paid and (2) the net asset value of the Fund's portfolio (determined after
deducting the amount of such dividend or other distribution) is at least 200%
of the liquidation value of the outstanding preferred shares (expected to be
equal to the original purchase price per share plus any accumulated and unpaid
dividends thereon). In addition to the limitations imposed by the Investment
Company Act as described in this paragraph certain lenders may impose
additional restrictions on the payment of dividends or other distributions on
the Shares in the event of a default on the Fund's borrowings. Any limitation
on the Fund's ability to make distributions on Shares could in certain
circumstances impair the ability of the Fund to maintain its qualification for
taxation as a regulated investment company. See "Other Investment
Practices--Leverage" and "Taxes."
See "Automatic Dividend Reinvestment Plan" for information concerning the
manner in which dividends and other distributions to Shareholders may be
automatically reinvested in Shares of the Fund. Dividends and other
distributions will be taxable to Shareholders whether they are reinvested in
Shares of the Fund or received in cash.
The Fund expects that it will commence paying dividends approximately 60
days after the completion of the offering of the Shares.
37
<PAGE>
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "Plan"),
unless a Shareholder otherwise elects, all dividends and capital gain
distributions will be automatically reinvested by First Data 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 First Data 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 First Data, as the Dividend Disbursing Agent, at the address
set forth below. Participation in the Plan is completely 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 which typically
will be approximately ten days. 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. See "Taxes."
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<PAGE>
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 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.
39
<PAGE>
TAXES
The following discussion is a general summary of certain U.S. federal
income tax considerations relating to the Fund and to an investment in the
Shares of the Fund. The discussion is based upon the Internal Revenue Code of
1986, as amended (the "Code"), applicable Treasury regulations and
administrative rulings and pronouncements of the Internal Revenue Service, all
as in effect on the date hereof and which are subject to change, possibly
retroactively. This summary does not purport to discuss all of the income tax
consequences applicable to the Fund or to all categories of investors, some of
whom may be subject to special rules (including dealers in securities,
insurance companies, tax-exempt entities and non-U.S. persons). Prospective
investors are urged to consult their tax advisors regarding the federal income
tax consequences of ownership of the Shares of the Fund, as well as any tax
consequences that may arise under the laws of any foreign, state, local or
other taxing jurisdiction.
For purposes of the following discussion, a Non-U.S. Shareholder is a
Shareholder who is not (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized under the laws of the United
States or any state thereof, (iii) an estate, the income of which is subject to
United States federal income taxation regardless of its source, (iv) a trust
(a) the administration over which a United States court can exercise primary
supervision and (b) all of the substantial decisions of which one or more
United States persons have the authority to control, or (v) a Shareholder who
is otherwise subject to United States federal income taxation on a net income
basis in respect of the Shares.
Tax Status
The Fund intends to elect to be, and to qualify to be treated as, a
regulated investment company ("RIC") under the Code. For each taxable year that
the Fund so qualifies, the Fund (but not Shareholders) will be relieved of
federal income tax on that part of its investment company taxable income
(consisting generally of net investment income, net short-term capital gain and
net gains from certain foreign currency transactions) and net capital gain that
is distributed to Shareholders.
In order to qualify for treatment as a RIC under the Code, the Fund must
make an election to be so treated and must distribute to Shareholders for each
taxable year at least 90% of its investment company taxable income
("Distribution Requirement") and must meet several additional requirements.
These requirements include the following: (1) the Fund must derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from
options, futures or forward contracts) derived with respect to its business of
investing in securities or those currencies ("Income Requirement"); (2) at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. government
securities, securities of other RICs and other securities that are limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value of
the Fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities; and (3) at the close of each quarter of
the Fund's taxable year, not more than 25% of the value of its total assets may
be invested in securities (other than U.S. government securities or the
securities of other RICs) of any one issuer or of two or more issuers which the
Fund controls and which are engaged in the same or related trades or
businesses.
The Fund will be subject to a non-deductible 4% excise tax ("Excise Tax")
to the extent that it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31st of that year, plus
certain other amounts. For these purposes, any such income retained by the
Fund, and on which it pays federal income tax, will be treated as having been
distributed.
Nature of the Fund's Investments
Some of the investment practices that may be employed by the Fund will be
subject to special provisions that, among other things, may defer the use of
certain losses of the Fund and affect the holding period of the securities held
by the Fund and, particularly in the case of transactions in or with respect to
foreign currencies, the character of the gains or losses realized. These
provisions may also require the Fund to mark-to-market some of the positions in
its portfolio (i.e., treat as sold for their fair market value) or to accrue
original issue discount, both of which may cause the Fund to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the Distribution Requirement and avoid imposition of the Excise Tax.
Moreover, the Fund will be required to include in its gross income each year
any "interest" distributed in the form of additional securities on
payment-in-kind securities. In order to satisfy the Distribution Requirement
and avoid the Excise Tax, the Fund may be required to liquidate portfolio
securities or borrow funds. The Fund intends to monitor its transactions and
may make certain elections in order to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company.
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<PAGE>
The Fund intends to invest in, among other things, foreign securities. If,
in connection with such investments, the Fund owns shares of stock in certain
foreign investment entities, referred to as passive foreign investment
companies ("PFICs"), the Fund may be subject to U.S. federal income tax, and
additional charges in the nature of interest, on a portion of any "excess
distribution" from such company or gain from the disposition of such shares,
even if the entire distribution or gain is distributed by the Fund to
Shareholders. If the Fund were able and elected to treat a PFIC as a "qualified
electing fund," in lieu of the treatment described above, the Fund would be
required each year to include in income, the Fund's pro rata share of the
ordinary earnings and net capital gains of the company, whether or not actually
received by the Fund. Newly enacted provisions of the Code would each allow
certain regulated investment companies to elect to mark-to-market their stock
in certain PFICs at the end of each taxable year, whereby the Fund would
include in its taxable income each year any unrealized gain on such PFIC
investments. In order to satisfy the Distribution Requirement under either
election, maintain its qualification as a regulated investment company, and
avoid income taxes and the Excise Tax, the Fund may be required to liquidate
portfolio securities that it might otherwise have continued to hold. In the
case of the proposed Treasury Regulations, there can be no assurance that these
regulations will be finalized in the form proposed or as to the effective date
of any such final regulations.
Income received by the Fund from investments in foreign securities may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Such taxes will not be deductible or creditable by
Shareholders (but may be deductible by the Fund), and may be withheld at a
higher rate than that which would be applicable if the underlying securities
had been held directly by a Shareholder. Tax conventions between certain
countries and the United States may reduce or eliminate those taxes.
Taxation of Shareholders
Dividends from the Fund's investment company taxable income (whether
received in cash or reinvested in additional Fund Shares) generally are taxable
to Shareholders as ordinary income. Distributions of the Fund's net capital
gain (whether received in cash or reinvested in additional Fund Shares), when
designated as such, are taxable to Shareholders as long-term capital gain,
regardless of how long they have held their Fund Shares. See below for a
summary of the tax rates applicable to capital gain distributions. A
participant in the Automatic Dividend Reinvestment Plan will be treated as
having received a distribution in the amount of the cash used to purchase
Shares on his or her behalf, including a pro rata portion of the brokerage fees
incurred by the Transfer Agent. Distributions by the Fund to Shareholders in
any year that exceed the Fund's earnings and profits generally may be applied
by each Shareholder against his or her basis for the Shares and will be taxable
at capital gains rates (assuming the Shares are held as capital assets) to any
Shareholder only to the extent the distributions to the Shareholder exceed the
Shareholder's basis for his or her Shares. The Fund may retain for investment
its net capital gain. However, if the Fund does so, it will be subject to a tax
of 35% on the amount retained. In that event, the Fund expects to designate the
retained amount as undistributed capital gain in a notice to Shareholders, who
(i) will be required to include in income for tax purposes, as long-term
capital gain, their proportionate shares of such undistributed amount, (ii)
will be entitled to credit their proportionate shares of the 35% tax paid by
the Fund against their federal income tax liabilities, if any, and to claim
refunds to the extent the credit exceeds those liabilities, and (iii) will
increase the tax basis of their Fund Shares by an amount equal to the
difference between the amount of undistributed capital gain included in their
gross income and the tax deemed paid by such Shareholders.
The Fund will notify Shareholders following the end of each calendar year
of the amounts of dividends and capital gain distributions paid (or deemed
paid) that year and undistributed capital gain designated for that year. The
information regarding capital gain distributions and undistributed capital gain
will designate the portion thereof subject to the different maximum rates of
tax applicable to noncorporate taxpayers' net capital gain indicated below.
Dividends and other distributions declared by the Fund in October,
November or December of any year and payable to Shareholders of record on a
specified date in such a month will be deemed to have been paid by the Fund and
received by the Shareholders on December 31st if the distributions are paid by
the Fund during the following January. Accordingly, those distributions will be
taxed to Shareholders for the year in which that December 31st falls.
An investor should be aware that, if Shares are purchased shortly before
the record date for any dividend or other distribution, the investor will pay
full price for the Shares and will receive some portion of the purchase price
back as a taxable distribution.
Upon the sale or exchange of Shares (including a sale pursuant to a Share
repurchase or tender offer by the Fund), a Shareholder generally will recognize
a taxable gain or loss equal to the difference between his or her adjusted
basis for the Shares and the amount received. Any such gain or loss will be
treated as a capital gain or
41
<PAGE>
loss if the Shares constitute capital assets in the Shareholder's hands and
will be long-term capital gain or loss if the Shares have been held for more
than one year. See below for a discussion of the tax rates applicable to
capital gains. Any loss recognized on a sale or exchange of Shares that were
held for six months or less will be treated as long-term, rather than
short-term, capital loss to the extent of any capital gain distributions
previously received (or deemed to be received) thereon. A loss realized on a
sale or exchange of Shares will be disallowed to the extent those Shares are
replaced by other Shares within a period of 61 days beginning 30 days before
and ending 30 days after the date of disposition of the Shares (which could
occur, for example, as a result of participation in the Automatic Dividend
Reinvestment Plan). In that event, the basis of the replacement Shares will be
adjusted to reflect the disallowed loss.
Under the Taxpayer Relief Act of 1997 ("1997 Tax Act"), the maximum tax
rates applicable to net capital gains recognized by individuals and other
non-corporate taxpayers are generally (i) the same as ordinary income tax rates
for capital assets held for one year or less; (ii) 28% for capital assets held
for more than one year but not more than 18 months and (iii) 20% (10% for
taxpayers in the 15% marginal tax bracket) for capital assets held for more
than 18 months. The 1997 Tax Act did not affect the maximum net capital gain
tax rate for corporations, which remains at 35%. The tax rates described above
will apply to distributions of net capital gain by the Fund (if, as expected,
the Fund designates net capital gain distributions as 28% rate gain
distributions or 20% rate gain distributions, in accordance with its holding
periods for the securities it sold that generated the distributed gains) as
well as to sales and exchanges of Shares. With respect to capital losses
recognized on dispositions of Shares held six months or less where such losses
are treated as long-term capital losses to the extent of prior capital gain
distributions received thereon (see discussion in the preceding paragraph), it
is unclear how such capital losses offset the capital gains referred to above.
Shareholders should consult their own tax advisers as to the application of the
new capital gains rates to their particular circumstances.
Back-up Withholding
The Fund is required to withhold 31% of all dividends, capital gain
distributions and repurchase proceeds payable to any individual Shareholders
and certain other non-corporate Shareholders who do not provide the Fund with a
correct taxpayer identification number. The Fund is also required to withhold
31% of all dividends and capital gain distributions payable to such
Shareholders who otherwise are subject to backup withholding.
Non-U.S. Shareholders
The foregoing discussion relating to taxation of Shareholders applies to
Non-U.S. Shareholders except to the extent provided below. A Non U.S.
Shareholder generally will be subject to withholding of United States federal
income tax at a 30% rate (or lower applicable treaty rate) on dividends from
the Fund (other than capital gain distributions) unless the dividends are (i)
"effectively connected" with a United States trade or business carried on by
such Shareholder or (ii), under certain income tax treaties, attributable to a
permanent establishment in the United States maintained by such Non-U.S.
Shareholder, in which case such dividends will be subject to United States
federal income tax on a net income basis in the same manner as if such Non-U.S.
Shareholder were a resident of the United States (and with respect to corporate
holders, also may be subject to an additional branch profits tax). Accordingly,
investment in the Fund is likely to be appropriate for a Non-U.S. Shareholder
only if such person can utilize a foreign tax credit or corresponding tax
benefit in respect of such United States withholding tax.
A Non-U.S. Shareholder generally will not be subject to United States
federal income tax on capital gain distributions and gains realized from the
sale of Shares unless (i) such Non-U.S. Shareholder is an individual and is
present in the United States for more than 182 days during the taxable year
(assuming that certain other conditions are met) or (ii) the gain is either (a)
effectively connected with the conduct of a United States trade or business of
such Non-U.S. Shareholder or (b), if an applicable treaty provides,
attributable to a permanent establishment in the United States maintained by
such Non-U.S. Shareholder. Gain that is either (a) effectively connected with
the conduct of a United States trade or business of a Non-U.S. Shareholder or
(b), if an applicable tax treaty provides, attributable to a permanent
establishment in the United States maintained by the Non-U.S. Shareholder will
be subject to United States federal income tax on a net income basis in the
same manner as if such Non-U.S. Shareholder were a resident of the United
States, and in the case of a corporation, may be subject to an additional
branch profits tax.
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax generally will
not apply to dividends paid to a Non-U.S. Shareholder at an address outside the
United States. Under certain circumstances, capital gain distributions and
proceeds from the sale of Shares paid to a Non-U.S. Shareholder may be subject
to the information reporting requirements and backup withholding at
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<PAGE>
the rate of 31% unless such Non-U.S. Shareholder certifies as to its Non-U.S.
Shareholder status under penalties of perjury or otherwise establishes an
exemption.
The United States Treasury Department recently issued final Treasury
regulations generally effective for payments made after December 31, 1999
concerning the withholding of tax and information reporting for certain amounts
paid to Non-U.S. Shareholders (the "Final Withholding Regulations"). Among
other things, the Final Withholding Regulations may require Non-U.S.
Shareholders to furnish new certification of their foreign status after
December 31, 1999. Prospective investors should consult their tax advisors
concerning the applicability and effect of the Final Withholding Regulations on
an investment in Shares.
The tax consequences to Non-U.S. Shareholders entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this summary. Non-U.S. Shareholders may be required to provide appropriate
documentation to establish their entitlement to the benefits of such a treaty.
Foreign investors are advised to consult their tax advisors with respect to the
tax implications of purchasing, holding and disposing of Shares.
General
The foregoing is only a brief summary of some of the important federal
income tax considerations generally affecting the Fund and Shareholders. There
may be other federal, state, local or foreign tax considerations applicable to
a particular investor. Prospective investors are urged to consult their tax
advisers regarding the specific federal income tax consequences of purchasing,
holding and disposing of Shares, as well as the effects of state, local and
foreign tax laws and any proposed tax law changes.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
July 28, 1998 (the "Underwriting Agreement"), the Underwriters named below, who
are represented by DLJ (the "Representative"), have severally agreed to
purchase from the Fund the respective number of Shares set forth opposite their
names below:
<TABLE>
<CAPTION>
Underwriters Number of Shares
- --------------------------------------------------------------- -----------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation ..........
Advest, Inc. .................................................
First Albany Corporation .....................................
Fahnestock & Co. Inc. ........................................
First of Michigan Corporation ................................
Gruntal & Co., L.L.C. ........................................
Interstate/Johnson Lane Corporation ..........................
Janney Montgomery Scott Inc. .................................
Sands Brothers & Co., Ltd. ...................................
Sutro & Co. Incorporated .....................................
Tucker Anthony Incorporated ..................................
---------
Total .....................................................
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the Shares hereby are subject
to approval by their counsel of certain legal matters and to certain other
conditions. The Underwriters are obligated to purchase and accept delivery of
all the Shares offered hereby (other than those Shares covered by the
over-allotment option described below) if any are purchased.
The Underwriters initially propose to offer the Shares in part directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and in part to certain dealers (including the Underwriters) at
such price less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may re-allow, to certain other dealers a concession
not in excess of $ per share. After the initial offering of the Shares, the
public offering price and other selling terms may be changed by the
Representatives at any time without notice. The Underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
The Fund has granted to the Underwriters an option, exercisable within 60
days after the date of the Underwriting Agreement, to purchase, from time to
time, in whole or in part, up to an aggregate of 6,000,000 additional Shares at
the initial public offering price less underwriting discounts and commissions.
The Underwriters may exercise such option solely to cover overallotments, if
any, made in connection with the offering. To the extent that the Underwriters
exercise such option, each Underwriter will become obligated, subject to certain
conditions, to purchase its pro rata portion of such additional shares based on
such Underwriter's percentage underwriting commitment as indicated in the
preceding table.
The Fund has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Fund has agreed not to offer or sell any additional common shares of
beneficial interest of the Fund, other than as contemplated by this Prospectus,
for a period of 180 days after the date of the Prospectus without the prior
written consent of DLJ.
Prior to the offering, there has been no established trading market for
the Shares. The initial public offering price for the Shares offered hereby has
been determined by negotiation among the Fund and the Representatives. There
can be no assurance, however, that the price at which the Shares will sell in
the public market after the offering will not be lower than the price at which
they are sold by the Underwriters.
The Shares have been approved for listing on the New York Stock Exchange
(the "NYSE") under the symbol "DHY," subject to official notice of issuance. In
order to meet the requirements for listing the Shares on the NYSE, the
Underwriters have undertaken to sell lots of 100 or more Shares to a minimum of
2,000 beneficial owners.
Other than in the United States, no action has been taken by the Fund or
the Underwriters that would permit a public offering of the Shares offered
hereby in any jurisdiction where action for that purpose is required. The
Shares offered hereby may not be offered or sold, directly or indirectly, nor
may this Prospectus or any other offering material or advertisements in
connection with the offer and sale of any such Shares be distributed or
published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations
44
<PAGE>
of such jurisdiction. Persons into whose possession this Prospectus comes are
advised to inform themselves about and to observe any restrictions relating to
the offering of Shares and the distribution of this Prospectus. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
Shares offered hereby in any jurisdiction in which such an offer or a
solicitation is unlawful.
In connection with the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Shares. Specifically, the Underwriters may overallot the offering, creating a
syndicate short position. The Underwriters may bid for and purchase Shares in
the open market to cover such syndicate short position or to stabilize the
price of the Shares. In addition, the underwriting syndicate may reclaim
selling concessions from syndicate members if the syndicate repurchases
previously distributed Shares in syndicate covering transactions, in
stabilization transactions or otherwise. These activities may stabilize or
maintain the market price of the Shares above independent market levels. The
Underwriters are not required to engage in these activities, and may end any of
these activities at any time.
The Fund anticipates that the Representative and certain other
Underwriters may from time to time act as brokers or dealers in connection with
the execution of its portfolio transactions after they have ceased to be
Underwriters and, subject to certain restrictions, may act as such brokers
while they are Underwriters. See "Management of the Fund."
Employees of DLJ, DLJAM and DLJIM and their respective affiliates, and
officers and trustees of the Fund and any other investment company advised by
DLJAM or DLJIM, may purchase shares in this offering at the price appearing on
the cover page of this Prospectus; provided that the shares must be held by the
investor for up to 90 days and, provided further that if the shares trade in the
secondary market at a premium over the public offering price when secondary
trading commences, sales to these associated persons with be canceled.
45
<PAGE>
DESCRIPTION OF SHARES
The Fund is a newly organized unincorporated business trust under the laws
of the State of Delaware organized on April 24, 1998. The Fund is authorized to
issue an unlimited number of Shares. Each Share has one vote and, when issued
and paid for in accordance with the terms of the offering, will be fully paid
and non-assessable. Shares are of one class and have equal rights as to
dividends and in liquidation. Shares have no preemptive, subscription or
conversion rights and are freely transferable. The Fund will send annual and
semi-annual financial statements to all its Shareholders.
The Fund has no present intention of offering additional Shares, except as
described herein and under the Automatic Dividend Reinvestment Plan, as it may
be amended from time to time. See "Automatic Dividend Reinvestment Plan." Other
offerings of Shares, if made, will require approval of the Board. The Board is
authorized, however, to classify and reclassify any unissued shares into one or
more additional or other classes or series as may be established from time to
time by setting or changing in any one or more respects the designations,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption of such shares and pursuant to such classification or
reclassification to increase or decrease the number of authorized shares of any
existing class or series. The Fund may reclassify and offer unissued shares as
preferred stock subject to the limitations of the Investment Company Act. Any
additional offering will not be made at a price per Share below the then
current net asset value (exclusive of underwriting discounts and commissions)
except in connection with an offering to existing Shareholders or with the
consent of a majority of the Fund's outstanding Shares.
Anti-Takeover Provisions in the Declaration of Trust
The Fund's Declaration of Trust includes provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board, and could have the
effect of depriving Shareholders of an opportunity to sell their Shares at a
premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Fund. These provisions may have the effect of
discouraging attempts to acquire control of the Fund, which attempts could have
the effect of increasing the expenses of the Fund and interfering with the
normal operation of the Fund.
The Board is divided into three classes, with the terms of one class
expiring at each annual meeting of Shareholders. At each annual meeting, one
class of Trustees is elected to a three-year term. This provision could delay
for up to two years the replacement of a majority of the Board. A Trustee may
be removed from office for any reason or for no reason by a written instrument
signed by at least two-thirds of the remaining Trustees or by a vote of the
holders of at least two-thirds of the Shares.
In addition, the Declaration of Trust requires the favorable vote of the
holders of at least 80% of the outstanding Shares of each class of the Fund,
voting as a class, then entitled to vote to approve, adopt or authorize certain
transactions with 5%-or-greater holders of a class of Shares and their
associates, unless the Board shall by resolution have approved a memorandum of
understanding with such holders, in which case normal voting requirements would
be in effect. For purposes of these provisions, a 5%-or-greater holder of a
class of Shares (a "Principal Shareholder") refers to any person who, whether
directly or indirectly and whether alone or together with its affiliates and
associates, beneficially owns 5% or more of the outstanding shares of any class
of beneficial interest of the Fund. The transactions subject to these special
approval requirements are: (i) the merger or consolidation of the Fund or any
subsidiary of the Fund with or into any Principal Shareholder; (ii) the
issuance of any securities of the Fund to any Principal Shareholder for cash
(except pursuant to the Automatic Dividend Reinvestment Plan); (iii) the sale,
lease or exchange of all or any substantial part of the assets of the Fund to
any Principal Shareholder (except assets having an aggregate fair market value
of less than $1,000,000, aggregating for the purpose of such computation all
assets sold, leased or exchanged in any series of similar transactions within a
twelve-month period); or (iv) the sale, lease or exchange to the Fund or any
subsidiary thereof, in exchange for securities of the Fund, of any assets of
any Principal Shareholder (except assets having an aggregate fair market value
of less than $1,000,000, aggregating for the purposes of such computation all
assets sold, leased or exchanged in any series of similar transactions within a
twelve-month period).
The Board has determined that provisions with respect to the Board and the
80% voting requirements described above which voting requirements are greater
than the minimum requirements under Delaware law or the Investment Company Act,
are in the best interests of Shareholders generally. Reference should be made
to the Declaration of Trust on file with the SEC for the full text of these
provisions.
46
<PAGE>
Repurchase of Shares
Shares of closed-end management investment companies often trade at a
discount to their net asset values, and the Shares may likewise trade at a
discount to their net asset value, although it is possible that they may trade
at a premium above net asset value. The market price of the Shares will be
determined by such factors as relative demand for and supply of such Shares in
the market, the Fund's net asset value, general market and economic conditions
and other factors beyond the control of the Fund. See "Determination of Net
Asset Value." Although the Shareholders will not have the right to redeem their
Shares, the Fund may take action to repurchase Shares in the open market or
make tender offers for Shares at their net asset value. This may have the
effect of reducing any market discount from net asset value.
There is no assurance that if action is undertaken to repurchase or tender
for Shares, such action will result in the Shares' trading at a price which
approximates their net asset value. Although Share repurchases and tenders
could have a favorable effect on the market price of the Shares, it should be
recognized that the acquisition of Shares by the Fund will decrease the total
assets of the Fund and, therefore, have the effect of increasing the Fund's
expense ratio. Any Share repurchases or tender offers will be made in
accordance with requirements of the Securities Exchange Act of 1934, as
amended, and the Investment Company Act.
47
<PAGE>
CONVERSION TO OPEN-END FUND
The Fund may be converted to an open-end investment company at any time by
an amendment to the Declaration of Trust. The Declaration of Trust provides
that such an amendment would require the approval of two-thirds of each of the
Fund's outstanding classes of shares (including any preferred shares)
outstanding at that time entitled to vote on the matter (or a majority of such
shares if the amendment previously was approved, adopted or authorized by at
least two-thirds of the total number of Trustees). Such a vote also would
satisfy a separate requirement in the Investment Company Act that the change be
approved by the Shareholders. If approved in the foregoing manner, conversion
of the Fund could not occur until at least 90 days after the Shareholders'
meeting at which such conversion was approved and could take significantly
longer and would also require at least 30 days' prior notice to all
Shareholders. Conversion of the Fund to an open-end investment company would
require the redemption of any outstanding preferred shares and any indebtedness
not constituting bank loans, which could eliminate or alter the leveraged
capital structure of the Fund with respect to the Shares. Thus, preferred
shareholders, if any, would generally not have an incentive to consent to such
conversion. Following any such conversion, it is also possible that certain of
the Fund's investment policies and strategies would have to be modified to
assure sufficient portfolio liquidity. Such requirement could also cause the
Fund to dispose of portfolio securities or other assets at a time when it is
not advantageous to do so, and could adversely affect the ability of the Fund
to meet its investment objectives. In the event of conversion, the Shares would
cease to be listed on the NYSE or other national securities exchange or market
system. Shareholders of an open-end investment company may require the company
to redeem their shares at any time (except in certain circumstances as
authorized by or under the Investment Company Act) at their net asset value,
less such redemption charge, if any, as might be in effect at the time of a
redemption. The Fund expects to pay all such redemption requests in cash, but
intends to reserve the right to pay redemption requests in a combination of
cash or securities. If a payment in securities were made, investors may incur
brokerage costs in converting such securities to cash. If the Fund were
converted to an open-end fund, it is likely that new common shares would be
sold at net asset value plus a sales load.
OTHER INFORMATION
Prior to the registration statement becoming effective, the Underwriters
or other appropriate party may distribute advertising or other solicitation
material which discusses (i) economic and market conditions and trends
generally; (ii) historical and current conditions and trends in the lower grade
securities market, and risk and reward potential in such market; (iii)
comparative information, including statistical analysis and performance-related
information, related to lower grade securities generally and investing in lower
grade securities; (iv) the special considerations and potential benefits of
investing in closed-end management investment companies; and (v) information
about DLJIM and the Fund's portfolio manager, biographical information about
the Fund's portfolio manager, including honors or awards received, and
information and commentary on investment strategy or other matters of general
interest to investors.
LEGAL MATTERS
Certain legal matters in connection with the Shares offered hereby will be
passed upon for the Fund by Skadden, Arps, Slate, Meagher & Flom LLP and for
the Underwriters by Davis Polk & Wardwell.
EXPERTS
The statement of assets, liabilities and capital of the Fund included in
this Prospectus has been so included in reliance upon the report of Ernst &
Young LLP, 787 Seventh Avenue, New York, New York, independent auditors, and on
their authority as experts in auditing and accounting.
48
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholder of
DLJ High Yield Bond Fund
We have audited the accompanying statement of assets, liabilities and
capital of DLJ High Yield Bond Fund as of July 6, 1998. This statement of
assets, liabilities and capital is the responsibility of the Fund's management.
Our resposibility is to express an opinion on this statement of assets,
liabilities and capital based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets, liabilities and
capital is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
assets, liabilities and capital. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall statement of assets, liabilities and capital
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the statement of assets, liabilities and capital referred
to above presents fairly, in all material respects, the financial position of
DLJ High Yield Bond Fund at July 6, 1998, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
New York, New York
July 24, 1998
49
<PAGE>
DLJ High Yield Bond Fund
Statement of Assets, Liabilities and Capital
July 6, 1998
<TABLE>
<S> <C>
ASSETS
Cash .......................................................................... $ 100,000
Deferred organization and offering costs (Note 1) ............................. 985,000
----------
Total Assets ............................................................... 1,085,000
LIABILITIES
Accrued organization and offering costs (Note 1) .............................. 985,000
----------
NET ASSETS ..................................................................... $ 100,000
==========
CAPITAL
Common Shares, par value $ .001 per share; unlimited number of common shares of
beneficial interest authorized; 10,000 shares issued and outstanding (Note 1) $ 10
Paid in Capital in excess of par .............................................. 99,990
----------
Total Capital--Equivalent of $10.00 net asset value per
common share (Note 1) ........................................................ $ 100,000
==========
</TABLE>
Notes to Statement of Assets, Liabilities and Capital
Note 1. Organization
The Fund was organized as an unincorporated business trust under the laws
of the State of Delaware on April 24, 1998 and is a closed-end, non-diversified
management investment company and has had no operations other than the sale to
DLJ Investment Management Corp. (the "Investment Manager") of an aggregate of
10,000 shares for $100,000 on July 2, 1998.
Offering costs of $925,000 will be charged to capital upon completion of
the initial public offering. Organization costs of $60,000 will be capitalized
and amortized to expense upon the commencement of operations.
Note 2. Management and Administration Arrangements
The Fund has engaged the Investment Manager to provide investment
management services to the Fund. The Investment Manager will receive a monthly
fee for advisory services at an annual rate equal to 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 Fund has engaged First Data Investor Services Group, Inc. (the
"Administrator") to provide administration services to the Fund. The
Administrator will receive a fee for such services at a rate of $50,000 per
year.
Note 3. Federal Income Taxes
The Fund intends to qualify as a "regulated investment company" and as
such (and by complying with the applicable provisions of the Internal Revenue
Code of 1986, as amended) will not be subject to Federal income tax on taxable
income (including realized capital gains) that is distributed to shareholders.
50
<PAGE>
Appendix A
RATINGS OF CORPORATE BONDS
Description of Corporate Bond Ratings of Standard & Poor's Ratings Group:
AAA--Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB--Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B--Bonds rated B have a greater vulnerability to default but presently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC--Bonds rated CCC have a current identifiable vulnerability to default
and are dependent upon favorable business, financial and economic conditions to
meet timely payments of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
CC--The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C--The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
D--Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus (+) or a
minus (-) sign designation, which is used to show relative standing within the
major rating categories, except in the AAA (Prime Grade) category.
Description of Bond Ratings of Moody's Investors Service, Inc.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issuers.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain
A-1
<PAGE>
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and, therefore, not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issuers may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca--Bonds which are rated Ca present obligations which are speculative in
a high degree. Such issuers are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and
issuers so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and in
the categories below B. The modifier 1 indicates a ranking for the security in
the higher end of a rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of a rating
category.
A-2
<PAGE>
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Fund or any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy the Shares by anyone in any jurisdiction in
which such offer or solicitation is not authorized, or in which the person
making the offer or solicitation is not qualified to do so, or to any person to
whom it is unlawful to make such offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information contained herein is correct as of
any time subsequent to its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary .................................... 1
Fee Table ............................................. 11
The Fund .............................................. 12
Use of Proceeds ....................................... 12
Investment Objectives and Policies .................... 13
Other Investment Practices ............................ 19
Risk Factors .......................................... 27
Investment Restrictions ............................... 30
Management of the Fund ................................ 31
Trustees and Officers of the Fund ..................... 33
Portfolio Transactions ................................ 34
Determination of Net Asset Value ...................... 36
Dividends and Other Distributions ..................... 37
Automatic Dividend Reinvestment Plan .................. 38
Taxes ................................................. 40
Underwriting .......................................... 44
Description of Shares ................................. 46
Conversion to Open-End Fund ........................... 48
Other Information ..................................... 48
Legal Matters ......................................... 48
Experts ............................................... 48
Report of Independent Auditors ........................ 49
Statement of Assets, Liabilities and Capital .......... 50
Appendix A ............................................ A-1
</TABLE>
------------------------
Until , 1998 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Shares, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
================================================================================
================================================================================
40,000,000 Shares
DLJ HIGH YIELD
BOND FUND
Common Shares
-------------------------------
P R O S P E C T U S
-------------------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
Advest, Inc.
FAC/Equities
Fahnestock & Co. Inc.
First of Michigan Corporation
Gruntal & Co., L.L.C.
Interstate/Johnson Lane
Corporation
Janney Montgomery Scott Inc.
Sands Brothers & Co., Ltd.
Sutro & Co. Incorporated
Tucker Anthony Incorporated
, 1998
================================================================================
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements:
The Selected Financial Information, Statement of Operations,
Statement of Changes in Net Assets, and any Schedules thereto are
omitted because the required information is included in the
financial statement included in Part A or Part B, or because the
conditions requiring their filing do not exist.
<TABLE>
<CAPTION>
(2) Exhibits
<S> <C>
(a) Agreement and Declaration of Trust
(b) Bylaws
(c) Not Applicable
(d) Form of Specimen Certificate Representing Shares of Beneficial Interest
(e) Form of Terms and Conditions of Automatic Dividend Reinvestment Plan
(f) Not Applicable
(g) Form of Investment Management Agreement
(h) (1) Form of Master Agreement Among Underwriters
(2) Form of Underwriting Agreement
(3) Form of Master Selected Dealers Agreement
(i) Not Applicable
(j) Form of Global Custodial Services Agreement
(k) (1) Form of Transfer Agency and Services Agreement
(2) Form of Services Agreement
(l) Form of Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(m) Not Applicable
(n) Consent of Independent Auditors
(o) Not Applicable
(p) Initial Capital Agreement
(q) Not Applicable
(r) Financial Data Schedule (filed as Exhibit 27)
Form of Power of Attorney (filed as Exhibit 24)
</TABLE>
<PAGE>
ITEM 25. MARKETING ARRANGEMENTS
See Exhibit h in Item 24(2) of this Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Fees ........................ $135,700
National Association of Securities Dealers, Inc. Fees $ 10,500
New York Stock Exchange Listing Fee ............................
Printing and Engraving Expenses* ...............................
Accounting Fees and Expenses* ..................................
Trustee's Fees..................................................
Legal Fees* ....................................................
Custodian and Transfer and Dividend Disbursing Agent's Fees*....
Blue Sky Fees and Expenses* ....................................
Miscellaneous* ................................................. _____
Total $
=====
</TABLE>
* Estimates
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not Applicable.
ITEM 28. NUMBER OF RECORD HOLDERS OF SECURITIES
As of July 23, 1998, there are the following number of Record Holders:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Title of Class Number of Record Holders
-------------- ------------------------
- --------------------------------------------------------------------------------
<S> <C>
Common Shares of Beneficial Interest 1
- --------------------------------------------------------------------------------
</TABLE>
ITEM 29. INDEMNIFICATION
Pursuant to the Agreement and Declaration of Trust of the Registrant, the
Registrant has agreed to indemnify its trustees and officers against any
liabilities and expenses, including amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, and reasonable counsel fees reasonably
incurred by such indemnitee in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any court or
administrative or investigative body in which he may be or may have been
involved as a party or otherwise or with which he may be or may have been
threatened, while acting his capacity as officer or trustee of the Registrant by
reason of his having acted in any such capacity, except with respect to any
matter as to which he shall not have acted in good faith in the reasonable
belief that his action was in the best interest of the Registrant or, in the
case of any criminal proceeding, as to which he shall have had reasonable cause
to believe that the conduct was unlawful, provided, however, that no indemnitee
shall be indemnified thereunder against any liability to any person or any
expense of such indemnitee arising by reason of (i) willful misfeasance, (ii)
bad faith, (iii) gross negligence, or (iv) reckless disregard of the duties
involved in the conduct of his position. Pursuant to the Investment Management
Agreement, the Registrant has agreed to indemnify its investment adviser and
each of its investment adviser's directors, officers, employees, agents,
associates and controlling persons and the partners, directors, officers,
employees, members and agents thereof (including any individual who serves at
the investment adviser's request as director, officer, partner, trustee or the
like of another entity) to the same extent as its trustees and officers.
Pursuant to the Underwriting Agreement, the Registrant has agreed to indemnify
and hold harmless each Underwriter, its directors, its officers and each person,
if any, who controls any Underwriter from and against any and all losses,
claims, damages, liabilities and judgements caused by any untrue statement or
alleged untrue statement of a material fact contained in this Registration
Statement or caused by any omission or alleged omission to state herein a
material fact required to be stated herein or necessary to make the statements
herein not misleading.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant, the investment adviser or any underwriter pursuant to the
foregoing provisions, or otherwise, the Registrant, the investment adviser and
each underwriter have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant, the investment adviser or any underwriter in
connection with the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person of the Registrant, the
investment adviser or any underwriter in connection with the Shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
<PAGE>
For information as to the business, profession, vocation or employment of
a substantial nature of each of the officers and directors of the Advisor,
reference is made to the Advisor's current Form ADV (File No. 801-51377) filed
under the Investment Advisers Act of 1940, as amended, incorporated herein by
reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder to be maintained (i) by
the Registrant will be maintained at its offices, located at 277 Park Avenue,
New York, New York, 10172; (ii) by the Advisor will be maintained at its
offices, located at 277 Park Avenue, New York, New York 10172; and (iii) all
such accounts, books and other documents required to be maintained by the
principal underwriter will be maintained by Donaldson, Lufkin & Jenrette
Securities Corporation.
ITEM 32. MANAGEMENT SERVICES
Not Applicable
ITEM 33. UNDERTAKINGS
(1) The Registrant undertakes to suspend offering of its Shares until it
amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent
from its net asset value as of the effective date of the Registration
Statement, or (2) the net asset value increases to an amount greater than
its net proceeds as stated in the prospectus.
(2) Not Applicable
(3) Not Applicable
(4) Not Applicable
(5) If applicable:
(a) For the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A
and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
of 1933 shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(b) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating or to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(6) Not Applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of Rule 472 promulgated under the Securities
Act of 1933, the Registrant has duly caused this Pre-Effective Amendment No. 2
to the Registration Statement on Form N-2 of DLJ High Yield Bond Fund
(Securities Act File No. 333-52373) to be signed on behalf of the undersigned,
thereto duly authorized, in the City of New York, and the State of New York on
the 24th day of July, 1998.
DLJ HIGH YIELD BOND FUND
By:/s/ G. MOFFETT COCHRAN
-------------------------------------------
Name: G. Moffett Cochran
Title: Trustee and President
Pursuant to the requirements of Rule 472 promulgated under the Securities
Act of 1933, this Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-2 of DLJ High Yield Bond Fund (Securities Act File No. 333-52373) has
been signed by the following persons in the capacities indicated on the 24th day
of July, 1998.
<TABLE>
<CAPTION>
Signature Name Title
--------- ---- -----
<S> <C> <C>
/s/ G. MOFFETT COCHRAN G. Moffett Cochran Trustee and President
- -----------------------------
/s/ G. MOFFETT COCHRAN* Martin Jaffe Trustee, Vice President, Treasurer and Secretary
- -----------------------------
/s/ G. MOFFETT COCHRAN* Robert E. Fischer Trustee
- -----------------------------
/s/ G. MOFFETT COCHRAN* John W. Waller, III Trustee
- -----------------------------
/s/ G. MOFFETT COCHRAN* Wilmot H. Kidd, III Trustee
- -----------------------------
*Signed by G. Moffett Cochran pursuant to a power of attorney, the form of which has been previously filed.
</TABLE>
DLJ HIGH YIELD BOND FUND
--------------------------------------------
AGREEMENT AND DECLARATION OF TRUST
--------------------------------------------
April 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
ARTICLE I
The Trust
<C> <S> <C>
1.1 Name ........................................................................................2
1.2 Definitions...................................................................................2
ARTICLE II
Trustees
2.1 Number and Qualification......................................................................4
2.2 Term and Election.............................................................................4
2.3 Resignation and Removal.......................................................................5
2.4 Vacancies.....................................................................................6
2.5 Meetings......................................................................................6
2.6 Officers......................................................................................7
ARTICLE III
Powers and Duties of Trustees
3.1 General.......................................................................................7
3.2 Investments...................................................................................8
3.3 Legal Title...................................................................................8
3.4 Issuance and Repurchase of Shares.............................................................9
3.5 Borrow Money or Utilize Leverage..............................................................9
3.6 Delegation; Committees........................................................................9
3.7 Collection and Payment.......................................................................10
3.8 Expenses.....................................................................................10
3.9 By-Laws......................................................................................11
3.10 Miscellaneous Powers.........................................................................11
3.11 Further Powers...............................................................................11
3.12 Trustee Action by Written Consent............................................................12
ARTICLE IV
Advisory, Management and Distribution Arrangements
4.1 Advisory and Management Arrangements..........................................................12
4.2 Distribution Arrangements.....................................................................13
4.3 Parties to Contract...........................................................................13
</TABLE>
i
<PAGE>
<TABLE>
ARTICLE V
Limitations of Liability
and Indemnification
<C> <S> <C>
5.1 No Personal Liability of Shareholders,
Trustees, etc..........................................................................14
5.2 Mandatory Indemnification.....................................................................14
5.3 No Bond Required of Trustees..................................................................16
5.4 No Duty of Investigation; Notice in Trust
Instruments, etc.......................................................................16
5.5 Reliance on Experts, etc......................................................................17
5.6 Indemnification of Shareholders...............................................................18
ARTICLE VI
Shares of Beneficial Interest
6.1 Beneficial Interest...........................................................................18
6.2 Other Securities..............................................................................18
6.3 Rights of Shareholders........................................................................19
6.4 Trust Only....................................................................................19
6.5 Issuance of Shares............................................................................19
6.6 Register of Shares............................................................................20
6.7 Transfer Agent and Registrar..................................................................20
6.8 Transfer of Shares............................................................................20
6.9 Notices.......................................................................................21
ARTICLE VII
Custodians
7.1 Appointment and Duties........................................................................21
7.2 Central Certificate System....................................................................22
ARTICLE VIII
Redemption
8.1 Redemptions...................................................................................23
8.2 Disclosure of Holding.........................................................................23
8.3 [Reserved]....................................................................................23
ARTICLE IX
Determination of Net Asset Value
Net Income and Distributions
9.1 Net Asset Value...............................................................................23
9.2 Distributions to Shareholders.................................................................23
9.3 Power to Modify Foregoing Procedures..........................................................24
</TABLE>
ii
<PAGE>
<TABLE>
ARTICLE X
Shareholders
<C> <S> <C>
10.1 Meetings of Shareholders.....................................................................25
10.2 Voting.......................................................................................25
10.3 Notice of Meeting and Record Date............................................................26
10.4 Quorum and Required Vote.....................................................................26
10.5 Proxies, etc.................................................................................27
10.6 Reports......................................................................................28
10.7 Inspection of Records........................................................................28
10.8 Shareholder Action by Written Consent........................................................28
ARTICLE XI
Duration: Termination of Trust;
Amendment; Mergers, Etc.
11.1 Duration.....................................................................................29
11.2 Termination..................................................................................29
11.3 Amendment Procedure..........................................................................30
11.4 Merger, Consolidation and Sale of Assets.....................................................31
11.5 Incorporation................................................................................31
11.6 Conversion...................................................................................32
11.7 Certain Transactions.........................................................................33
ARTICLE XII
Miscellaneous
12.1 Filing.......................................................................................35
12.2 Resident Agent...............................................................................35
12.3 Governing Law................................................................................35
12.4 Counterparts.................................................................................36
12.5 Reliance by Third Parties....................................................................36
12.6 Provisions in Conflict with Law or Regulation................................................36
</TABLE>
iii
<PAGE>
DLJ HIGH YIELD BOND FUND
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST made as of the 24th day of
April, 1998, by the Trustees hereunder, and by the holders of shares of
beneficial interest issued hereunder as hereinafter provided.
WHEREAS, this Trust has been formed to carry on
business as set forth more particularly hereinafter;
WHEREAS, this Trust is authorized to issue an unlimited number
of its shares of beneficial interest all in accordance with the provisions
hereinafter set forth;
WHEREAS, the Trustees have agreed to manage all property
coming into their hands as Trustees of a Delaware business trust in accordance
with the provisions hereinafter set forth; and
WHEREAS, the parties hereto intend that the Trust created by
this Declaration and the Certificate of Trust filed with the Secretary of State
of the State of Delaware on April 24, 1998 shall constitute a business trust
under the Delaware Business Trust Statute and that this Declaration shall
constitute the governing instrument of such business trust.
NOW, THEREFORE, the Trustees hereby declare that they will
hold all cash, securities, and other assets which they may from time to time
acquire in any manner as Trustees hereunder IN TRUST to manage and dispose of
the same upon the following terms and conditions for the benefit of the holders
from time to time of shares of beneficial interest in this Trust as hereinafter
set forth.
1
<PAGE>
ARTICLE I
The Trust
1.1 Name. This Trust shall be known as the "DLJ High Yield
Bond Fund" and the Trustees shall conduct the business of the Trust under that
name or any other name or names as they may from time to time determine.
1.2 Definitions. As used in this Declaration, the following
terms shall have the following meanings:
The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person" and "Principal Underwriter" shall have the meanings given
them in the 1940 Act.
"By-Laws" shall mean the By-Laws of the Trust as amended from
time to time by the Trustees.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder.
"Commission" shall mean the Securities and
Exchange Commission.
"Declaration" shall mean this Agreement and Declaration of
Trust, as amended or amended and restated from time to time.
"Delaware Business Trust Statute" shall mean
the provisions of the Delaware Business Trust Act, 12
Del. C. ss.3801, et. seq., as such Act may be amended from
time to time.
"Fundamental Policies" shall mean the invest ment policies and
restrictions as set forth from time to time in any Prospectus or contained in
any current Regis tration Statement of the Trust filed with the Securities and
Exchange Commission or as otherwise adopted by the Trustees and the Shareholders
in accordance with the requirements of the 1940 Act and designated as
fundamental policies therein as they may be amended in accordance with the
requirements of the 1940 Act.
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"Majority Shareholder Vote" shall mean a vote of a majority of
the outstanding voting securities (as such term is defined in the 1940 Act) of
the Trust.
"Person" shall mean and include individuals, corporations,
partnerships, trusts, limited liability companies, associations, joint ventures
and other entities, whether or not legal entities, and governments and agencies
and political subdivisions thereof.
"Prospectus" shall mean the currently effective Prospectus of
the Trust, if any, under the Securities Act of 1933, as amended.
"Shareholders" shall mean as of any particular time the
holders of record of outstanding Shares of the Trust, at such time.
"Shares" shall mean the transferable units of beneficial
interest into which the beneficial interest in the Trust shall be divided from
time to time and includes fractions of Shares as well as whole Shares. In
addition, Shares also means any preferred shares or preferred units of
beneficial interest which may be issued from time to time, as described herein.
All references to Shares shall be deemed to be Shares of any or all Series or
classes as the context may require.
"Trust" shall mean the trust established by this Declaration,
as amended from time to time, inclusive of each such amendment.
"Trustees" shall mean the signatory to this Declaration, so
long as he shall continue in office in accordance with the terms hereof, and all
other persons who at the time in question have been duly elected or appointed
and have qualified as trustees in accordance with the provisions hereof and are
then in office.
"Trust Property" shall mean as of any particular time any and
all property, real or personal, tangible or intangible, which at such time is
owned or held by or for the account of the Trust or the Trustees in such
capacity.
The "1940 Act" refers to the Investment Company Act of 1940
and the rules and regulations promulgated
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thereunder and exemptions granted therefrom, as amended from time to time.
ARTICLE II
Trustees
2.1 Number and Qualification. Prior to a public offering of
Shares, there may be a sole Trustee and thereafter, the number of Trustees shall
be no less than three or more than fifteen, provided, however, that the number
of Trustees may be increased or decreased by a written instrument signed by a
majority of the Trustees then in office. No reduction in the number of Trustees
shall have the effect of removing any Trustee from office prior to the
expiration of his term. An individual nominated as a Trustee shall be at least
21 years of age and not older than 70 years of age at the time of nomination
and not under legal disability. Trustees need not own Shares and may succeed
themselves in office.
2.2 Term and Election. The Board of Trustees shall be divided
into three classes. Within the limits above specified, the number of the
Trustees in each class shall be determined by resolution of the Board of Trust
ees. The term of office of all of the Trustees shall expire on the date of the
first annual or special meeting of Shareholders following the effective date of
the Registration Statement relating to the Shares under the Securities Act of
1933, as amended. The term of office of the first class shall expire on the date
of the second annual meeting of Shareholders or special meeting in lieu thereof.
The term of office of the second class shall expire on the date of the third
annual meeting of Share holders or special meeting in lieu thereof. The term of
office of the third class shall expire on the date of the fourth annual meeting
of Shareholders or special meeting in lieu thereof. Upon expiration of the term
of office of each class as set forth above, the number of Trustees in such
class, as determined by the Board of Trustees, shall be elected for a term
expiring on the date of the third annual meeting of Shareholders or special
meeting in lieu thereof following such expiration to succeed the Trustees whose
terms of office expire. The Trustees shall be elected at an annual meeting of
the Shareholders or special meeting in lieu thereof called for that purpose,
except as provided in Section 2.3 of this Article and each Trustee elected shall
hold office until his or her successor shall have been elected and shall have
qualified; except (a) that any Trustee may resign his or her trust (without need
for prior or subsequent accounting) by an instrument in writing signed by him
or her and delivered to the other Trustees, which shall take effect upon such
delivery or upon such later date as is specified therein; (b) that any Trustee
may be removed (provided the aggregate number of Trustees after such removal
shall not be less than the number required by Section 2.1 hereof) for cause, at
any time by written instrument, signed by the remaining Trustees, specifying the
date when such removal shall become effective; and (c) that any Trustee who
requests in writing to be retired or who has become incapacitated by illness or
injury may be retired by written instrument signed by a majority of the other
Trustees, and he or she shall execute and deliver such documents as the
remaining Trustees shall require for the purpose of conveying to the Trust or
the remaining Trustees any Trust property held in the name of the resigning or
removed Trustee. Upon the incapacity or death of any Trustee, his or her legal
representative shall execute and deliver on his or her behalf such document as
the remaining Trustees shall require as provided in the preceding sentence.
2.3 Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered or mailed to the Chairman, if any, the President or
the Secretary and such resignation shall be effective upon such delivery, or at
a later date according to the terms of the instrument. Any of the Trustees may
be removed (provided the aggregate number of Trustees after such removal shall
not be less than the minimum number required by Section 2.1 hereof) by the
action of two-thirds of the remaining Trustees or the holders of two thirds of
the Shares. Upon the resignation or removal of a Trustee, or such persons
otherwise ceasing to be a Trustee, such persons shall execute and deliver such
documents as the remaining Trustees shall require for the purpose of conveying
to the Trust or the remaining Trustees any Trust Property held in the name of
the resigning or removed Trustee. Upon the incapacity or death of any Trustee,
such Trustee's legal representative shall execute and deliver on such Trustee's
behalf such documents
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as the remaining Trustees shall require as provided in the preceding sentence.
2.4 Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to perform the duties of the
office, or removal, of a Trustee. Whenever a vacancy in the Board of Trustees
shall occur, the remaining Trustees may fill such vacancy by appointing an
individual having the qualifications described in this Article by a written
instrument signed by a majority of the Trustees then in office or by election by
the Shareholders, or may leave such vacancy unfilled or may reduce the number
of Trustees (provided the aggregate number of Trustees after such reduction
shall not be less than the minimum number required by Section 2.1 hereof). Any
vacancy created by an increase in Trustees may be filled by the appointment of
an individual having the qualifications described in this Article made by a
written instrument signed by a majority of the Trustees then in office or by
election by the Shareholders. No vacancy shall operate to annul this Declaration
or to revoke any existing agency created pursuant to the terms of this
Declaration. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided herein, the Trustees in office, regardless of
their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Declaration.
2.5 Meetings. Meetings of the Trustees shall be held from time
to time upon the call of the Chairman, if any, the President, the Secretary or
any two Trustees. Regular meetings of the Trustees may be held without call or
notice at a time and place fixed by the By-Laws or by resolution of the
Trustees. Notice of any other meeting shall be mailed not less than 48 hours
before the meeting or otherwise actually delivered orally or in writing not less
than 24 hours before the meeting, but may be waived in writing by any Trustee
either before or after such meeting. The attendance of a Trustee at a meeting
shall constitute a waiver of notice of such meeting except where a Trustee
attends a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting has not been lawfully called or
convened. The Trustees may act with or without a meeting. A quorum for all
meetings of the Trustees shall be a majority of the Trustees. Unless provided
otherwise in this Declaration of Trust, any action of the Trustees may be taken
at a meeting by vote of a majority of the Trustees present (a quorum being
present) or without a meeting by written consent of a majority of the Trustees.
Any committee of the Trustees, including an executive
committee, if any, may act with or without a meeting. A quorum for all meetings
of any such committee shall be a majority of the members thereof. Unless
provided otherwise in this Declaration, any action of any such committee may be
taken at a meeting by vote of a majority of the members present (a quorum being
present) or without a meeting by written consent of a majority of the members.
With respect to actions of the Trustees and any committee of
the Trustees, Trustees who are Interested Persons in any action to be taken may
be counted for quorum purposes under this Section and shall be entitled to vote
to the extent not prohibited by the 1940 Act.
All or any one or more Trustees may participate in a meeting
of the Trustees or any committee thereof by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other; participation in a meeting pursuant to any such
communications system shall constitute presence in person at such meeting.
2.6 Officers. The Trustees shall elect a President, a
Secretary and a Treasurer and may elect a Chairman who shall serve at the
pleasure of the Trustees or until their successors are elected. The Trustees may
elect or appoint or may authorize the Chairman, if any, or President to appoint
such other officers or agents with such powers as the Trustees may deem to be
advis able. A Chairman shall, and the President, Secretary and Treasurer may,
but need not, be a Trustee.
ARTICLE III
Powers and Duties of Trustees
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3.1 General. The Trustees shall owe to the Trust and its
Shareholders the same fiduciary duties as owed by directors of corporations to
such corporations and their stockholders under the general corporation law of
the State of Delaware. The Trustees shall have exclusive and absolute control
over the Trust Property and over the business of the Trust to the same extent as
if the Trustees were the sole owners of the Trust Property and business in their
own right, but with such powers of delegation as may be permitted by this
Declaration. The Trustees may perform such acts as in their sole discretion are
proper for conducting the business of the Trust. The enumeration of any specific
power herein shall not be construed as limiting the aforesaid power. Such powers
of the Trustees may be exercised without order of or resort to any court.
3.2 Investments. The Trustees shall have power, subject to the
Fundamental Policies in effect from time to time with respect to the Trust to:
(a) manage, conduct, operate and carry on the
business of an investment company;
(b) subscribe for, invest in, reinvest in, purchase
or otherwise acquire, hold, pledge, sell, assign, transfer, exchange, distribute
or otherwise deal in or dispose of any and all sorts of property, tangible or
intangible, including but not limited to securities of any type whatsoever,
whether equity or non-equity, of any issuer, evidences of indebtedness of any
person and any other rights, interests, instruments or property of any sort and
to exercise any and all rights, powers and privileges of ownership or interest
in respect of any and all such investments of every kind and description,
including, without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more Persons to exercise any of
said rights, powers and privileges in respect of any of said investments. The
Trustees shall not be limited by any law limiting the investments which may be
made by fiduciaries.
3.3 Legal Title. Legal title to all the Trust Property shall
be vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name
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of one or more of the Trustees, or in the name of the Trust, or in the name of
any other Person as nominee, custodian or pledgee, on such terms as the Trustees
may determine, provided that the interest of the Trust therein is appropriately
protected.
The right, title and interest of the Trustees in the Trust
Property shall vest automatically in each person who may hereafter become a
Trustee upon his due election and qualification. Upon the ceasing of any person
to be a Trustee for any reason, such person shall automatically cease to have
any right, title or interest in any of the Trust Property, and the right, title
and interest of such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
3.4 Issuance and Repurchase of Shares. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in, Shares, including
Shares in fractional denominations, and, subject to the more detailed
provisions set forth in Articles VIII and IX, to apply to any such repurchase,
redemption, retirement, cancellation or acquisition of Shares any funds or
property whether capital or surplus or otherwise, to the full extent now or
hereafter permitted by the laws of the State of Delaware governing business
corporations.
3.5 Borrow Money or Utilize Leverage. Subject to the
Fundamental Policies in effect from time to time with respect to the Trust, the
Trustees shall have the power to borrow money or otherwise obtain credit or
utilize leverage to the maximum extent permitted by law or regulation as such
may be needed from time to time and to secure the same by mortgaging, pledging
or otherwise subjecting as security the assets of the Trust, including the
lending of portfolio securities, and to endorse, guarantee, or undertake the
performance of any obligation, contract or engagement of any other person,
firm, association or corporation.
3.6 Delegation; Committees. The Trustees shall have the power,
consistent with their continuing exclusive authority over the management of the
Trust and
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the Trust Property, to delegate from time to time to such of their number or to
officers, employees or agents of the Trust the doing of such things and the
execution of such instruments either in the name of the Trust or the names of
the Trustees or otherwise as the Trustees may deem expedient, to at least the
same extent as such delegation is permitted to directors of a Delaware business
corporation and is permitted by the 1940 Act, as well as any further delegations
the Trustees may determine to be desirable, expedient or necessary in order to
effect the purpose hereof. The Trustees may designate an executive committee
which shall have all authority of the entire Board of Trustees except such
committee cannot declare dividends and cannot authorize removal of a trustee or
any merger, consolidation or sale of substantially all of the assets of the
Trust.
3.7 Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property or the Trust, the Trustees or any officer, employee
or agent of the Trust; to prosecute, defend, compromise or abandon any claims
relating to the Trust Property or the Trust, or the Trustees or any officer,
employee or agent of the Trust; to foreclose any security interest securing any
obligations, by virtue of which any property is owed to the Trust; and to enter
into releases, agreements and other instruments. Except to the extent required
for a Delaware business corporation, the Shareholders shall have no power to
vote as to whether or not a court action, legal proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or the Shareholders.
3.8 Expenses. The Trustees shall have power to incur and pay
out of the assets or income of the Trust any expenses which in the opinion of
the Trustees are necessary or incidental to carry out any of the purposes of
this Declaration, and the business of the Trust, and to pay reasonable
compensation from the funds of the Trust to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees. The Trustees
may pay themselves such compensation for special services, including legal,
underwriting, syndicating and brokerage services, as they in good faith may
deem reasonable and reimbursement for expenses reasonably incurred by themselves
on behalf of the Trust. The
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Trustees shall have the power, as frequently as they may determine, to cause
each Shareholder to pay directly, in advance or arrears, for charges of
distribution, of the custodian or transfer, Shareholder servicing or similar
agent, a pro rata amount as defined from time to time by the Trustees, by
setting off such charges due from such Shareholder from declared but unpaid
dividends or distributions owed such Shareholder and/or by reducing the number
of shares in the account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such charges due
from such Shareholder.
3.9 By-Laws. The Trustees may adopt and from time to time
amend or repeal the By-Laws for the conduct of the business of the Trust.
3.10 Miscellaneous Powers. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem desirable
for the transaction of the business of the Trust; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c) purchase,
and pay for out of Trust Property, insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisors, distributors,
selected dealers or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such liability; (d) establish pension, profit-sharing, share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (e) make donations, irrespective of
benefit to the Trust, for charitable, religious, educational, scientific, civic
or similar purposes; (f) to the extent permitted by law, indemnify any Person
with whom the Trust has dealings, including without limitation any advisor,
administrator, manager, transfer agent, custodian, distributor or selected
dealer, or any other person as the Trustees may see fit to such extent as the
Trustees shall determine; (g) guarantee indebtedness or contractual obligations
of others; (h) determine and change the fiscal year of the Trust and the method
in which its accounts shall be kept; and (i) adopt a seal for the Trust but the
absence of
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such seal shall not impair the validity of any instrument executed on behalf of
the Trust.
3.11 Further Powers. The Trustees shall have the power to
conduct the business of the Trust and carry on its operations in any and all of
its branches and maintain offices both within and without the State of Delaware,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein specifically
mentioned. Any determination as to what is in the interests of the Trust made by
the Trustees in good faith shall be conclusive. In construing the provisions of
this Declaration, the presumption shall be in favor of a grant of power to the
Trustees. The Trustees will not be required to obtain any court order to deal
with the Trust Property.
3.12 Trustee Action by Written Consent. Any action which may
be taken by Trustees by vote may be taken without a meeting if the number of
Trustees re quired for approval of such action at a meeting of Trustees consent
to the action in writing and the written consents are filed with the records of
the meetings of Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Trustees.
ARTICLE IV
Advisory, Management and Distribution Arrangements
4.1 Advisory and Management Arrangements. Subject to the
requirements of applicable law as in effect from time to time, the Trustees may
in their discretion from time to time enter into advisory, administration or
management contracts whereby the other party to such contract shall undertake to
furnish the Trustees such advisory, administrative and management services, with
respect to the Trust as the Trustees shall from time to time consider desirable
and all upon such terms and conditions as the Trustees may in their discretion
determine. Notwithstanding any provisions of this Declaration, the Trustees
may authorize any advisor, administrator or manager (subject to such general or
specific instructions as the Trustees may from time to time adopt) to effect
investment transactions with respect to the assets on behalf of the Trustees to
the full extent of the power of the Trustees to effect such transactions or may
authorize any officer, employee or Trustee to effect such transactions pursuant
to recommendations of any such advisor, administrator or manager (and all
without further action by the Trustees). Any such investment transaction shall
be deemed to have been authorized by all of the Trustees.
4.2 Distribution Arrangements. Subject to compliance with the
1940 Act, the Trustees may retain underwriters and/or placement agents to sell
Trust Shares. The Trustees may in their discretion from time to time enter into
one or more contracts, providing for the sale of the Shares of the Trust,
whereby the Trust may either agree to sell such Shares to the other party to the
contract or appoint such other party its sales agent for such Shares. In either
case, the contract shall be on such terms and conditions as the Trustees may in
their discretion determine not inconsistent with the provisions of this Article
IV or the By-Laws; and such contract may also provide for the repurchase or sale
of Shares of the Trust by such other party as principal or as agent of the Trust
and may provide that such other party may enter into selected dealer agreements
with registered securities dealers and brokers and servicing and similar
agreements with persons who are not registered securities dealers to further
the purposes of the distribution or repurchase of the Shares of the Trust.
4.3 Parties to Contract. Any contract of the character
described in Section 4.1 and 4.2 of this Article IV or in Article VII hereof
may be entered into with any Person, although one or more of the Trustees,
officers or employees of the Trust may be an officer, director, trustee,
shareholder, or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any
such relationship, nor shall any Person holding such relationship be liable
merely by reason of such relationship for any loss or expense to the Trust
under or by reason of said contract or accountable for any profit realized
directly or indirectly therefrom, provided that
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the contract when entered into was reasonable and fair and not inconsistent with
the provisions of this Article IV or the By-Laws. The same Person may be the
other party to contracts entered into pursuant to Sections 4.1 and 4.2 above or
Article VII, and any individual may be financially interested or otherwise
affiliated with Persons who are parties to any or all of the contracts mentioned
in this Section 4.3.
ARTICLE V
Limitations of Liability
and Indemnification
5.1 No Personal Liability of Shareholders, Trustees, etc. No
Shareholder of the Trust shall be subject in such capacity to any personal
liability whatsoever to any Person in connection with Trust Property or the
acts, obligations or affairs of the Trust. Shareholders shall have the same
limitation of personal liability as is extended to stockholders of a private
corporation for profit incorporated under the general corporation law of the
State of Delaware. No Trustee or officer of the Trust shall be subject in such
capacity to any personal liability whatsoever to any Person, other than the
Trust or its Shareholders, in connection with Trust Property or the affairs of
the Trust, save only liability to the Trust or its Shareholders arising from bad
faith, willful misfeasance, gross negligence (negligence in the case of those
Trustees or officers who are directors, officers or employees of the Trust's
investment advisor ("Affiliated Indemnitees")) or reckless disregard for his
duty to such Person; and, subject to the foregoing exception, all such Persons
shall look solely to the Trust Property for satisfaction of claims of any nature
arising in connection with the affairs of the Trust. If any Shareholder, Trustee
or officer, as such, of the Trust, is made a party to any suit or proceeding to
enforce any such liability, subject to the foregoing exception, he shall not, on
account thereof, be held to any personal liability.
5.2 Mandatory Indemnification. a. The Trust hereby agrees to
indemnify the Trustees and offi cers of the Trust (each such person being an
"indemnitee") against any liabilities and expenses,
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including amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and reasonable counsel fees reasonably incurred by such
indemnitee in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, before any court or administrative
or investigative body in which he may be or may have been involved as a party or
otherwise or with which he may be or may have been threatened, while acting in
any capacity set forth above in this Section 5.2 by reason of his having acted
in any such capacity, except with respect to any matter as to which he shall not
have acted in good faith in the reasonable belief that his action was in the
best interest of the Trust or, in the case of any criminal proceeding, as to
which he shall have had reasonable cause to believe that the conduct was
unlawful, provided, however, that no indemnitee shall be indemnified hereunder
against any liability to any person or any expense of such indemnitee arising by
reason of (i) willful misfeasance, (ii) bad faith, (iii) gross negligence
(negligence in the case of Affiliated Indemnitees), or (iv) reckless disregard
of the duties involved in the conduct of his position (the conduct referred to
in such clauses (i) through (iv) being sometimes referred to herein as
"disabling con duct"). Notwithstanding the foregoing, with respect to any
action, suit or other proceeding voluntarily prosecuted by any indemnitee as
plaintiff, indemnification shall be mandatory only if the prosecution of such
action, suit or other proceeding by such indemnitee was authorized by a majority
of the Trustees.
b. Notwithstanding the foregoing, no indemnification
shall be made hereunder unless there has been a determination (1) by a final
decision on the merits by a court or other body of competent jurisdiction before
whom the issue of entitlement to indemnification hereunder was brought that such
indemnitee is entitled to indemnification hereunder or, (2) in the absence of
such a decision, by (i) a majority vote of a quorum of those Trustees who are
neither "interested persons" of the Trust (as defined in Section 2(a)(19) of the
1940 Act) nor parties to the proceeding ("Disinterested Non-Party Trustees"),
that the indemnitee is entitled to indemnification hereunder, or (ii) if such
quorum is not obtain able or even if obtainable, if such majority so directs,
independent legal counsel in a written opinion conclude that the indemnitee
should be entitled to indemnification
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hereunder. All determinations to make advance payments in connection with the
expense of defending any proceeding shall be authorized and made in accordance
with the immediately succeeding paragraph (c) below.
c. The Trust shall make advance payments in
connection with the expenses of defending any action with respect to which
indemnification might be sought hereunder if the Trust receives a written
affirmation by the indemnitee of the indemnitee's good faith belief that the
standards of conduct necessary for indemnification have been met and a written
undertaking to reimburse the Trust unless it is subsequently determined that he
is entitled to such indemnification and if a majority of the Trustees determine
that the applicable standards of conduct necessary for indemnification appear to
have been met. In addition, at least one of the following conditions must be
met: (1) the indemnitee shall provide adequate security for his undertaking, (2)
the Trust shall be insured against losses arising by reason of any lawful
advances, or (3) a majority of a quorum of the Disinterested Non-Party Trustees,
or if a majority vote of such quorum so direct, independent legal counsel in a
written opinion, shall conclude, based on a review of readily available facts
(as opposed to a full trial-type inquiry), that there is substantial reason to
believe that the indemnitee ultimately will be found entitled to
indemnification.
d. The rights accruing to any indemnitee under these
provisions shall not exclude any other right to which he may be lawfully
entitled.
e. Subject to any limitations provided by the 1940
Act and this Declaration, the Trust shall have the power and authority to
indemnify other Persons providing services to the Trust to the full extent
provided by law as if the Trust were a corporation organized under the Delaware
General Corporation Law provided that such indemnification has been approved by
a majority of the Trustees.
5.3 No Bond Required of Trustees. No Trustee shall, as such,
be obligated to give any bond or other security for the performance of any of
his duties hereunder.
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5.4 No Duty of Investigation; Notice in Trust Instruments,
etc. No purchaser, lender, transfer agent or other person dealing with the
Trustees or with any officer, employee or agent of the Trust shall be bound to
make any inquiry concerning the validity of any transaction purporting to be
made by the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, undertaking, instrument, certificate, Share, other security of the
Trust, and every other act or thing whatsoever executed in connection with the
Trust shall be conclusively taken to have been executed or done by the executors
thereof only in their capacity as Trustees under this Declaration or in their
capacity as officers, employees or agents of the Trust. Every written
obligation, contract, undertaking, instrument, certificate, Share, other
security of the Trust made or issued by the Trustees or by any officers,
employees or agents of the Trust in their capacity as such, shall contain an
appropriate recital to the effect that the Shareholders, Trustees, officers,
employees or agents of the Trust shall not personally be bound by or liable
thereunder, nor shall resort be had to their private property for the
satisfaction of any obligation or claim thereunder, and appropriate references
shall be made therein to this Declaration, and may contain any further recital
which they may deem appropriate, but the omission of such recital shall not
operate to impose personal liability on any of the Trustees, Shareholders,
officers, employees or agents of the Trust. The Trustees may maintain insurance
for the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable or is required by the 1940 Act.
5.5 Reliance on Experts, etc. Each Trustee and officer or
employee of the Trust shall, in the performance of its duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of the Trust's officers or employees or by any advisor,
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administrator, manager, distributor, selected dealer, accountant, appraiser or
other expert or consultant selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel or expert
may also be a Trustee.
5.6 Indemnification of Shareholders. If any Shareholder or
former Shareholder shall be held personally liable solely by reason of its
being or having been a Shareholder and not because of its acts or omissions or
for some other reason, the Shareholder or former Shareholder (or its heirs,
executors, administrators or other legal representatives or in the case of any
entity, its general successor) shall be entitled out of the assets belonging to
the Trust to be held harmless from and indemnified to the maximum extent
permitted by law against all loss and expense arising from such liability. The
Trust shall, upon request by such Shareholder, assume the defense of any claim
made against such Shareholder for any act or obligation of the Trust and satisfy
any judgment thereon from the assets of the Trust.
ARTICLE VI
Shares of Beneficial Interest
6.1 Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into an unlimited number of transferable shares of
beneficial interest, par value $.001 per share. All Shares issued in accordance
with the terms hereof, including, without limitation, Shares issued in
connection with a dividend in Shares or a split of Shares, shall be fully paid
and, except as provided in the last sentence of Section 3.8, nonassessable when
the consideration determined by the Trustees (if any) therefor shall have been
received by the Trust.
6.2 Other Securities. The Trustees may authorize and issue
such other securities as they determine to be necessary, desirable or
appropriate including preferred interests, debt securities or other senior
securities subject to the Fundamental Policies and the requirements of the
1940 Act. To the extent that the Trustees authorize and issue preferred shares
they are hereby authorized and empowered to amend or supplement this Declaration
as is necessary or appropriate to comply with
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the requirements of the 1940 Act relating to such securities or as required to
issue such securities by rating agencies or other persons, all without the
approval of Shareholders. Any such supplement or amendment shall be filed as is
necessary. The Trustees are also authorized to take such actions and retain such
persons as they see fit to offer and sell such securities.
6.3 Rights of Shareholders. The Shares shall be personal
property giving only the rights in this Declaration specifically set forth. The
ownership of the Trust Property of every description and the right to conduct
any business herein before described are vested exclusively in the Trustees, and
the Shareholders shall have no interest therein other than the beneficial
interest conferred by their Shares, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of the Trust
nor can they be called upon to share or assume any losses of the Trust or,
subject to the right of the Trustees to charge certain expenses directly to
Shareholders, as provided in the last sentence of Section 3.8, suffer an
assessment of any kind by virtue of their ownership of Shares. The Shares shall
not entitle the holder to preference, preemptive, appraisal, conversion or
exchange rights (except as specified in this Section 6.3, in Section 11.4 or as
specified by the Trustees when creating the Shares, as in preferred shares).
6.4 Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to
create a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
6.5 Issuance of Shares. The Trustees, in their discretion, may
from time to time without vote of the Shareholders issue Shares including
preferred shares that may have been established pursuant to Section 6.2, in
addition to the then issued and outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount and type of
consideration, including cash
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or property, at such time or times, and on such terms as the Trustees may
determine, and may in such manner acquire other assets (including the
acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. The Trustees may from time to time divide or
combine the Shares into a greater or lesser number without thereby changing the
proportionate beneficial interest in such Shares. Issuances and redemptions of
Shares may be made in whole Shares and/or l/l,000ths of a Share or multiples
thereof as the Trustees may determine in such fractions thereof.
6.6 Register of Shares. A register shall be kept at the Trust
or any transfer agent duly appointed by the Trustees under the direction of the
Trustees which shall contain the names and addresses of the Shareholders and the
number of Shares held by them respectively and a record of all transfers
thereof. Separate registers shall be established and maintained for each class.
Each such register shall be conclusive as to who are the holders of the Shares
of the applicable class and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders. No
Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein provided, until he has
given his address to a transfer agent or such other officer or agent of the
Trustees as shall keep the register for entry thereon. It is not contemplated
that certificates will be issued for the Shares; however, the Trustees, in their
discretion, may authorize the issuance of share certificates and promulgate
appropriate fees therefore and rules and regulations as to their use.
6.7 Transfer Agent and Registrar. The Trustees shall have
power to employ a transfer agent or transfer agents, and a registrar or
registrars, with respect to the Shares. The transfer agent or transfer agents
may keep the applicable register and record therein, the original issues and
transfers, if any, of the said Shares. Any such transfer agent and registrars
shall perform the duties usually performed by transfer agents and registrars of
certificates of stock in a corporation, as modified by the Trustees.
6.8 Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the
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record holder thereof or by its agent thereto duly authorized in writing, upon
delivery to the Trustees or a transfer agent of the Trust of a duly executed
instrument of transfer, together with such evidence of the genuineness of each
such execution and authorization and of other matters as may reasonably be
required. Upon such delivery the transfer shall be recorded on the applicable
register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereof and
neither the Trustees nor any transfer agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of
the death, bankruptcy, or incompetence of any Shareholder, or otherwise by
operation of law, shall be recorded on the applicable register of Shares as the
holder of such Shares upon production of the proper evidence thereof to the
Trustees or a transfer agent of the Trust, but until such record is made, the
Shareholder of record shall be deemed to be the holder of such for all purposes
hereof, and neither the Trustees nor any transfer agent or registrar nor any
officer or agent of the Trust shall be affected by any notice of such death,
bankruptcy or incompetence, or other operation of law.
6.9 Notices. Any and all notices to which any Shareholder
hereunder may be entitled and any and all communications shall be deemed duly
served or given if mailed, postage prepaid, addressed to any Shareholder of
record at his last known address as recorded on the applicable register of the
Trust.
ARTICLE VII
Custodians
7.1 Appointment and Duties. The Trustees shall at all times
employ a custodian or custodians, meeting the qualifications for custodians for
portfolio securities of investment companies contained in the 1940 Act, as
custodian with respect to the assets of the Trust. Any custodian shall have
authority as agent of the Trust with respect to which it is acting as
determined by the custodian agreement or agreements, but
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subject to such restrictions, limitations and other requirements, if any, as may
be contained in the By-Laws of the Trust and the 1940 Act:
(1) to hold the securities owned by the Trust and deliver the
same upon written order;
(2) to receive any receipt for any moneys due to the Trust and
deposit the same in its own banking department (if a bank) or elsewhere
as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and accounting services; and
(5) if authorized to do so by the Trustees, to compute the
net income or net asset value of the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all property of the Trust held by it as specified in
such vote.
The Trustees may also authorize each custodian to employ one
or more sub-custodians from time to time to perform such of the acts and
services of the custodian and upon such terms and conditions, as may be agreed
upon between the custodian and such sub-custodian and approved by the Trustees,
provided that in every case such sub-custodian shall meet the qualifications for
custodians contained in the 1940 Act.
7.2 Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other Person as
may be permitted by the Commission, or otherwise in
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accordance with the 1940 Act, pursuant to which system all securities of any
particular class of any issuer deposited within the system are treated as
fungible and may be transferred or pledged by bookkeeping entry with out
physical delivery of such securities, provided that all such deposits shall be
subject to withdrawal only upon the order of the Trust.
ARTICLE VIII
Redemption
8.1 Redemptions. The Shares of the Trust are not redeemable by
the holders.
8.2 Disclosure of Holding. The holders of Shares or other
securities of the Trust shall upon demand disclose to the Trustees in writing
such information with respect to direct and indirect ownership of Shares or
other securities of the Trust as the Trustees deem necessary to comply with the
provisions of the Code, or to comply with the requirements of any other taxing
or regulatory authority.
8.3 [Reserved].
ARTICLE IX
Determination of Net Asset Value
Net Income and Distributions
9.1 Net Asset Value. The net asset value of each outstanding
Share of the Trust shall be determined at such time or times on such days as the
Trustees may determine, in accordance with the 1940 Act. The method of
determination of net asset value shall be determined by the Trustees and shall
be as set forth in the Prospectus or as may otherwise be determined by the
Trustees. The power and duty to make the net asset value calculations may be
delegated by the Trustees and shall be as generally set forth in the Prospectus
or as may otherwise be determined by the Trustees.
9.2 Distributions to Shareholders.
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(a) The Trustees shall from time to time distribute
ratably among the Shareholders such proportion of the net profits, surplus
(including paid-in surplus), capital, or assets held by the Trustees as they may
deem proper. Such distribution may be made in cash or property (including
without limitation any type of obligations of the Trust or any assets thereof)
or any combination thereof, and the Trustees may distribute ratably among the
Shareholders additional Shares in such manner, at such times, and on such terms
as the Trustees may deem proper.
(b) In the event the Trust has outstanding more than
one class of Shares, the Trustees shall from time to time distribute ratably
among each class of Shareholders of the Trust such proportion of the net
profits, surplus (including paid-in surplus), capital or assets attributable to
such class held by the Trustees as they may deem proper or as may otherwise be
determined in the instrument creating such class of Shares, and the Trustees may
distribute ratably among the Shareholders of each class of the Trust additional
Shares of such class in such manner, at such times, and on such terms as the
Trustees may deem proper. Such distributions to one class need not be ratable
with respect to distributions to Shares of any other class of the Trust.
(c) Distributions pursuant to this Section 9.2 may
be among the Shareholders of record at the time of declaring a distribution or
among the Shareholders of record at such later date as the Trustees shall
determine and specify at the time of declaration.
(d) The Trustees may always retain from the net
profits such amount as they may deem necessary to pay the debts or expenses of
the Trust or to meet obligations of the Trust, or as they otherwise may deem
desirable to use in the conduct of its affairs or to retain for future
requirements or extensions of the business.
(e) Inasmuch as the computation of net income and
gains for Federal income tax purposes may vary from the computation thereof on
the books, the above provisions shall be interpreted to give the Trustees the
power in their discretion to distribute for any fiscal year as ordinary
dividends and as capital gains distributions, respectively, additional amounts
sufficient to enable the Trust to avoid or reduce liability for taxes.
9.3 Power to Modify Foregoing Procedures. Notwithstanding any
of the foregoing provisions of this Article IX, the Trustees may prescribe, in
their absolute discretion except as may be required by the 1940 Act, such other
bases and times for determining the per share asset value of the Trust's Shares
or net income, or the declaration and payment of dividends and distributions as
they may deem necessary or desirable for any reason, including to enable the
Trust to comply with any provision of the 1940 Act, or any securities
association registered under the Securities Exchange Act of 1934, or any order
of exemption issued by the Commission, all as in effect now or hereafter amended
or modified.
ARTICLE X
Shareholders
10.1 Meetings of Shareholders. The Trust shall hold annual
meetings of the Shareholders. A special meeting of Shareholders may be called
at any time by a majority of the Trustees and shall be called by any Trustee for
any proper purpose upon written request of Shareholders of the Trust holding in
the aggregate not less than 51% of the outstanding Shares of the Trust or class
having voting rights, such request specifying the purpose or purposes for which
such meeting is to be called. Any shareholder meeting, including a Special
Meeting, shall be held within or without the State of Delaware on such day and
at such time as the Trustees shall designate.
10.2 Voting. Shareholders shall have no power to vote on any
matter except matters on which a vote of Shareholders is required by applicable
law, this Declaration or resolution of the Trustees. Any matter required to be
submitted to Shareholders and affecting one or more classes shall require
separate approval by the required vote of Shareholders of each affected class;
provided, however, that to the extent required by the 1940 Act, there shall be
no separate class votes on the election or removal of Trustees, the selection of
auditors for the Trust, approval of any agreement or contract entered into
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by the Trust or any action to liquidate or dissolve the Trust. Shareholders of a
particular class shall not be entitled to vote on any matter that affects only
one or more other classes. There shall be no cumulative voting in the election
or removal of Trustees. The Trustees shall cause each matter required or
permitted to be voted upon at a meeting or by written consent of Shareholders to
be submitted to a vote of all classes of outstanding Shares entitled to vote
thereon, unless the 1940 Act or other applicable law or regulations require that
the actions of the Shareholders be taken by a separate vote of one or more
classes, or the Trustees determine that any matter to be submitted to a vote of
Shareholders affects only the rights or interests of one or more (but not all)
classes of outstanding Shares, in which case only the Shareholders of the class
or classes so affected shall be entitled to vote thereon.
10.3 Notice of Meeting and Record Date. Notice of all meetings
of Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder of record entitled to vote
thereat at its registered address, mailed at least 10 days before the meeting or
otherwise in compliance with applicable law. Only the business stated in the
notice of the meeting shall be considered at such meeting. Any adjourned meeting
may be held as adjourned one or more times without further notice not later than
130 days after the record date. For the purposes of determining the Shareholders
who are entitled to notice of and to vote at any meeting the Trustees may,
without closing the transfer books, fix a date not more than 100 days prior to
the date of such meeting of Shareholders as a record date for the determination
of the Persons to be treated as Shareholders of record for such purposes.
10.4 Quorum and Required Vote.
(a) The holders of a majority of outstanding Shares
of the Trust present in person or by proxy shall constitute a quorum at any
meeting of the Shareholders for purposes of conducting business on which a vote
of Shareholders of the Trust is being taken. The holders of a majority of
outstanding Shares of a class present in person or by proxy shall constitute a
quorum at any meeting of the Shareholders of such class for
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purposes of conducting business on which a vote of Shareholders of such class
is being taken.
(b) Subject to any provision of applicable law
requiring greater or lesser votes, this Declaration or resolution of the
Trustees specifying a greater or lesser vote requirement for the transaction of
any item of business at any meeting of Shareholders, (i) the affirmative vote of
a majority of the Shares present in person or represented by proxy and entitled
to vote on the subject matter shall be the act of the Shareholders with respect
to such matter, and (ii) where a separate vote of any class is required on any
matter, the affirmative vote of a majority of the Shares of such class present
in person or represented by proxy at the meeting shall be the act of the
Shareholders of such class with respect to such matter.
10.5 Proxies, etc. At any meeting of Shareholders, any holder
of Shares entitled to vote thereat may vote by properly executed proxy, provided
that no proxy shall be voted at any meeting unless it shall have been placed on
file with the Secretary, or with such other officer or agent of the Trust as the
Secretary may direct, for verification prior to the time at which such vote
shall be taken. Pursuant to a resolution of a majority of the Trustees, proxies
may be solicited in the name of one or more Trustees or one or more of the
officers or employees of the Trust. Only Shareholders of record shall be
entitled to vote. Each full Share shall be entitled to one vote and fractional
Shares shall be entitled to a vote of such fraction. When any Share is held
jointly by several persons, any one of them may vote at any meeting in person or
by proxy in respect of such Share, but if more than one of them shall be present
at such meeting in person or by proxy, and such joint owners or their proxies so
present disagree as to any vote to be cast, such vote shall not be received in
respect of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the challenger. If the holder
of any such Share is a minor or a person of unsound mind, and subject to
guardianship or to the legal control of any other person as regards the charge
or management of such Share, he may vote by his guardian or such other
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person appointed or having such control, and such vote may be given in person or
by proxy.
10.6 Reports. The Trustees shall cause to be prepared at least
annually and more frequently to the extent and in the form required by law,
regulation or any exchange on which Trust Shares are listed a report of
operations containing a balance sheet and statement of income and undistributed
income of the Trust prepared in conformity with generally accepted accounting
principles and an opinion of an independent public accountant on such financial
statements. Copies of such reports shall be mailed to all Shareholders of record
within the time required by the 1940 Act, and in any event within a reasonable
period preceding the meeting of Shareholders. The Trustees shall, in addition,
furnish to the Shareholders at least semi-annually to the extent required by
law, interim reports containing an unaudited balance sheet of the Trust as of
the end of such period and an unaudited statement of income and surplus for the
period from the beginning of the current fiscal year to the end of such period.
10.7 Inspection of Records. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
shareholders of a Delaware business corporation.
10.8 Shareholder Action by Written Consent. Any action which
may be taken by Shareholders by vote may be taken without a meeting if the
holders entitled to vote thereon of the proportion of Shares required for
approval of such action at a meeting of Shareholders pursuant to Section 10.4
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE XI
Duration: Termination of Trust;
Amendment; Mergers, Etc.
11.1 Duration. Subject to possible termina tion in accordance
with the provisions of Section 11.2
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hereof, the Trust created hereby shall have perpetual
existence.
11.2 Termination.
(a) The Trust may be dissolved, after two thirds of
the Trustees have approved a resolution therefor, upon approval by a majority
of all the Shareholders voting as one class. Upon the dissolution of the Trust:
(i) The Trust shall carry on no business except for the
purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs
of the Trust and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust shall have
been wound up, including the power to fulfill or discharge the
contracts of the Trust, collect its assets, sell, convey, assign,
exchange, merger where the Trust is not the survivor, transfer or
otherwise dispose of all or any part of the remaining Trust Property
to one or more Persons at public or private sale for consideration
which may consist in whole or in part in cash, securities or other
property of any kind, discharge or pay its liabilities, and do all
other acts appropriate to liquidate its business; provided that any
sale, conveyance, assignment, exchange, merger in which the Trust is
not the survivor, transfer or other disposition of all or
substantially all the Trust Property of the Trust shall require
approval of the principal terms of the transaction and the nature and
amount of the consideration by Shareholders with the same vote as
required to open-end the Trust.
(iii) After paying or adequately providing for the
payment of all lia bilities, and upon receipt of such releases,
indemnities and refunding agreements, as they deem necessary for their
protection, the Trustees may distribute the remaining Trust Property,
in cash or in kind or partly each, among
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the Shareholders according to their respective rights.
(b) After the winding up and termination of the Trust
and distribution to the Shareholders as herein provided, a majority of the
Trustees shall execute and lodge among the records of the Trust an instrument in
writing setting forth the fact of such termination and shall execute and file a
certificate of cancellation with the Secretary of State of the State of
Delaware. Upon termination of the Trust, the Trustees shall thereupon be
discharged from all further liabilities and duties hereunder, and the rights
and interests of all Shareholders shall thereupon cease.
11.3 Amendment Procedure.
(a) Other than Sections 11.2 and 11.6, this
Declaration may be amended, after a majority of the Trustees have approved a
resolution therefor, by the affirmative vote of the holders of not less than a
majority of the affected Shares. The Trustees also may amend this Declaration
without any vote of Shareholders to divide the Shares of the Trust into one or
more classes or additional classes, to change the name of the Trust or any
class, to make any change that does not adversely affect the relative rights or
preferences of any Shareholder, as they may deem necessary, to conform this
Declaration to the requirements of the 1940 Act or any other applicable federal
laws or regulations including pursuant to Section 6.2 or the requirements of the
regulated investment company provisions of the Code, but the Trustees shall not
be liable for failing to do so.
(b) No amendment may be made under Section 11.3(a)
above, which would change any rights with respect to any Shares of the Trust by
reducing the amount payable thereon upon liquidation of the Trust or by
diminishing or eliminating any voting rights pertaining thereto, except with the
vote of the holders of two-thirds of the Shares of the Trust. Nothing contained
in this Declaration shall permit the amendment of this Declaration to impair the
exemption from personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust or to permit assessments upon Shareholders.
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(c) An amendment duly adopted by the requisite vote
of the Board of Trustees and, if required, the Shareholders as aforesaid, shall
become effective at the time of such adoption or at such other time as may be
designated by the Board of Trustees or Shareholders, as the case may be. A
certification in recordable form signed by a majority of the Trustees setting
forth an amendment and reciting that it was duly adopted by the Trustees and, if
required, the Shareholders as aforesaid, or a copy of the Declaration, as
amended, in recordable form, and executed by a majority of the Trustees, shall
be conclusive evidence of such amendment when lodged among the records of the
Trust or at such other time designated by the Board.
Notwithstanding any other provision hereof, until such time as
a Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares of the Trust shall have become effective,
this Declaration may be terminated or amended in any respect by the affirmative
vote of a majority of the Trustees or by an instrument signed by a majority of
the Trustees.
11.4 Merger, Consolidation and Sale of Assets. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property or the property, including its good will, upon such terms and
conditions and for such consideration when and as authorized by two-thirds of
the Trustees and approved by a majority vote of the affected Shareholders and
any such merger, consolidation, sale, lease or exchange shall be determined for
all purposes to have been accomplished under and pursuant to the statutes of the
State of Delaware.
11.5 Incorporation. Upon approval by Shareholders, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction or any other trust, partnership,
association or other organization to take over all of the Trust Property or to
carry on any business in which the Trust shall directly or indirectly have any
interest, and to sell, convey and transfer the Trust Property to any such
corporation, trust, limited liability company, association or organization in
exchange for the shares or
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securities thereof, or otherwise, and to lend money to, subscribe for the shares
or securities of, and enter into any contracts with any such corporation, trust,
limited liability company, partnership, association or organization, or any
corporation, partnership, trust, limited liability company, association or
organization in which the Trust holds or is about to acquire shares or any other
interests. The Trustees may also cause a merger or consolidation between the
Trust or any successor thereto and any such corporation, trust, limited
liability company, partnership, association or other organization if and to the
extent permitted by law, as provided under the law then in effect. Nothing
contained herein shall be construed as requiring approval of Shareholders for
the Trustees to organize or assist in organizing one or more corporations,
trusts, limited liability companies, partnerships, associations or other
organizations and selling, conveying or transferring a portion of the Trust
Property to such organizations or entities.
11.6 Conversion. The Trust may be converted at any time from a
"closed-end company" to an "open-end company" as those terms are defined by the
1940 Act, upon the approval of such a proposal, together with the necessary
amendments to this Declaration to permit such a conversion, by a majority of the
Trustees then in office and by the holders of not less than two-thirds (66-2/3%)
of the Trust's outstanding Shares entitled to vote, except that if such proposal
is recommended by two-thirds of the total number of Trustees then in office,
such proposal may be adopted by a Majority Shareholder Vote. From time to time,
the Trustees may consider recommending to the Shareholders a proposal to convert
the Trust from a "closed-end company" to an "open-end company." Upon the
recommendation and subsequent adoption of such a proposal and the necessary
amendments to this Declaration to permit such a conversion of the Trust's
outstanding Shares entitled to vote, the Trust shall, upon complying with any
requirements of the 1940 Act and state law, become an "open-end" investment
company. Such affirmative vote or consent shall be in addition to the vote or
consent of the holders of the Shares otherwise required by law, or any agreement
between the Trust and any national securities exchange.
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11.7 Certain Transactions. (a) Notwithstanding any other
provision of this Declaration and subject to the exceptions provided in
paragraph (d) of this Section, the types of transactions described in paragraph
(c) of this Section shall require the affirmative vote or consent of the holders
of eighty percent (80%) of the Shares of each class outstanding and entitled to
vote, voting as a class, when a Principal Shareholder (as defined in paragraph
(b) of this Section) is a party to the transaction. Such affirmative vote or
consent shall be in addition to the vote or consent of the holders of Shares
otherwise required by law or by the terms of any class or series of preferred
stock, whether now or hereafter authorized, or any agreement between the Trust
and any national securities exchange.
(b) The term "Principal Shareholder" shall mean any
corporation, Person or other entity which is the beneficial owner, directly or
indirectly, of five percent (5%) or more of the outstanding Shares and shall
include any affiliate or associate, as such terms are defined in clause (ii)
below, of a Principal Shareholder. For the purposes of this Section, in addition
to the Shares which a corporation, Person or other entity beneficially owns
directly, (a) any corporation, Person or other entity shall be deemed to be the
beneficial owner of any Shares (i) which it has the right to acquire pursuant to
any agreement or upon exercise of conversion rights or warrants, or otherwise
(but excluding share options granted by the Trust) or (ii) which are
beneficially owned, directly or indirectly (including Shares deemed owned
through application of clause (i) above), by any other corporation, Person or
entity with which its "affiliate" or "associate" (as defined below) has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of Shares, or which is its "affiliate" or "associate" as
those terms are defined in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, and (b) the outstanding Shares shall
include Shares deemed owned through application of clauses (i) and (ii) above
but shall not include any other Shares which may be issuable pursuant to any
agreement, or upon exercise of conversion rights or warrants, or otherwise.
(c) This Section shall apply to the following
transactions:
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(i) The merger or consolidation of the Trust or any
subsidiary of the Trust with or into any Principal Shareholder.
(ii) The issuance of any securities of the Trust to
any Principal Shareholder for cash(other than pursuant to any automatic dividend
reinvestment plan).
(iii) The sale, lease or exchange of all or any
substantial part of the assets of the Trust to any Prin cipal Shareholder
(except assets having an aggregate fair market value of less than $1,000,000,
aggregating for the purpose of such computation all assets sold, leased or
exchanged in any series of similar transactions within a twelve-month period.)
(iv) The sale, lease or exchange to the Trust or any
subsidiary thereof, in exchange for securities of the Trust of any assets of any
Principal Shareholder (except assets having an aggregate fair market value of
less than $1,000,000, aggregating for the purposes of such computation all
assets sold, leased or exchanged in any series of similar transactions within a
twelve-month period).
(d) The provisions of this Section shall not be applicable to
(i) any of the transactions described in paragraph (c) of this Section if
two-thirds of the Board of Trustees of the Trust shall by resolution have
approved a memorandum of understanding with such Principal Shareholder with
respect to and substantially consistent with such transaction, or (ii) any such
transaction with any corporation of which a majority of the outstanding shares
of all classes of a stock normally entitled to vote in elections of directors is
owned of record or beneficially by the Trust and its subsidiaries.
(e) The Board of Trustees shall have the power and duty to
determine for the purposes of this Section on the basis of information known to
the Trust whether (i) a corporation, person or entity beneficially owns five
percent (5%) or more of the outstanding Shares, (ii) a corporation, person or
entity is an "affiliate" or "associate" (as defined above) of another, (iii)
the assets being acquired or leased to or by the Trust or any subsidiary
thereof constitute a substantial part of the assets of the Trust and have an
aggregate fair market
30
<PAGE>
value of less than $1,000,000, and (iv) the memorandum of understanding referred
to in paragraph (d) hereof is substantially consistent with the transaction
covered thereby. Any such determination shall be conclusive and binding for all
purposes of this Section.
ARTICLE XII
Miscellaneous
12.1 Filing. (a) This Declaration and any amendment hereto
shall be filed and in such places as may be required or as the Trustees deem
appropriate. Each amendment shall be accompanied by a certificate signed and
acknowledged by a Trustee stating that such action was duly taken in a manner
provided herein, and shall, upon insertion in the Trust's minute book, be
conclusive evidence of all amendments contained therein. A restated Declaration,
containing the original Declaration and all amendments theretofore made, may be
executed from time to time by a majority of the Trustees and shall, upon
insertion in the Trust's minute book, be conclusive evidence of all amendments
contained therein and may thereafter be referred to in lieu of the original
Declaration and the various amendments thereto.
(b) The trustee is hereby authorized and directed to
execute and file a Certificate of Trust (attached as Exhibit A hereto) with the
Delaware Secretary of State in accordance with the Delaware Business Trust
Statute.
12.2 Resident Agent. The Trust shall maintain a resident agent
in the State of Delaware, which agent shall initially be The Corporation Trust
Company, 1209 Orange Street, Wilmington, Delaware 19801 The Trustees may
designate a successor resident agent, provided, however, that such appointment
shall not become effective until written notice thereof is delivered to the
office of the Secretary of the State.
12.3 Governing Law. This Declaration is executed by the
Trustees and delivered in the State of Delaware and with reference to the laws
thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to laws of
said State and reference shall be specifically made to the business corporation
31
<PAGE>
law of the State of Delaware as to the construction of matters not specifically
covered herein or as to which an ambiguity exists, although such law shall not
be viewed as limiting the powers otherwise granted to the Trustees hereunder and
any ambiguity shall be viewed in favor of such powers.
12.4 Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
12.5 Reliance by Third Parties. Any certificate executed by
an individual who, according to the records of the Trust, or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the name of the Trust, (c) the due authorization of the
execution of any instrument or writing, (d) the form of any vote passed at a
meeting of Trustees or Shareholders, (e) the fact that the number of Trustees or
Shareholders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (f) the form of any By Laws
adopted by or the identity of any officers elected by the Trustees, or (g) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any person dealing with the Trustees and their successors.
12.6 Provisions in Conflict with Law or Regulation.
(a) The provisions of this Declaration are severable,
and if the Trustees shall determine, with the advice of counsel, that any of
such provisions is in conflict with the 1940 Act, the regulated investment
company provisions of the Internal Revenue Code or with other applicable laws
and regulations, the conflicting provision shall be deemed never to have
constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or
32
<PAGE>
improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be
held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration in any jurisdiction.
33
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused these presents
to be executed as of the day and year first above written.
By: /s/ G. Moffett Cochran
-------------------------
Name: G. Moffett Cochran
34
BY-LAWS
OF
DLJ HIGH YIELD BOND FUND
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - Shareholder Meetings ............................................... 1
1.1 Chairman........................................................... 1
1.2 Proxies; Voting.................................................... 1
1.3 Fixing Record Dates................................................ 1
1.4 Inspectors of Election ............................................ 1
1.5 Records at Shareholder Meetings.................................... 2
ARTICLE II - Trustees........................................................... 3
2.1 Annual and Regular Meetings........................................ 3
2.2 Chairman; Records.................................................. 3
ARTICLE III - Officers ......................................................... 3
3.1 Officers of the Trust.............................................. 3
3.2 Election and Tenure................................................ 3
3.3 Removal of Officers................................................ 4
3.4 Bonds and Surety .................................................. 4
3.5 Chairman, President, and Vice Presidents .......................... 4
3.6 Secretary.......................................................... 5
3.7 Treasurer.......................................................... 5
3.8 Other Officers and Duties.......................................... 6
ARTICLE IV - Miscellaneous ..................................................... 6
4.1 Depositories ...................................................... 6
4.2 Signatures ........................................................ 6
4.3 Seal .............................................................. 7
ARTICLE V - Stock Transfers..................................................... 7
5.1 Transfer Agents, Registrars and the Like .......................... 7
5.2 Transfer of Shares ................................................ 7
5.3 Registered Shareholders............................................ 7
ARTICLE VI - Amendment of By-Laws............................................... 8
6.1 Amendment and Repeal of By-Laws.................................... 8
</TABLE>
i
<PAGE>
DLJ HIGH YIELD BOND FUND
BY-LAWS
These By-Laws are made and adopted pursuant to Section 3.9 of the
Declaration of Trust establishing DLJ High Yield Bond Fund dated as of April 24,
1998, as from time to time amended (hereinafter called the "Declaration"). All
words and terms capitalized in these By-Laws shall have the meaning or meanings
set forth for such words or terms in the Declaration.
ARTICLE I
Shareholder Meetings
I.1 Chairman. The Chairman, if any, shall act as chairman at all
meetings of the Shareholders; in the Chairman's absence, the Trustee or Trustees
present at each meeting may elect a temporary chairman for the meeting, who may
be one of themselves.
I.2 Proxies; Voting. Shareholders may vote either in person or by
duly executed proxy and each full share represented at the meeting shall have
one vote, all as provided in Article 10 of the Declaration.
I.3 Fixing Record Dates. For the purpose of determining the
Shareholders who are entitled to notice of or to vote or act at any meeting,
including any adjournment thereof, or who are entitled to participate in any
dividends, or for any other proper purpose, the Trustees may from time to time,
without closing the transfer books, fix a record date in the manner provided in
Section 10.3 of the Declaration. If the Trustees do not prior to any meeting of
Shareholders so fix a record date or close the transfer books, then the date of
mailing notice of the meeting or the date upon which the dividend resolution is
adopted, as the case may be, shall be the record date.
I.4 Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed,
<PAGE>
the Chairman, if any, of any meeting of Shareholders may, and on the
request of any Shareholder or Shareholder proxy shall, appoint Inspectors of
Election of the meeting. The number of Inspectors shall be either one or three.
If appointed at the meeting on the request of one or more Shareholders or
proxies, a majority of Shares present shall determine whether one or three
Inspectors are to be appointed, but failure to allow such determination by the
Shareholders shall not affect the validity of the appointment of Inspectors of
Election. In case any person appointed as Inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the Trustees in
advance of the convening of the meeting or at the meeting by the person acting
as chairman. The Inspectors of Election shall determine the number of Shares
outstanding, the Shares represented at the meeting, the existence of a quorum,
the authenticity, validity and effect of proxies, shall receive votes, ballots
or consents, shall hear and determine all challenges and questions in any way
arising in connection with the right to vote, shall count and tabulate all votes
or consents, determine the results, and do such other acts as may be proper to
conduct the election or vote with fairness to all Shareholders. If there are
three Inspectors of Election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all. On request
of the Chairman, if any, of the meeting, or of any Shareholder or Shareholder
proxy, the Inspectors of Election shall make a report in writing of any
challenge or question or matter determined by them and shall execute a
certificate of any facts found by them.
I.5 Records at Shareholder Meetings. At each meeting of the
Shareholders, there shall be made available for inspection at a convenient time
and place during normal business hours, if requested by Shareholders, the
minutes of the last previous Annual or Special Meeting of Shareholders of the
Trust and a list of the Shareholders of the Trust, as of the record date of the
meeting or the date of closing of transfer books, as the case may be. Such list
of Shareholders shall contain the name and the address of each Shareholder in
alphabetical order and the number of Shares owned by such Shareholder.
Shareholders shall have such other rights and procedures of inspection
2
<PAGE>
of the books and records of the Trust as are granted to shareholders of a
Delaware business corporation.
ARTICLE II
Trustees
II.1 Annual and Regular Meetings. Meetings of the Trustees shall
be held from time to time upon the call of the Chairman, if any, the President,
the Secretary or any two Trustees. Regular meetings of the Trustees may be held
without call or notice and shall generally be held quarterly. Neither the
business to be transacted at, nor the purpose of, any meeting of the Board of
Trustees need be stated in the notice or waiver of notice of such meeting, and
no notice need be given of action proposed to be taken by unanimous written
consent.
II.2 Chairman; Records. The Chairman, if any, shall act as
chairman at all meetings of the Trustees; in absence of a chairman, the Trustees
present shall elect one of their number to act as temporary chairman. The
results of all actions taken at a meeting of the Trustees, or by unanimous
written consent of the Trustees, shall be recorded by the person appointed by
the Board of Trustees as the meeting secretary.
ARTICLE III
Officers
III.1 Officers of the Trust. The officers of the Trust shall
consist of a Chairman, if any, a President, a Secretary, a Treasurer and such
other officers or assistant officers as may be elected or authorized by the
Trustees. Any two or more of the offices may be held by the same Person, except
that the same person may not be both President and Secretary. The Chairman, if
any, shall be a Trustee, but no other officer of the Trust need be a Trustee.
III.2 Election and Tenure. At the initial organization meeting,
the Trustees shall elect the Chairman, if any, President, Secretary, Treasurer
and such other officers as the Trustees shall deem necessary or
3
<PAGE>
appropriate in order to carry out the business of the Trust. Such officers
shall serve at the pleasure of the Trustees or until their successors have been
duly elected and qualified. The Trustees may fill any vacancy in office or add
any additional officers at any time.
III.3 Removal of Officers. Any officer may be removed at any
time, with or without cause, by action of a majority of the Trustees. This
provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of action
which any officer may have as a result of removal in breach of a contract of
employment. Any officer may resign at any time by notice in writing signed by
such officer and delivered or mailed to the Chairman, if any, President, or
Secretary, and such resignation shall take effect immediately upon receipt by
the Chairman, if any, President, or Secretary, or at a later date according to
the terms of such notice in writing.
III.4 Bonds and Surety. Any officer may be required by the
Trustees to be bonded for the faithful performance of such officer's duties in
such amount and with such sureties as the Trustees may determine.
III.5 Chairman, President, and Vice Presidents. The Chairman, if
any, shall, if present, preside at all meetings of the Shareholders and of the
Trustees and shall exercise and perform such other powers and duties as may be
from time to time assigned to such person by the Trustees. Subject to such
supervisory powers, if any, as may be given by the Trustees to the Chairman, if
any, the President shall be the chief executive officer of the Trust and,
subject to the control of the Trustees, shall have general supervision,
direction and control of the business of the Trust and of its employees and
shall exercise such general powers of management as are usually vested in the
office of President of a corporation. Subject to direction of the Trustees, the
Chairman, if any, and the President shall each have power in the name and on
behalf of the Trust or any of its Series to execute any and all loans,
documents, contracts, agreements, deeds, mortgages, registration statements,
applications, requests, filings and other instruments in writing, and to employ
and discharge employees and agents of the
4
<PAGE>
Trust. Unless otherwise directed by the Trustees, the Chairman, if any, and the
President shall each have full authority and power, on behalf of all of the
Trustees, to attend and to act and to vote, on behalf of the Trust at any
meetings of business organizations in which the Trust holds an interest, or to
confer such powers upon any other persons, by executing any proxies duly
authorizing such persons. The Chairman, if any, and the President shall have
such further authorities and duties as the Trustees shall from time to time
determine. In the absence or disability of the President, the Vice-Presidents in
order of their rank as fixed by the Trustees or, if more than one and not
ranked, the Vice-President designated by the Trustees, shall perform all of the
duties of the President, and when so acting shall have all the powers of and be
subject to all of the restrictions upon the President. Subject to the direction
of the Trustees, and of the President, each Vice-President shall have the power
in the name and on behalf of the Trust to execute any and all instruments in
writing, and, in addition, shall have such other duties and powers as shall be
designated from time to time by the Trustees or by the President.
III.6 Secretary. The Secretary shall maintain the minutes of all
meetings of, and record all votes of, Shareholders, Trustees and the Executive
Committee, if any. The Secretary shall be custodian of the seal of the Trust, if
any, and the Secretary (and any other person so authorized by the Trustees)
shall affix the seal, or if permitted, facsimile thereof, to any instrument
executed by the Trust which would be sealed by a Delaware business corporation
executing the same or a similar instrument and shall attest the seal and the
signature or signatures of the officer or officers executing such instrument on
behalf of the Trust. The Secretary shall also perform any other duties commonly
incident to such office in a Delaware business corporation, and shall have such
other authorities and duties as the Trustees shall from time to time determine.
III.7 Treasurer. Except as otherwise directed by the Trustees,
the Treasurer shall have the general supervision of the monies, funds,
securities, notes receivable and other valuable papers and documents of the
Trust, and shall have and exercise under the supervision
5
<PAGE>
of the Trustees and of the President all powers and duties normally incident to
the office. The Treasurer may endorse for deposit or collection all notes,
checks and other instruments payable to the Trust or to its order. The Treasurer
shall deposit all funds of the Trust in such depositories as the Trustees shall
designate. The Treasurer shall be responsible for such disbursement of the funds
of the Trust as may be ordered by the Trustees or the President. The Treasurer
shall keep accurate account of the books of the Trust's transactions which shall
be the property of the Trust, and which together with all other property of the
Trust in the Treasurer's possession, shall be subject at all times to the
inspection and control of the Trustees. Unless the Trustees shall otherwise
determine, the Treasurer shall be the principal accounting officer of the Trust
and shall also be the principal financial officer of the Trust. The Treasurer
shall have such other duties and authorities as the Trustees shall from time to
time determine. Notwithstanding anything to the contrary herein contained, the
Trustees may authorize any adviser, administrator, manager or transfer agent to
maintain bank accounts and deposit and disburse funds of any Series of the Trust
on behalf of such Series.
III.8 Other Officers and Duties. The Trustees may elect such
other officers and assistant officers as they shall from time to time determine
to be necessary or desirable in order to conduct the business of the Trust.
Assistant officers shall act generally in the absence of the officer whom they
assist and shall assist that officer in the duties of the office. Each officer,
employee and agent of the Trust shall have such other duties and authority as
may be conferred upon such person by the Trustees or delegated to such person by
the President.
ARTICLE IV
Miscellaneous
IV.1 Depositories. In accordance with Section 7.1 of the
Declaration, the funds of the Trust shall be deposited in such custodians as the
Trustees shall designate and shall be drawn out on checks, drafts or other
orders signed by such officer, officers, agent or agents
6
<PAGE>
(including the adviser, administrator or manager), as the Trustees may from time
to time authorize.
IV.2 Signatures. All contracts and other instruments shall be
executed on behalf of the Trust by its properly authorized officers, agent or
agents, as provided in the Declaration or By-laws or as the Trustees may from
time to time by resolution provide.
IV.3 Seal. The Trust is not required to have any seal, and the
adoption or use of a seal shall be purely ornamental and be of no legal effect.
The seal, if any, of the Trust, or any Series of the Trust, if any, may be
affixed to any instrument, and the seal and its attestation may be lithographed,
engraved or otherwise printed on any document with the same force and effect as
if it had been imprinted and affixed manually in the same manner and with the
same force and effect as if done by a Delaware business corporation. The
presence or absence of a seal shall have no effect on the validity,
enforceability or binding nature of any document or instrument that is otherwise
duly authorized, executed and delivered.
ARTICLE V
Stock Transfers
V.1 Transfer Agents, Registrars and the Like. As provided in
Section 6.9 of the Declaration, the Trustees shall have authority to employ and
compensate such transfer agents and registrars with respect to the Shares of the
various Series of the Trust as the Trustees shall deem necessary or desirable.
In addition, the Trustees shall have power to employ and compensate such
dividend disbursing agents, warrant agents and agents for the reinvestment of
dividends as they shall deem necessary or desirable. Any of such agents shall
have such power and authority as is delegated to any of them by the Trustees.
V.2 Transfer of Shares. The Shares of the Trust shall be
transferable on the books of the Trust only upon delivery to the Trustees or a
transfer agent of the Trust of proper documentation as provided in Section
7
<PAGE>
6.10 of the Declaration. The Trust, or its transfer agents, shall be authorized
to refuse any transfer unless and until presentation of such evidence as may be
reasonably required to show that the requested transfer is proper.
V.3 Registered Shareholders. The Trust may deem and treat the
holder of record of any Shares as the absolute owner thereof for all purposes
and shall not be required to take any notice of any right or claim of right of
any other person.
ARTICLE VI
Amendment of By-Laws
VI.1 Amendment and Repeal of By-Laws. In accordance with Section
3.9 of the Declaration, the Trustees shall have the power to amend or repeal the
By-Laws or adopt new By-Laws at any time; provided, however, that By-Laws
adopted by the Shareholders may, if such By-Laws so state, be altered, amended
or repealed only by the Shareholders by an affirmative vote of a majority of the
outstanding voting securities of the Trust, and not by the Trustees. Action by
the Trustees with respect to the By-Laws shall be taken by an affirmative vote
of a majority of the Trustees. The Trustees shall in no event adopt By-Laws
which are in conflict with the Declaration, and any apparent inconsistency shall
be construed in favor of the related provisions in the Declaration.
8
FORM OF TERMS AND CONDITIONS OF
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Pursuant to the Automatic Dividend Reinvestment Plan (the "Plan") of
DLJ High Yield Bond Fund (the "Fund"), unless a holder (each, a "Shareholder")
of the Fund's common shares of beneficial interest (the "Shares") otherwise
elects, all dividends and capital gain distributions on such Shareholder's
Shares will be automatically reinvested by First Data Investor Services Group,
Inc. ("First Data"), 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 First
Data 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 First Data, as the
Dividend Disbursing Agent, at the address set forth below. Participation in the
Plan is completely 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 or
resumption will be effective with respect to any subsequently declared dividend
or other distribution.
The Plan Agent will open an account for each Shareholder under the
Plan in the same name in which such Shareholder's Shares are registered.
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 New York Stock Exchange
("NYSE") or elsewhere. If, on the record date for any 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 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 record date for any dividend, the net
asset value per Share is greater than the market value (such condition being
referred to herein as "market discount"),
<PAGE>
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 record date for any
dividend, 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 30 days after the
record date for such dividend, whichever is sooner (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 each dividend through the date before the next "ex-dividend"
date which typically will be approximately ten days. 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.
2
<PAGE>
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.
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.
3
INVESTMENT MANAGEMENT AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT, dated July 27, 1998, between DLJ
High Yield Bond Fund (the "Trust"), a Delaware business trust, and DLJ
Investment Management Corp. (the "Adviser"), a Delaware corporation.
In consideration of the mutual promises and agreements herein
contained and other good and valuable consideration, the receipt of which is
hereby acknowledged, it is agreed by and between the parties hereto as follows:
1. In General
The Adviser agrees, all as more fully set forth herein, to act as
investment manager to the Trust with respect to the investment of the Trust's
assets and to supervise and arrange the purchase of securities and other assets
and the sale of securities and other assets held in the investment portfolio of
the Trust in accordance with the Trust's objectives and policies as in effect
from time to time.
2. Duties and obligations of the Adviser with respect to
investments of assets of the Trust
(a) Subject to the succeeding provisions of this section and
subject to the direction and control of the Trust's Board of Trustees, the
Adviser shall (i) act as investment manager for and supervise and manage the
investment and reinvestment of the Trust's assets in accordance with the Trust's
objectives and policies as in effect from time to time and in connection
therewith have complete discretion in purchasing and selling securities and all
other assets for the Trust and in voting, exercising consents and exercising all
other rights appertaining to such securities and other assets on behalf of the
Trust in accordance with the Agreement and Declaration of Trust of the Trust,
(ii) supervise continuously the investment program of the Trust and the
composition of its investment portfolio and (iii) arrange, subject to the
provisions of Section 3 hereof, for the purchase and sale of securities and all
other assets held in the investment portfolio of the Trust.
(b) In the performance of its duties under this Agreement, the
Adviser shall at all times conform to, and act in accordance with, any
requirements imposed by (i) the provisions of the Investment Company Act of
1940, as amended (the "Act"), and of any rules or regulations in force
thereunder, (ii) any other applicable provision of law, (iii) the provisions of
the Agreement and Declaration of Trust and By-Laws of the Trust,
<PAGE>
as such documents are amended from time to time, (iv) the investment objective
and policies of the Trust as in effect from time to time and (v) any policies
and determinations of the Board of Trustees of the Trust.
(c) The Adviser shall bear all costs and expenses of its
officers, directors and employees and any overhead incurred in connection with
its duties hereunder and shall bear the costs of any salaries or trustees fees
of any officers or trustees of the Trust who are affiliated persons (as defined
in the Act) of the Adviser except that the Board of Trustees of the Trust may
approve reimbursement to the Adviser of the pro rata portion of the salaries,
bonuses, health insurance, retirement benefits and all similar employment costs
for the time spent on Trust operations (other than the provision of investment
advice) of all personnel employed by the Adviser who devote substantial time to
Trust operations.
(d) The Adviser shall give the Trust the benefit of its best
judgment and effort in rendering services hereunder, but the Adviser shall not
be liable for any act or omission or for any loss sustained by the Trust in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement.
(e) Nothing in this Agreement shall prevent the Adviser or any
director, officer, employee or other affiliate thereof from acting as investment
adviser for any other person, firm or corporation, or from engaging in any other
lawful activity, and shall not in any way limit or restrict the Adviser or any
of its directors, officers, employees or agents from buying, selling or trading
any securities for its or their own accounts or for the accounts of others for
whom it or they may be acting, provided, however that the Adviser will undertake
no activities which, in its judgment, will adversely affect the performance of
its obligations under this Agreement.
3. Portfolio Transactions and Brokerage
The Adviser is authorized, for the purchase and sale of the Trust's
portfolio securities, to employ such securities brokers and dealers (including
those which may be affiliated with the Adviser) as may, in the judgment of the
Adviser, implement the policy of the Trust to obtain the best net results taking
into account such factors as price, including commission or dealer spread, the
size, type and difficulty of the transaction involved, the firm's general
execution and operational facilities and the firm's risk in positioning the
securities involved. Consistent with this policy, the Adviser is authorized to
direct the execution of the Trust's portfolio transactions to dealers and
brokers furnishing statistical information or research deemed by the Adviser to
be useful or valuable to the
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performance of its investment advisory functions for the Trust in accordance
with the requirements of Section 28(e) of the Securities Exchange Act of 1934,
as amended.
4. Agency Cross Transactions.
From time to time, the Adviser or brokers or dealers affiliated with
it may find themselves in a position to buy for certain of their brokerage
clients (each an "Account") securities which the Adviser's investment advisory
clients wish to sell, and to sell for certain of their brokerage clients
securities which advisory clients wish to buy. Where one of the parties is an
advisory client, the Adviser or the affiliated broker or dealer cannot
participate in this type of transaction (known as a cross transaction) on behalf
of an advisory client and retain commissions from both parties to the
transaction without the advisory client's consent. This is because in a
situation where the Adviser is making the investment decision (as opposed to a
brokerage client who makes his own investment decisions), and the Adviser or an
affiliate is receiving commissions from one or both sides of the transaction,
there is a potential conflicting division of loyalties and responsibilities on
the Adviser's part regarding the advisory client. The Securities and Exchange
Commission has adopted a rule under the Investment Advisers Act of 1940, as
amended which permits the Adviser or its affiliates to participate on behalf of
an Account in agency cross transactions if the advisory client has given written
consent in advance. By execution of this Agreement, the Trust authorizes the
Adviser or its affiliates to participate in agency cross transactions involving
an Account. The Trust may revoke its consent at any time by written notice to
the Adviser.
5. Compensation of the Adviser
(a) The Trust agrees to pay to the Adviser and the Adviser
agrees to accept as full compensation for all services rendered by the Adviser
as such, a monthly fee in arrears at an annual rate equal to 1% of the average
weekly value of the Trust's Managed Assets. Managed Assets means the Trust's
total assets minus the sum of accrued liabilities (other than the aggregate
indebtedness constituting leverage). For any period of less than a month during
which this Agreement is in effect, the fee shall be prorated according to the
proportion which such period bears to a full month of 28, 29, 30 or 31 days, as
the case may be.
(b) For purposes of this Agreement, the net assets of the
Trust shall be calculated pursuant to the procedures for calculating the net
asset value of the Trust's shares adopted by resolutions of the Trustees of the
Trust.
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6. Indemnity
(a) The Trust hereby agrees to indemnify the Adviser and each
of the Adviser's directors, officers, employees, agents, associates and
controlling persons and the partners, directors, officers, employees, members
and agents thereof (including any individual who serves at the Adviser's request
as director, officer, partner, trustee or the like of another entity) (each such
person being an "Indemnitee") against any liabilities and expenses, including
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees (all as provided in accordance with applicable
corporate law) reasonably incurred by such Indemnitee in connection with the
defense or disposition of any action, suit or other proceeding, whether civil or
criminal, before any court or administrative or investigative body in which such
Indemnitee may be or may have been involved as a party or otherwise or with
which such Indemnitee may be or may have been threatened, while acting in any
capacity set forth herein or thereafter by reason of such Indemnitee having
acted in any such capacity, except with respect to any matter as to which such
Indemnitee shall have been adjudicated not to have acted in good faith in the
reasonable belief that such Indemnitee action was in the best interest of the
Trust and furthermore, in the case of any criminal proceeding, so long as such
Indemnitee had no reasonable cause to believe that the conduct was unlawful,
provided, however, that (1) no Indemnitee shall be indemnified hereunder against
any liability to the Trust or its shareholders or any expense of such Indemnitee
arising by reason of (i) willful misfeasance, (ii) bad faith, (iii) gross
negligence or (iv) reckless disregard of the duties involved in the conduct of
such Indemnitee's position (the conduct referred to in such clauses (i) through
(iv) being sometimes referred to herein as "disabling conduct"), (2) as to any
matter disposed of by settlement or a compromise payment by such Indemnitee,
pursuant to a consent decree or otherwise, no indemnification either for said
payment or for any other expenses shall be provided unless there has been a
determination that such settlement or compromise is in the best interests of the
Trust and that such Indemnitee appears to have acted in good faith in the
reasonable belief that such Indemnitee's action was in the best interest of the
Trust and did not involve disabling conduct by such Indemnitee and (3) with
respect to any action, suit or other proceeding voluntarily prosecuted by any
Indemnitee as plaintiff, indemnification shall be mandatory only if the
prosecution of such action, suit or other proceeding by such Indemnitee was
authorized by a majority of the full Board of Trustees of the Trust.
(b) The Trust shall make advance payments in connection with
the expenses of defending any action with respect to which indemnification might
be sought hereunder if the Trust receives a written affirmation of the
Indemnitee's good faith belief that the standard of conduct necessary for
indemnification has been met and a written undertaking to reimburse the Trust
unless it is subsequently determined that such
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<PAGE>
Indemnitee is entitled to such indemnification and if the trustees of the Trust
determine that the facts then known to them would not preclude indemnification.
In addition, at least one of the following conditions must be met: (A) the
Indemnitee shall provide a security for such Indemnitee's undertaking, (B) the
Trust shall be insured against losses arising by reason of any lawful advances,
or (C) a majority of a quorum consisting of trustees of the Trust who are
neither "interested persons" of the Trust (as defined in Section 2(a)(19) of the
Act) nor parties to the proceeding ("Disinterested Non-Party Trustees") or an
independent legal counsel in a written opinion, shall determine, based on a
review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Indemnitee ultimately will be found
entitled to indemnification.
(c) All determinations with respect to indemnification
hereunder shall be made (1) by a final decision on the merits by a court or
other body before whom the proceeding was brought that such Indemnitee is not
liable by reason of disabling conduct or, (2) in the absence of such a decision,
by (i) a majority vote of a quorum of the Disinterested Non-Party Trustees of
the Trust, or (ii) if such a quorum is not obtainable or even, if obtainable, if
a majority vote of such quorum so directs, independent legal counsel in a
written opinion. All determinations that advance payments in connection with the
expense of defending any proceeding shall be authorized shall be made in
accordance with the immediately preceding clause (2) above.
The rights accruing to any Indemnitee under these provisions
shall not exclude any other right to which such Indemnitee may be lawfully
entitled.
7. Duration and Termination
This Agreement shall become effective on the date it is approved by
the shareholders of the Trust and shall continue in effect for a period of two
years and thereafter from year to year, but only so long as such continuation is
specifically approved at least annually in accordance with the requirements of
the Act.
This Agreement may be terminated by the Adviser at any time without
penalty upon giving the Trust ninety days' written notice (which notice may be
waived by the Trust) or may be terminated by the Trust at any time without
penalty upon giving the Adviser sixty days' notice (which notice may be waived
by the Adviser), provided that such termination by the Trust shall be directed
or approved by the vote of a majority of the Trustees of the Trust in office at
the time or by the vote of the holders of a "majority" (as defined in the Act)
of the voting securities of the Trust at the time outstanding and entitled to
vote. This Agreement shall terminate automatically in the event of its
assignment (as assignment is defined in the Act).
8. Notices
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Any notice under this Agreement shall be in writing to the other
party at such address as the other party may designate from time to time for the
receipt of such notice and shall be deemed to be received on the earlier of the
date actually received or on the fourth day after the postmark if such notice is
mailed first class postage prepaid.
9. Governing Law
This Agreement shall be construed in accordance with the laws of the
State of New York for contracts to be performed entirely therein without
reference to choice of law principles thereof and in accordance with the
applicable provisions of the Act.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by their duly authorized officers, all as of the day
and the year first above written.
DLJ HIGH YIELD BOND FUND
By
------------------------------------------
Name: Martin Jaffe
Title: Vice President
DLJ INVESTMENT
MANAGEMENT CORP.
By
------------------------------------------
Name: Martin Jaffe
Title: Chief Operating Officer
6
MASTER AGREEMENT AMONG UNDERWRITERS
March 1, 1993
DONALDSON. LUFKIN & JENRETTE
SECURITIES CORPORATION
140 Broadway
New York, N.Y. 10005
Dear Sirs:
We understand that from time to time you may act as Representative or as one
of the Representatives of the several underwriters of offerings of securities of
various issuers. This Agreement shall apply to any offering of securities in
which we elect to act as an underwriter after receipt of an invitation from you
identifying the issuer, containing information regarding certain terms of the
securities to be offered, specifying the amount of our proposed participation
and the names of the other Representatives, if any, and stating that our
participation as an underwriter in the offering shall be subject to the
provisions of this Agreement. Your invitation will include instructions for our
acceptance of such invitation. At or prior to the time of an offering, you will
advise us, to the extent applicable, as to the expected offering date, the
expected closing date, the initial public offering price, the interest or
dividend rate (or the method by which such rate is to be determined), the
conversion price, the underwriting discount, the management fee, the selling
concession and the reallowance, except that if the public offering price of the
securities is to be determined by a formula based upon the market price of
certain securities (such procedure being hereinafter referred to as Formula
Pricing), you shall so advise us and shall specify the maximum underwriting
discount, management fee and selling concession. Such information may be
conveyed by you in one or more communications (such communications received by
us with respect to the offering are hereinafter collectively referred to as the
Invitation). You will notify us, in the Invitation, if the Underwriting
Agreement (as hereinafter defined) provides for (x) the granting of an option to
purchase additional securities to cover overallotments or (y) two syndicates of
underwriters, a syndicate of underwriters that will offer and sell securities in
the U.S. and Canada to U.S. and Canadian Persons (as such terms are defined the
Agreement Between U.S. Underwriters and International Managers referred to
below) and a syndicate of underwriters (the International Managers) that will
offer and sell securities outside the U.S. and Canada to persons other than U.S.
and Canadian Persons (a Two-Tranche Offering).
This Agreement, as amended or supplemented by the Invitation, shall become
effective with respect to our participation in an offering of securities if your
Syndicate Department receives our oral or written acceptance prior to the time
and date specified in the Invitation (our acceptance being hereinafter referred
to as our Acceptance). Our Acceptance will constitute our confirmation that,
except as otherwise stated in such Acceptance, each statement included in the
Master Underwriters' Questionnaire set forth as Exhibit A hereto (or otherwise
furnished to us) is correct. The issuer of the securities in any offering of
securities made pursuant to this Agreement is hereinafter referred to as the
Issuer. If the Underwriting Agreement does not provide for an over-allotment
option, the securities to be purchased are hereinafter referred to as the
Securities; if the Underwriting Agreement provides for an over-allotment option,
the securities the Underwriters (as herein defined) are initially obligated to
purchase pursuant to the Underwriting Agreement are hereinafter called the Firm
Securities and any additional securities which may be purchased by the
Underwriters upon exercise of the over-allotment option are hereinafter called
the Additional Securities. In the case of a Two-Tranche Offering, the securities
the International Managers are initially obligated to purchase pursuant to the
Underwriting Agreement are hereinafter referred to as the International Firm
Securities and any additional securities which may be purchased by the
International Managers upon exercise of any over-allotment option are
hereinafter referred to as the International Additional Securities with the Firm
Securities, the Additional Securities, the International Firm Securities and the
International Additional Securities being hereinafter collectively referred to
as the Securities. Any underwriters of Securities under this Agreement,
including the Representatives (as hereinafter defined), are hereinafter
collectively referred to as the Underwriters. In the case of a Two-Tranche
Offering, the International Managers will not purchase pursuant to this
Agreement in their capacity as International Managers and accordingly will not
be "Underwriters" for the purposes hereof. All references herein to "you" or to
the "Representatives" shall mean Donaldson, Lufkin & Jenrette Securities
Corporation and the other firms, if any, which are named as Representatives or,
in the case of a Two-Tranche Offering, as U.S. Representatives in the
Invitation. It
<PAGE>
is understood and agreed that Donaldson, Lufkin & Jenrette Securities
Corporation may act on behalf of all Representatives. The Securities to be
offered may, but need not, be registered for a delayed or continuous offering
pursuant to Rule 415 under the Securities Act of 1933 (the 1933 Act).
The following provisions of this Agreement shall apply separately to each
offering of Securities. This Agreement may be supplemented or amended by you by
a written notice to us and, except for supplements or amendments set forth in an
Invitation relating to a particular offering of Securities, any such supplement
or amendment to this Agreement shall be effective with respect to any offering
of Securities to which this Agreement applies after this Agreement is so amended
or supplemented.
1. Registration Statement and Prospectus; Offering Circular. In the case of
an Invitation regarding an offering of Securities registered under the 1933 Act
(a Registered Offering), you will furnish to us, to the extent made available to
you by the Issuer, copies of the registration statement relating to the
Securities filed with the Securities and Exchange Commission (the Commission)
pursuant to the 1933 Act and each amendment thereto (excluding exhibits but
including any documents incorporated by reference therein). If the registration
statement relates to securities to be offered on a delayed or continuous basis
pursuant to Rule 415 under the 1933 Act, the term Registration Statement means
such registration statement as amended to the date of the Underwriting
Agreement. Otherwise, the term Registration Statement means such registration
statement as amended at the time when it becomes effective (including the
information, if any, deemed to be a part of such Registration Statement at the
time of effectiveness pursuant to Rule 430A under the 1933 Act). The term
Prospectus means the prospectus, together with a final prospectus supplement, if
any, relating to the offering of the Securities, and in the form first used to
confirm sales of the Securities, except that in the case of a Two-Tranche
Offering, the term Prospectus means, collectively, the U.S. prospectus relating
to the Securities to be offered and sold in the U.S. and Canada to U.S. and
Canadian Persons and the international prospectus relating to the Securities to
be offered and sold outside the U.S. and Canada to persons other than U.S. and
Canadian Persons, in each case, together with a final prospectus supplement, if
any, and in the respective forms first used to confirm sales of the Securities.
The term preliminary prospectus means any preliminary prospectus relating to the
offering of the Securities or any preliminary prospectus supplement together
with a prospectus relating to the offering of the Securities. As used herein the
terms Registration Statement, Prospectus and preliminary prospectus shall
include in each case the material, if any, incorporated by reference therein.
With respect to Securities for which no Registration Statement is filed with
the Commission, you will furnish to us, to the extent made available to you by
the Issuer, copies of any offering circular or other offering materials to be
used in connection with the offering of the Securities and of each amendment
thereto (the Offering Circular).
We understand that it is our responsibility to examine the Registration
Statement, the Prospectus, the Offering Circular, any amendment or supplement
thereto relating to the offering of the Securities, any preliminary prospectus
or offering circular and the material, if any, incorporated by reference therein
and we will familiarize ourself with the terms of the Securities and the other
terms of the offering thereof which are to be reflected in the Prospectus or
Offering Circular and the Invitation. You are authorized, with the approval of
counsel for the Underwriters, to approve on our behalf any amendments or
supplements to the Registration Statement or the Prospectus or Offering
Circular.
2. Underwriting Agreement. We authorize you to execute and deliver an
underwriting or purchase agreement and any amendment or supplement thereto and
any associated Terms Agreement or other similar agreement (collectively, the
Underwriting Agreement) on our behalf with the Issuer and any selling
securityholder with respect to the Securities in such form as you determine. We
will be bound by all terms of the Underwriting Agreement as executed. The term
"original underwriting commitment", as used in this Agreement with respect to
any Underwriter, shall refer to the amount of Firm Securities set forth opposite
such Underwriter's name in the Underwriting Agreement plus any Additional Firm
Securities which such Underwriter may become obligated to purchase pursuant to
the provisions of the Underwriting Agreement or Section 12 hereof and, as used
in this Agreement with respect to any International Manager, shall refer to the
amount of International Firm Securities set forth opposite such International
Manager's name in the Underwriting Agreement plus any additional International
Firm Securities which such International Manager may become obligated to
purchase pursuant to the provisions of the Underwriting Agreement. The ratio
which the original underwriting commitment of any Underwriter bears to the
aggregate amount of Firm
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<PAGE>
Securities to be purchased by all the Underwriters is referred to in this
Agreement as the underwriting proportion of such Underwriter.
In the case of a Two-Tranche Offering, we authorize you (i) to execute and
deliver an agreement between the Underwriters and the International Managers
(the Agreement Between U.S. Underwriters and International Managers) on our
behalf with respect to the Securities in such form as you determine, (ii) to
make representations on our behalf as set forth in the Agreement Between U.S.
Underwriters and International Managers and (iii) to purchase or sell Securities
for the account of the Underwriters pursuant to the Agreement Between U.S.
Underwriters and International Managers. We shall be bound by all terms of the
Agreement Between U.S. Managers and International Underwriters as executed.
It is understood that, if so specified in the Invitation, arrangements may
be made for the sale of Securities by the Issuer pursuant to delayed delivery
contracts (herein referred to as Delayed Delivery Contracts). References herein
to delayed delivery and Delayed Delivery Contracts apply only to offerings to
which delayed delivery is applicable.
If the Securities consist in whole or in part of debt obligations maturing
serially, the serial Securities being purchased by each Underwriter pursuant to
the Underwriting Agreement will consist, subject to adjustment as provided in
the Underwriting Agreement, of serial Securities of each maturity in a principal
amount which bears the same proportion to the aggregate principal amount of the
serial Securities of such maturity to be purchased by all the Underwriters as
the principal amount of serial Securities set forth opposite such Underwriter's
name in the Underwriting Agreement bears to the aggregate principal amount of
the serial Securities to be purchased by all the Underwriters.
3. Authorization Under Underwriting Agreement. You are also authorized in
your sole discretion to take the following action with respect to the
Underwriting Agreement and the Agreement Between U.S. Underwriters and
International Managers:
(a) To postpone any closing date or option closing date or to extend any
other time or date specified in the Underwriting Agreement or the Agreement
Between U.S. Underwriters and International Managers.
(b) To exercise any right of cancellation or termination.
(c) To arrange for the purchase by other persons (including yourselves or
any other Underwriters) of any of the Securities (including any Securities
purchased from the International Managers pursuant to the Agreement Between U.S.
Underwriters and International Managers) not taken up by any defaulting
Underwriter or by the other Underwriters as provided in the Underwriting
Agreement.
(d) To give notice on our behalf of the determination to purchase any
Additional Securities.
(e) With respect to offerings using Formula Pricing, to determine the
initial public offering price and the price at which the Securities are to be
purchased in accordance with the Underwriting Agreement.
(f) To consent to any other additions to, changes in or waivers of
provisions of the Underwriting Agreement or the Agreement Between U.S.
Underwriters and International Managers, and to take such other action in
connection with the offering of the Securities, as may seem advisable to you in
respect thereof.
4. Method of Offering. We authorize you to manage the underwriting and the
public offering of the Securities and to take such action in connection
therewith and in connection with the purchase, carrying and resale of the
Securities, including without limitation the following, as you in your sole
discretion deem appropriate or desirable:
(a) To determine the time of the initial public offering of the Securities,
the initial public offering price and the Underwriters' gross spread and whether
to purchase any Additional Securities and the amount, if any, of Additional
Securities to be so purchased.
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(b) To make any changes in the public offering price or other terms of the
offering.
(c) To make changes in those who are to be Underwriters and in the
respective amounts of the Firm Securities to be purchased by them, provided that
our original underwriting commitment shall not be changed without our consent.
(d) To determine all matters relating to advertising and communications with
dealers or others.
(e) To reserve for sale and to sell to institutions or other retail
purchasers, for our account, such of our Securities (including any Securities
purchased from the International Managers pursuant to the Agreement Between U.S.
Underwriters and International Managers) as you may determine; provided,
however, that such reservations and sales shall be made for the respective
accounts of the several Underwriters as nearly as practicable in their
respective underwriting proportions, except for such sales for the account of a
particular Underwriter designated by such a purchaser.
(f) To reserve for sale and to sell to dealers, for our account, such of our
Securities (including any Securities purchased from the International Managers
pursuant to the Agreement Between U.S. Underwriters and International Managers)
as you may determine; provided, however, that such dealers shall be actually
engaged in the investment banking or securities business and shall be either
members in good standing of the National Association of Securities Dealers, Inc.
(the NASD) or dealers with their principal place of business located outside the
United States, it's territories or its possessions and not registered as a
broker-dealer under Section 15 of the Securities Exchange Act of 1934 (the 1934
Act) who agree to make no sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein; and
provided, further, that each dealer shall agree to comply with the provisions of
Section 24 of Article III of the Rules of Fair Practice of the NASD, and each
foreign dealer who is not a member of the NASD also shall agree to comply with
the NASD's interpretation with respect to free-riding and withholding, to
comply, as though it were a member of the NASD, with the provisions of Section 8
and 36 of Article III of such Rules of Fair Practice, and to comply with Section
25 of Article III thereof as that Section applies to a non-member foreign
dealer.
(g) To apportion such sales to dealers among the Underwriters as nearly as
practicable in the ratio that Securities (including any Securities purchased
from the International Managers pursuant to the Agreement Between U.S.
Underwriters and International Managers) of each Underwriter so reserved bears
to the total amount of Securities (including any Securities purchased from the
International Managers pursuant to the Agreement Between U.S. Underwriters and
International Managers) of all Underwriters so reserved; provided, however, that
if such ratio is to be revised by reason of the release for direct sale as
hereinafter provided, sales may be apportioned by you from day to day on the
basis of the ratio existing at the end of the preceding day.
(h) To fix the concession to dealers and the reallowance to dealers and,
after the initial public offering of the Securities, to make changes in the
concession and reallowance.
(i) At any time with respect to unsold Securities retained by us (including
any Securities purchased from the International Managers pursuant to the
Agreement Between U.S. Underwriters and International Managers): (A) to reserve
any of such Securities for sale by you for our account or (B) to purchase any of
such Securities which in your opinion are needed to enable you to make
deliveries for the accounts of the several Underwriters pursuant to this
Agreement. Such purchases may be made at the public offering price or, at your
option, at such price less all or any part of the concession to dealers.
We understand that you will advise us when the Securities are released for
public offering and of the amount of Securities sold or reserved for sale for
our account. We shall retain for direct sale any Securities purchased by us
(including any Securities purchased from the International Managers pursuant to
the Agreement Between U.S. Underwriters and International Managers) and not so
sold or reserved. Direct sales will be made in accordance with the terms of
offering set forth in the Prospectus or Offering Circular. With your consent, we
may obtain release from you for direct sale of any Securities held by you for
sale pursuant to subparagraphs (e) and (f) above but not sold and paid for. To
the extent Securities so released had been reserved for sale to dealers, the
amount of Securities reserved for our account for sale to dealers shall be
correspondingly reduced. We will advise you from time to time, at your
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<PAGE>
request, of the amount of Securities retained by us which remain unsold and of
the amount of Securities remaining unsold which were delivered to us pursuant to
the last paragraph of this Section 4.
If so directed in the Invitation, we agree that without your consent we will
not sell to any account over which we exercise discretionary authority any of
our Securities. We will also comply with any other restriction which may be set
forth in the Invitation.
If, prior to the termination of this Agreement with respect to the offering
of the Securities, you shall purchase or contract to purchase any of the
Securities sold directly by us, in your discretion you may (i) sell for our
account the Securities so purchased and debit or credit our account for the loss
or profit resulting from such sale, (ii) charge our account with an amount equal
to the concession to dealers with respect thereto and credit such amount against
the cost thereof or (iii) require us to purchase such Securities at a price
equal to the total cost of such purchase, including commissions, accrued
interest, amortization of original issue discount or dividends and transfer
taxes on redelivery
5. Delayed Delivery Arrangements. We authorize you to act on our behalf in
making all arrangements for the solicitation of offers to purchase Securities
from the Issuer pursuant to Delayed Delivery Contracts, and we agree that all
such arrangements will be made only through you (directly or through
Underwriters or dealers). You may allow to dealers in respect of such Securities
a commission equal to the concession allowed to dealers pursuant to Section 4.
The commitments of the Underwriters shall be reduced in the aggregate by the
principal amount of Securities covered by Delayed Delivery Contracts made by the
Issuer, the commitment of each Underwriter to be reduced by the principal amount
of such Securities, if any, allocated to you by such Underwriter. Your
determination of the allocation of Securities covered by Delayed Delivery
Contracts among the several Underwriters shall be final and conclusive, and we
agree to be bound by any notice delivered by you to the Issuer setting forth the
amount of the reduction in our commitment as a result of Delayed Delivery
Contracts.
Upon receiving payment from the Issuer of the fee for arranging Delayed
Delivery Contracts, you will credit our account with the portion of such fee
applicable to the Securities covered by Delayed Delivery Contracts allocated to
us. You will charge our account with any commission allocated to dealers in
respect of Securities covered by Delayed Delivery Contracts allocated to us.
6. Trading Authorizations. We authorize Donaldson, Lufkin & Jenrette
Securities Corporation, during the term of this Agreement relating to the
offering of the Securities in its discretion:
(a) To make purchases and sales of Securities, any securities of the Issuer
of the same class and series as the Securities, any securities into which the
Securities are convertible or for which the Securities are exchangeable and any
other securities of the Issuer or any guarantor of the Securities specified in
the Invitation, in the open market or otherwise (in addition to purchases and
sales made under the authority of Section 4 and, in the case of a Two-Tranche
Offering, under the authority of the Agreement Between U.S. Underwriters and
International Managers), either for long or short account, on such terms and at
such prices as it may determine.
(b) In arranging for sales of the Securities pursuant to Section 4, to
over-allot, and to make purchases for the purpose of covering any over-allotment
so made.
It is understood that, in connection with the offering of the Securities,
Donaldson, Lufkin & Jenrette Securities Corporation may have made purchases of
any such securities for stabilizing purposes prior to the time when we became
one of the Underwriters and we agree that any such securities so purchased shall
be treated as having been purchased pursuant to the foregoing authorization.
All such purchases and sales and over-allotments shall be made for the
respective accounts of the several Underwriters as nearly as practicable in
their respective underwriting proportions except in the case of a Two-Tranche
Offering, in which case, they shall be made for the respective accounts of the
several Underwriters and the several International Managers as set forth in the
Agreement Between U.S. Underwriters and International Managers; provided,
however, that at no time shall our net commitment resulting from such purchases
and sales, either for long or short
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<PAGE>
account, or pursuant to such over-allotments, exceed 15% (or such other amount
as may be specified in the Invitation) of our original underwriting commitment
and provided, further, that in determining our net commitment for short account
there shall be subtracted the maximum amount of Additional Securities which we
are entitled to purchase. We agree to take up at cost on demand any securities
so purchased for our account and to deliver on demand any securities so sold or
so over-allotted for our account. Without limiting the generality of the
foregoing, Donaldson, Lufkin & Jenrette Securities Corporation may buy or take
over for the respective accounts of the several Underwriters, all in the
proportion and within the limits set forth, at the price at which reserved, any
of the Securities reserved for sale by it but not sold and paid for, for such
purposes as it may determine, including, but not limited to, the covering of
over-allotments and short sales.
If Donaldson, Lufkin & Jenrette Securities Corporation engages in any
stabilization transaction pursuant to this Section, it will notify us promptly
of the date and time of the first stabilizing purchase and the date and time of
termination of stabilization. Donaldson, Lufkin & Jenrette Securities
Corporation shall prepare and maintain such records as are required to be
maintained by it as manager pursuant to Rule 17a-2 under the 1934 Act.
7. Limitation on Transactions by Underwriters. If the Securities are shares
of common stock (Common Stock) of the Issuer or securities of the Issuer that
may be exchanged for or converted into Common Stock, we agree that we will not,
without the advance approval of Donaldson, Lufkin & Jenrette Securities
Corporation, buy, sell, deal or trade in (i) any Common Stock, (ii) any security
of the Issuer convertible into Common Stock or (iii) any right or option to
acquire or sell Common Stock or any security of the Issuer convertible into
Common Stock, for our own account or for the account of a customer, except:
(a) as provided for in this Agreement or the Underwriting Agreement;
(b) that we may convert any security of the Issuer convertible into Common
Stock owned by us and sell the Common Stock acquired upon such conversion and
that we may deliver Common Stock owned by us upon the exercise of any option
written by us as permitted by the provisions set forth herein;
(c) in brokerage transactions on unsolicited orders which have not resulted
from activities on our part in connection with the solicitation of purchases and
which are executed by us in the ordinary course of our brokerage business; and
(d) that on or after the date of the initial public offering of the
Securities, we may execute covered writing transactions in options to acquire
Common Stock, when such transactions are covered by Securities, for the accounts
of customers.
An opening uncovered writing transaction in options to acquire Common Stock
for our account or for the account of a customer shall be deemed, for purposes
of this Section 7, to be a sale of Common Stock which is not unsolicited. The
term "opening uncovered writing transaction in options to acquire" as used above
means a transaction where the seller intends to become a writer of an option to
purchase any Common Stock which he does not own. An opening uncovered purchase
transaction in options to sell Common Stock for our account or for the account
of a customer shall be deemed, for purposes of this paragraph, to be a sale of
Common Stock which is not unsolicited. The term "opening uncovered purchase
transaction in options to sell" as used above means a transaction where the
purchaser intends to become an owner of an option to sell Common Stock which he
does not own.
If the Securities are not shares of Common Stock or securities of the Issuer
that may be exchanged for or converted into Common Stock, we agree that we not
bid for or purchase, or attempt to induce any other person to purchase, any
Securities or any other securities of the Issuer designated in the Invitation
other than (i) as provided for in this Agreement or the Underwriting Agreement,
(ii) as approved by Donaldson, Lufkin & Jenrette Securities Corporation or (iii)
as a broker in executing unsolicited orders.
We represent that we have not participated in any transaction prohibited by
the preceding paragraphs of this Section 7 and that we have at all times
complied with and will at all times comply with the provisions of Rule 10b-6 of
the Commission applicable to the offering of the Securities.
6
<PAGE>
We may, with your prior consent, make purchases of the Securities from and
sales to other Underwriters at the public offering price, less all or any part
of the concession to dealers.
8. Delivery and Payment. At or before such time, on such dates and at such
places as you may specify in the Invitation, we will deliver to you a certified
or official bank check in such funds as are specified in the Invitation, payable
to the order of Donaldson, Lufkin & Jenrette Securities Corporation (unless
otherwise specified in the Invitation) in an amount equal to, as you direct, (i)
the public offering price or prices plus accrued interest, amortization of
original issue discount or dividends, if any, set forth in the Prospectus or
Offering Circular less the selling concession to dealers in respect of the
amount of Securities to be purchased by us in accordance with the terms of this
Agreement, or (ii) the public offering price or prices plus accrued interest,
amortization of original issue discount or dividends, if any, set forth in the
Prospectus or Offering Circular less the selling concession in respect of such
of the Securities to be purchased by us as shall have been retained by or
released to us for direct sale, or (iii) the amount set forth in the Invitation
with respect to the Securities to be purchased by us. You shall use such funds
to make payment on our behalf of the purchase price for the Securities to be
purchased by us. Any balance shall be held by you for our account. If you have
not received our funds as requested, you may in your discretion make any such
payment on our behalf and we will promptly deliver funds to you in the amount so
requested. Any such payment by you will not relieve us from any of our
obligations under this Agreement or under the Underwriting Agreement.
We authorize you, in carrying out the provisions of this Agreement, in your
discretion, to arrange loans for our account, to advance your funds for our
account, charging current interest rates, and to hold or pledge as security
therefor all or any part of the Securities which you may be holding for our
account. Any lender is hereby authorized to accept your instructions with
respect to such loans, and we authorize you to execute and deliver notes or
other instruments in connection therewith.
You shall promptly remit to us or credit to our account (i) the proceeds of
any loan taken down on our behalf and (ii) upon payment to you for any
Securities sold for our account, an amount equal either to the purchase prices
paid by us or the price received by you therefor, as you may determine. If the
Underwriting Agreement for an offering provides for the payment of a commission
or other compensation to the Underwriters, we authorize you to receive such
commission or other compensation for our account.
We authorize you to take delivery of certificates for our Securities (which
may, in the case of Securities which are debt obligations, be in temporary
form), registered as you may direct in order to facilitate deliveries, and to
deliver any Securities reserved for us against sales. You will deliver to us
certificates for our unreserved Securities and certificates for our reserved but
unsold Securities as soon as practicable after the termination of the provisions
referred to in Section 11. If we are a member of the Depositary Trust Company,
you may at your discretion arrange for payment for and/or delivery of our
participation through the facilities of such Company or, if we are not a member,
such settlement may be made through our ordinary correspondent who is a member.
Certificates for all other Securities which you then hold for our account
shall be delivered to us upon termination of this Agreement with respect to the
offering of the Securities, or prior thereto in our discretion, and certificates
for any such Securities may at any time be delivered to us for carrying in
purposes only, subject to redelivery upon demand. If, upon termination of this
Agreement with respect to the offering of the Securities, an aggregate of not
more than 15% of the Securities remains unsold, Donaldson, Lufkin & Jenrette
Securities Corporation may, in its discretion, sell such Securities at such
prices as it may determine.
9. Blue Sky Qualification. Upon request, you will inform us as to the
jurisdictions in which you have been advised by counsel that the Securities have
been registered or qualified for sale under the respective securities or Blue
Sky laws, but you do not assume any responsibility or obligation as to our right
to sell the Securities in any jurisdiction.
You are authorized to file or cause to be filed a Further State Notice with
the Department of State of New York.
10. Indemnification and Certain Claims. With respect to each offering of
Securities pursuant to this Agreement, we agree to indemnify and hold harmless
each of the other Underwriters, and each person, if any, who controls any other
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act and to reimburse
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<PAGE>
their expenses, all to the extent, if any, and upon the terms that we agree to
indemnify and hold harmless the Issuer and other specified persons and to
reimburse their expenses, as set forth in the Underwriting Agreement.
With respect to each offering of Securities pursuant to this Agreement, we
agree that in respect of any matter connected with or action taken by you
pursuant to this Agreement you shall act only as agent of the Underwriters and
you shall be under no liability to us in any such respect or in respect of the
form of, or the statements contained in, or the validity of, any preliminary
prospectus or offering circular or the Registration Statement or Prospectus or
Offering Circular, or any amendment or supplement to any of them, or for any
report or other filing made by you for us on our behalf under this Agreement,
except for want of good faith and for obligations expressly assumed by you
herein and no obligations on your part will be implied or inferred from
confirmation or acceptance of this Agreement.
With respect to each offering of Securities pursuant to this Agreement, we
will pay our proportionate share (based on our underwriting proportion) of (a)
all expenses incurred by you in Investigating or defending against any claim or
proceeding which is asserted or instituted by any party (including any
governmental or regulatory body) other than an Underwriter based upon the claim
that the Underwriters constitute an association, unincorporated business or
other separate entity, or relating to the Registration Statement or Prospectus
or Offering Circular (or any amendment or supplement thereto) or any preliminary
prospectus or offering circular and (b) any liability incurred by you in respect
of any such claim or proceeding, whether such liability shall be the result of a
judgment or as a result of any settlement agreed to by you, other than any such
liability as to which you actually receive indemnity pursuant to the first
paragraph of this Section 10 or indemnity or contribution pursuant to the
Underwriting Agreement.
11. Termination and Settlement. With respect to each offering of Securities
pursuant to this Agreement, this Agreement shall terminate (i) on the thirtieth
business day after the initial public offering of the Securities, (ii) on such
earlier date as you may determine or (iii) on the termination of the
Underwriting Agreement if the Underwriting Agreement shall be terminated as
permitted by its terms. You may at your discretion, on notice to us prior to the
termination of this Agreement with respect to the offering of the Securities,
terminate or suspend the effectiveness of Sections 4, 6 and 7 hereof or any part
of them, or alter any of the terms or conditions of offering determined pursuant
to Section 4 hereof. No termination or suspension pursuant to this Section shall
affect your authority under Section 6 hereof to cover any short position under
this Agreement.
Upon termination of this Agreement with respect to the offering of the
Securities, all authorizations, rights and obligations hereunder shall cease,
except (i) the mutual obligations to settle accounts hereunder, (ii) our
obligation to pay any transfer taxes which may be assessed and paid on account
of any sales hereunder for our account, (iii) our obligation with respect to
purchases which may be made by you from time to time thereafter to cover any
short position incurred under this Agreement, (iv) our agreements contained in
the first and third paragraphs of Section 10 hereof and (v) the obligations of
any defaulting Underwriter, all of which shall continue until fully discharged.
The accounts arising pursuant to this Agreement with respect to the offering
of the Securities shall be settled and paid as soon as practicable after
termination hereof with respect to such offering, except that you may reserve
such amount as you deem advisable to cover any additional contingent expenses.
You are authorized at any time:
(a) To make partial distributions of credit balances or call for the payment
of debit balances.
(b) To determine the amounts to be paid to or by us, which determination
will be final and conclusive.
(c) As compensation for your services in connection with this Agreement with
respect to the offering of the Securities, to charge our account and pay to
yourselves, when final accounting is made, an amount per security to be
determined by you (not to exceed the amount or the percentage of the
Underwriters' gross spread per security specified in the Invitation) for each
Security which we have agreed or shall become committed to purchase pursuant to
the Underwriting Agreement.
8
<PAGE>
(d) To charge our account with (i) all transfer taxes on sales made for our
account and (ii) our underwriting proportion of all expenses (other than
transfer taxes) incurred by you, as Representatives of the several Underwriters,
in connection with the transaction contemplated by this Agreement with respect
to the offering of the Securities.
(e) To hold any of our funds at any time in your hands with your general
funds without accountability for interest.
12. Default by Underwriters. Default by any Underwriter in respect of its
obligations hereunder or under the Underwriting Agreement shall not release us
from any of our obligations or in any way affect the liability of such
defaulting Underwriter to the other Underwriters or defaulting International
Manager, if any, to the other Underwriters or International Managers, if any,
for damages resulting from such default. If one or more Underwriters or, in the
case of a Two-Tranche Offering, International Managers default under the
Underwriting Agreement, if provided in the Underwriting Agreement you may (but
shall not be obligated to) arrange for the purchase by others, which may include
yourselves or other non-defaulting Underwriters or other non-defaulting
International Managers, if any, of all or a portion of the Securities not taken
up by the defaulting Underwriters or International Managers, as the case may be.
If such arrangements are made, the respective original underwriting
commitments of the non-defaulting Underwriters and the amounts of the Securities
to be purchased by others, if any, shall be as the basis for all rights and
obligations hereunder; but this shall not in any way, affect the liability of
any defaulting Underwriter or defaulting International Manager, if any, to the
other Underwriters or International Managers, if any, for damages resulting from
its default, nor shall any such default relieve any other Underwriter or other
International Manager, if any, of any of its obligations hereunder or under the
Underwriting Agreement except as herein or therein provided. In addition, in the
event of default by one or more Underwriters or International Managers, if any,
in respect of their obligations under the Underwriting Agreement to purchase the
Securities agreed to be purchased by them thereunder and, to the extent that
arrangements shall not have been made by you for any person to assume the
obligations of such defaulting Underwriter or Underwriters or International
Manager or International Managers, we agree, if provided in the Underwriting
Agreement, to assume our proportionate share, based upon the ratio of our
original underwriting commitment to the aggregate original underwriting
commitments of the other non-defaulting Underwriters except in the case of a
Two-Tranche Offering, in which case, to the aggregate original underwriting
commitments of the other non-defaulting Underwriters and non-defaulting
International Managers, of the obligations of each such defaulting Underwriter
and defaulting International Manager (subject to the limitations contained in
the Underwriting Agreement) without relieving such defaulting Underwriter or
defaulting International Manager of its liability therefor.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any securities
purchased, or to deliver any securities sold or over-allotted by you for the
respective accounts of the Underwriters, or to bear their proportion of expenses
or liabilities pursuant to this Agreement, and to the extent that arrangements
shall not have been made by you for any persons to assume the obligations of
such defaulting Underwriter or Underwriters, we agree to assume our
proportionate share, based upon the ratio of our original underwriting
commitment to the aggregate original underwriting commitments of the other
non-defaulting Underwriters of the obligations of each defaulting Underwriter
without relieving any such defaulting Underwriter of its liability therefor.
13. Distribution of Prospectuses; Offering Circulars. We are familiar with
Securities Act of 1933 Release No. 4968 and Rule 15c2-8 under the 1934 Act,
relating to the distribution of preliminary and final prospectuses, and we
confirm that we will comply therewith, to the extent applicable, in connection
with any sale of Securities. You shall cause to be made available to us, to the
extent made available to you by the Issuer, such number of copies of the
Prospectus as we may reasonably request for purposes contemplated by the 1933
Act, the 1934 Act and the rules and regulations thereunder.
If an Invitation states that the offering is subject to the 48-hour
prospectus delivery requirement set forth in Rule 15c2-8(b), our Acceptance of
the Invitation shall be deemed to constitute confirmation that we have delivered
(or we will deliver) a copy of the preliminary prospectus to all persons to whom
we expect to confirm a sale of Securities and that such delivery was effected
(or will be effected) at least 48 hours prior to the mailing of such
confirmations of sale.
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<PAGE>
We will keep an accurate record of the names and addresses of all persons to
whom we give copies of the Registration Statement, the Prospectus, the Offering
Circular or any preliminary prospectus or offering circular (or any amendment or
supplement thereto), and, when furnished with any subsequent amendment to the
Registration Statement, any subsequent prospectus or offering circular or any
memorandum outlining changes in the Registration Statement or any prospectus or
offering circular, we will, upon your request, promptly forward copies thereof
to such persons.
Our Acceptance of an Invitation relating to an offering made pursuant to an
Offering Circular shall constitute our agreement that, if requested by you, we
will furnish a copy of any amendment to in preliminary or final Offering
Circular to each person to whom we shall have furnished a previous preliminary
or final Offering Circular. Our Acceptance shall constitute our confirmation
that we have delivered and our agreement that we will deliver all preliminary
and final Offering Circulars required for compliance with the applicable federal
and state laws and the applicable rules and regulations of any regulatory body
promulgated thereunder governing the use and distribution of offering circulars
by underwriters and, to the extent consistent with such laws, rules and
regulations, our Acceptance shall constitute our confirmation that we have
delivered and our agreement that we will deliver all preliminary and final
Offering Circulars which would be required if the provisions of Rule 15c2-8 (or
any successor provision) under the 1934 Act applied to such offering.
14. Miscellaneous. Nothing in this Agreement shall constitute us partners
with you or with the other Underwriters and the obligations of ourselves and of
each of the other Underwriters are several and not joint. Each Underwriter
elects to be excluded from the application of Subchapter K, Chapter 1, Subtitle
A, of the Internal Revenue Code of 1986, as amended. Default by any Underwriter
with respect to the Underwriter Agreement shall not release us from any of our
obligations thereunder or hereunder.
Unless we have promptly notified you in writing otherwise, our name as it
should appear in the Prospectus or Offering Circular and our address are set
forth below.
Any notice from you to us shall be deemed to have been given if mailed,
telegraphed or hand delivered, or telephoned and subsequently confirmed in
writing, to our address appearing below.
We confirm that we are a member in good standing of the NASD or that we are
a foreign bank or dealer, not eligible for membership in the NASD. In making
sales of Securities, if we are such a member, we agree to comply with all
applicable rules of the NASD, including, without limitation, the NASD's
Interpretation with Respect to Free-Riding and Withholding and Section 24 of
Article III of the NASD's Rules of Fair Practice, or, if we are such a foreign
bank or dealer, we agree to comply with Interpretation, Sections 8, 24 and 36 of
such Article as though we were such a member and Section 25 of such Article as
it applies to a non-member broker or dealer in a foreign country.
If we are a foreign bank or dealer and we are not registered as a
broker-dealer under Section 15 of the 1934 Act, we agree that while we are
acting as an Underwriter in respect of the Securities and in any event during
the term of this Agreement with respect of the offering of the Securities, we
will not directly or indirectly effect in, or with persons who are nationals or
residents of, the United States any transactions (except for the purchases
provided for in the Underwriting Agreement and transactions contemplated by
Sections 4, 6 and 7 hereof) in (i) Securities, (ii) Common Stock, if the
Securities are Common Stock or securities of the Issuer that may be exchanged
for or converted `Into Common Stock or (iii) any other securities of the Issuer
designated in the Invitation.
If we are a foreign bank or dealer, we represent that in connection with
sales and offers to sell Securities made by us outside the United States (a) we
will not offer or sell any Securities in any jurisdiction except in compliance
with applicable laws and (b) we will either furnish to each person to whom any
such sale or offer is made a copy of the then current preliminary prospectus or
offering circular, if any, or of the Prospectus or Offering Circular (as then
amended or supplemented), as the case may be, or inform such person that such
preliminary prospectus or offering circular, if any, or Prospectus or Offering
Circular will be available upon request. Any offering material in addition to
the then current preliminary prospectus or offering circular or the Prospectus
or Offering Circular furnished by us to any person in connection with any offers
or sales referred to in the preceding sentence (i) shall be prepared and so
furnished at our sole risk and expense and (ii) shall not contain information
relating to the Securities or the Issuer which is inconsistent in any respect
with the information contained in the then current preliminary prospectus or
offering circular, if any, or
10
<PAGE>
in the Prospectus or Offering Circular (as then amended or supplemented), as the
case may be. It is understood that no action has been taken by you or the Issuer
or any seller of the Securities to permit a public offering in any jurisdiction
other than the United States where action would be required for such purpose.
We also confirm that our commitment to purchase Securities pursuant to the
Underwriting Agreement will not result in a violation of Rule 15c3-1 under the
1934 Act or of any similar provisions of any applicable rules of any securities
exchange to which we are subject or of any restriction imposed upon us by any
such exchange or any governmental authority.
We agree that we will notify you immediately of any development before the
termination of this Agreement with respect to the offering of the Securities
which makes untrue or incomplete any information that we have given or are
deemed to have given in response to the Underwriters' Questionnaire.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
Please confirm this Agreement and deliver a copy to us.
Very truly yours,
Name of Firm:
By
-------------------------------------------
Authorized Officer or Partner
Address:
---------------------------------------------
---------------------------------------------
---------------------------------------------
Confirmed as of the date first above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By
--------------------------------------------
Managing Director
11
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EXHIBIT A
MASTER UNDERWRITERS' QUESTIONNAIRE
In connection with each offering of Securities pursuant to the Donaldson,
Lufkin & Jenrette Securities Corporation Master Agreement Among Underwriters
dated March 1, 1993 (the "Agreement"), each Underwriter confirms the following
information, except as indicated in such Underwriter's Acceptance or other
written communication furnished to Donaldson, Lufkin & Jenrette Securities
Corporation. Defined terms used herein have the same meaning as defined terms in
the Agreement.
(a) Neither such Underwriter nor any of its directors, officers or partners
have any material (as defined in Regulation C under the 1933 Act) relationship
with the Issuer, its parent (if any), any other seller of the Securities or any
guarantor of the Securities, nor has such Underwriter or any of such persons
been, at any time during the last three years, or are now, an officer or
director of the Issuer, its parent (if any), any other seller of the Securities
or any guarantor of the Securities or an associate (as "associate" is defined in
such Regulation C) of any officer or director of the Issuer, its parent (if
any), any other seller of the Securities or any guarantor of the Securities or
any other person who, to the knowledge of such Underwriter, owns (either
beneficially, determined in accordance with Rule 13d-3 under the 1934 Act, or of
record) more than 5% of the outstanding shares of any class of voting securities
of the Issuer, its parent (if any), any other seller of the Securities or any
guarantor of the Securities.
(b) Except as described or to be described in the Agreement, the
Underwriting Agreement, the Agreement Between U.S. Underwriters and
International Managers or the Invitation, such Underwriter does not know: (i) of
any discounts or commissions to be allowed or paid to dealers, including all
cash, securities, contracts, or other consideration to be received by any dealer
in connection with the sale of the Securities, or of any other discounts or
commissions to be allowed or paid to the Underwriters or of any other items that
would be deemed by the NASD to constitute underwriting compensation for purposes
of the NASD's Rules of Fair Practice, (ii) of any intention to over-allot, or
(iii) that the price of any security may be stabilized to facilitate the
offering of the Securities.
(c) No report or memorandum has been prepared by such Underwriter for
external use (i.e., outside such Underwriter's organization) in connection with
the proposed offering of Securities and, in the case of a Registered Offering
where the Registration Statement is on Form S-1, such Underwriter has not
prepared or had prepared for it, within the past twelve months, any engineering,
management or similar report or memorandum relating to broad aspects of the
business, operations or products of the Issuer, its parent (if any) or any
guarantor of the Securities. If any such report or memorandum has been prepared,
furnish to Donaldson, Lufkin & Jenrette Securities Corporation three copies
thereof, together with a statement as to the distribution of the report or
memorandum, identifying each class of persons to whom the report or memorandum
was distributed, the number of copies distributed to each class and the period
of distribution.
(d) If the Securities are debt securities to be issued under an indenture to
be qualified under the Trust Indenture Act of 1939, neither such Underwriter nor
any of its directors, officers or partners is an "affiliate", as that term is
defined under the Trust Indenture Act of 1939, of the Trustee for the Securities
as specified in the Invitation, or of its parent (if any); neither the Trustee
nor its parent (if any) nor any of their directors or executive officers is a
director, officer, partner, employee, appointee or representative of such
Underwriter as those terms are defined in the Trust Indenture Act of 1939 or in
the relevant instructions to Form T-1; neither such Underwriter nor any of its
directors, partners or executive officers, separately owns, nor do such
Underwriter and such persons as a group own, beneficially 1% or more of the
shares of any class of voting securities of the Trustee or of its parent if
any); and if such Underwriter is a corporation, it does not have outstanding nor
has it assumed or guaranteed any securities issued otherwise than in its present
corporate name, and neither the Trustee nor its parent (if any) is a holder of
any such securities.
(e) If the Issuer is a public utility, such Underwriter is not a "holding
company" or a "subsidiary company" or an "affiliate" of a "holding company" or
of a "public utility" company, each as defined in the Public Utility Holding
Company Act of 1935.
<PAGE>
(f) Neither such, Underwriter nor any "group" (as that term is defined in
Section 13(d)(3) of the 1934 Act) of which it is a member is the beneficial
owner (determined in accordance with Rule l3d-3 under the 1934 Act) of more than
5% of any class of voting securities of the Issuer, its parent (if any), any
other seller of the Securities or any guarantor of the Securities nor does it
have any knowledge that more than 5% of any class of voting securities of the
Issuer is held or to be held subject to any voting trust or other similar
agreement.
(g) If the Invitation states that the offering is subject to review by the
NASD pursuant to its Corporate Financing Rule, neither such Underwriter nor any
of its directors, officers, partners or "persons associated with it" (as defined
in the By Laws of the NASD), nor to its knowledge any "related person" (defined
by the NASD to include counsel, financial consultants and advisers, finders,
members of the selling or distribution groups and any other person associated
with or related to any of the foregoing) or any other broker-dealer (1) within
the last twelve months has purchased in private transactions, any securities of
the Issuer or any Issuer-Related Party (as hereinafter defined), or (2) during
the twelve months immediately preceding the filing of the Registration Statement
or if there is none, the Offering Document (including any Prospectus, any
Prospectus Supplement, any offering circular, any offering circular supplement
or any exhibit to any of the foregoing), has entered into any arrangement which
provided or provides for the receipt of any item of value (including, but not
limited to, cash payments and expense reimbursement) and/or the transfer of any
warrants, options or other securities from the Issuer or any Issuer-Related
Party to such Underwriter or any related person. For purposes of this paragraph
(g) the term "Issuer-Related Party" means any selling securityholder offering
securities to the public, any affiliate of the Issuer or a selling
securityholder and the officers or general partners, directors, employees and
securityholders thereof. (If there are any exceptions, state the identity of the
person with whom the affiliation or association exists and, if relevant, the
number of equity securities or the face value of debt securities owned by such
person, the date such securities were acquired and the price paid for such
securities).
2
________Shares
DLJ HIGH YIELD BOND FUND
COMMON STOCK
PAR VALUE $.001 PER SHARE
UNDERWRITING AGREEMENT
<PAGE>
July 27, 1998
Donaldson, Lufkin & Jenrette
Securities Corporation
Advest, Inc.
Fac/Equities
Fahnestock & Co. Inc.
First of Michigan Corporation
Gruntal & Co., L.L.C.
Interstate/Johnson Lane
Corporation
Janney Montgomery Scott Inc.
Sands Brothers & Co. Ltd.
Sutro & Co. Incorporated
Tucker Anthony Incorporated
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs and Mesdames:
DLJ High Yield Bond Fund, a Delaware business trust (the "Fund"), is a
newly formed, non-diversified, closed-end management investment company
registered under the Investment Company Act of 1940, as amended. The Fund
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "Underwriters")_____ shares of beneficial interest, par value $.001
per share (the "Firm Shares"). The Fund also proposes to issue and sell from
time to time to the several Underwriters not more than an additional _________
shares of beneficial interest, par value $.001 per share (the "Additional
Shares"), if requested by the Underwriters as provided in Section 2 hereof. The
Firm Shares and the Additional Shares are hereinafter collectively referred to
as the "Shares". The Common Shares of beneficial interest, $.001 par value per
share, of the Fund to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the "Common Shares".
SECTION 1. Registration Statement and Prospectus. The Fund has prepared
and filed with the Securities and Exchange Commission (the "Commission") a
notification on Form N-8A (the "Notification") of registration of the Fund as an
investment company and a registration statement on Form N-2,
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including a prospectus, relating to the Shares. The registration statement, as
amended at the time it became effective, including the information (if any)
deemed to be part of the registration statement at the time of effectiveness
pursuant to Rule 430A under the Securities Act of 1933, as amended, is
hereinafter referred to as the "Registration Statement"; and the prospectus in
the form first used to confirm sales of Shares is hereinafter referred to as the
"Prospectus". If the Fund has filed or is required pursuant to the terms hereof
to file a registration statement pursuant to Rule 462(b) under the Securities
Act of 1933, as amended, registering additional shares of Common Shares (a "Rule
462(b) Registration Statement"), then, unless otherwise specified, any reference
herein to the term "Registration Statement" shall be deemed to include such Rule
462(b) Registration Statement. The Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder are collectively referred to
as the "Securities Act"; the Investment Company Act of 1940, as amended, and the
rules and regulations of the Commission thereunder are collectively referred to
as the "Investment Company Act"; and the Securities Act and the Investment
Company Act are collectively referred to as the "Acts".
SECTION 2. Agreements to Sell and Purchase. On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Fund agrees to issue and sell, and each Underwriter
agrees, severally and not jointly, to purchase from the Fund at a price per
Share of $10.00 (the "Purchase Price") the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Fund further agrees to
issue and sell the Additional Shares and the Underwriters shall have the right
to purchase, severally and not jointly, up to _______ Additional Shares from the
Fund at the Purchase Price. Additional Shares may be purchased solely for the
purpose of covering over-allotments made in connection with the offering of the
Firm Shares. The Underwriters may exercise their right to purchase Additional
Shares in whole or in part from time to time by giving written notice thereof to
the Fund within __ days after the date of this Agreement. You shall give any
such notice on behalf of the Underwriters and such notice shall specify the
aggregate number of Additional Shares to be purchased pursuant to such exercise
and the date for payment and delivery thereof, which date shall be a business
day (i) no earlier than two business days after such notice has been given (and,
in any event, no earlier than the Closing Date (as hereinafter defined)) and
(ii) no later than ten business days after such notice has been given. If any
Additional Shares are to be purchased, each Underwriter, severally and not
jointly, agrees to purchase from the Fund the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) which bears the same
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<PAGE>
proportion to the total number of Additional Shares to be purchased from the
Fund as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I bears to the total number of Firm Shares.
For each of the Shares sold to the several Underwriters pursuant to
this Agreement [(other than Shares purchased by certain employees of DLJ
Investment Management Corp. (the "Investment Manager") or its affiliates from an
Underwriter).] The Investment Manger (not the Fund) agrees to pay or cause to be
paid to Donaldson, Lufkin & Jenrette Securities Corporation for its own account
and the account of each Underwriter a fee equal to an amount computed by
multiplying (A) $___, by (B) the sum of the number of Shares purchased by
Donaldson, Lufkin & Jenrette Securities Corporation and each such Underwriter on
the Closing Date and any Option Closing Date (as defined below in Section 4).
The Fund hereby agrees not to (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Shares or any
securities convertible into or exercisable or exchangeable for Common Shares or
(ii) enter into any swap or other arrangement that transfers all or a portion of
the economic consequences associated with the ownership of any Common Shares
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Shares, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement or as
described in the Prospectus, including the Fund's Automatic Divided Reinvestment
Plan (the "Plan"), for a period of 180 days after the date of the Underwriting
Agreement without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation.
SECTION 3. Terms of Public Offering. The Fund and the Investment
Manager are advised by you that the Underwriters propose (i) to make a public
offering of their respective portions of the Shares as soon after the execution
and delivery of this Agreement as in your judgment is advisable and (ii)
initially to offer the Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request not later than two business days prior to the Closing Date or the
applicable Option Closing Date (as defined below), as the case may be. The Fund
shall deliver the Shares, with any transfer taxes thereon duly paid by the Fund,
to Donaldson, Lufkin & Jenrette Securities Corporation through the facilities of
The Depository Trust Company ("DTC"), for the respective accounts of the several
Underwriters, against payment to the Fund of the Purchase Price therefor by wire
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<PAGE>
transfer of Federal or other funds immediately available in New York City. The
certificates representing the Shares shall be made available for inspection not
later than 9:30 A.M., New York City time, on the business day prior to the
Closing Date or the applicable Option Closing Date, as the case may be, at the
office of DTC or its designated custodian (the "Designated Office"). The time
and date of delivery and payment for the Firm Shares shall be 9:00 A.M., New
York City time, on July 30, 1998 or such other time on the same or such other
date as Donaldson, Lufkin & Jenrette Securities Corporation and the Fund shall
agree in writing. The time and date of delivery and payment for the Firm Shares
are hereinafter referred to as the "Closing Date". The time and date of delivery
and payment for any Additional Shares to be purchased by the Underwriters shall
be 9:00 A.M., New York City time, on the date specified in the applicable
exercise notice given by you pursuant to Section 2 or such other time on the
same or such other date as Donaldson, Lufkin & Jenrette Securities Corporation
and the Fund shall agree in writing. The time and date of delivery and payment
for any Additional Shares are hereinafter referred to as an "Option Closing
Date".
Payment of the Underwriters' fee described in the third paragraph of
Section 2 hereof shall be made or caused to be made by the Investment Manager to
Donaldson, Lufkin & Jenrette Securities Corporation for its own account and the
account of each Underwriter in Federal or other funds immediately available in
New York City on the Closing Date and any Option Closing Date.
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 10 of this Agreement
shall be delivered at the offices of Davis Polk & Wardwell, 450 Lexington
Avenue, New York, New York 10017 and the Shares shall be delivered at the
Designated Office, all on the Closing Date or such Option Closing Date, as the
case may be.
SECTION 5. Agreements of the Fund. The Fund agrees with you:
(a) To advise you promptly and, if requested by you, to
confirm such advice in writing, (i) of any request by the Commission
for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information, (ii) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction,
or the initiation of any proceeding for such purposes, (iii) when any
amendment to the Registration Statement becomes effective, (iv) if the
Fund is required to file a Rule 462(b) Registration Statement after the
effectiveness of this Agreement, when the Rule 462(b) Registration
Statement has become effective and (v) of the happening of any event
during the period referred to in Section 5(e) below
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<PAGE>
which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to
or changes in the Registration Statement or the Prospectus in order to
make the statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of
the Registration Statement, the Fund will use its best efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time.
(b) To notify you immediately, and confirm such notice in
writing, (i) of the institution of any proceedings pursuant to Section
8(e) of the Investment Company Act and (ii) of the happening of any
event during the period described in Section 5(f) below which in the
judgment of the Fund makes any statement in the Notification, the
Registration Statement or the Prospectus untrue in any material respect
or which requires the making of any change in or addition to the
Notification, the Registration Statement or the Prospectus in order to
make the statements therein not misleading in any material respect. If
at any time the Commission shall issue any order suspending the
effectiveness of the Registration Statement or an order pursuant to
Section 8(e) of the Investment Company Act, the Fund will make every
reasonable effort to obtain the withdrawal of such order at the
earliest possible moment.
(c) To furnish to you a signed copy of each of the
Notification and the Registration Statement as first filed with the
Commission and of each amendment to it, including all exhibits, and to
furnish to you and each Underwriter designated by you such number of
conformed copies of the Notification and the Registration Statement as
so filed and of each amendment to it, without exhibits, as you may
reasonably request.
(d) To prepare the Prospectus, the form and substance of which
shall be reasonably satisfactory to you, and to file the Prospectus in
such form with the Commission within the applicable period specified in
the relevant subsection of Rule 497(b) under the Securities Act; during
the period specified in Section 5(e) below, not to file any further
amendment to the Registration Statement and not to make any amendment
or supplement to the Prospectus of which you shall not previously have
been advised or to which you shall reasonably object after being so
advised; and, during such period, to prepare and file with the
Commission, promptly upon your reasonable request, any amendment to the
Registration Statement or amendment or supplement to the Prospectus
which may be necessary or advisable in connection with the distribution
of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
6
<PAGE>
(e) Prior to 10:00 A.M., New York City time, on the first
business day after the date of this Agreement and from time to time
thereafter for such period as in the opinion of counsel for the
Underwriters a prospectus is required by law to be delivered in
connection with sales by an Underwriter or a dealer, to furnish in New
York City to each Underwriter and any dealer as many copies of the
Prospectus (and of any amendment or supplement to the Prospectus) as
such Underwriter or dealer may reasonably request.
(f) If during the period specified in Section 5(e), any event
shall occur or condition shall exist as a result of which, in the
opinion of counsel for the Underwriters, it becomes necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare and file with the
Commission an appropriate amendment or supplement to the Prospectus so
that the statements in the Prospectus, as so amended or supplemented,
will not in the light of the circumstances when it is so delivered, be
misleading, or so that the Prospectus will comply with applicable law,
and to furnish to each Underwriter and to any dealer as many copies
thereof as such Underwriter or dealer may reasonably request.
(g) To use its best efforts to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code").
(h) Prior to any public offering of the Shares, to cooperate
with you and counsel for the Underwriters in connection with the
registration or qualification of the Shares for offer and sale by the
several Underwriters and by dealers under the state securities or Blue
Sky laws of such jurisdictions as you may request, to continue such
registration or qualification in effect so long as required for
distribution of the Shares and to file such consents to service of
process or other documents as may be necessary in order to effect such
registration or qualification; provided, however, that the Fund shall
not be required in connection therewith to qualify as a foreign entity
in any jurisdiction in which it is not now so qualified or to take any
action that would subject it to general consent to service of process
or taxation other than as to matters and transactions relating to the
Prospectus, the Registration Statement, any preliminary
7
<PAGE>
prospectus or the offering or sale of the Shares, in any jurisdiction
in which it is not now so subject.
(i) To mail and make generally available to its stockholders
as soon as practicable an earnings statement covering the twelve-month
period ending September 30, 1999 that shall satisfy the provisions of
Section 11(a) of the Securities Act, and to advise you in writing when
such statement has been so made available.
(j) During the period of three years after the date of this
Agreement, to furnish to you as soon as available copies of all reports
or other communications furnished to the record holders of Common
Shares or furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Fund is
listed and such other publicly available information concerning the
Fund as you may reasonably request.
(k) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees,
disbursements and expenses of the Fund's counsel and the Fund's
accountants in connection with the registration and delivery of the
Shares under the Acts and the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and all other fees and expenses in
connection with the preparation, printing, filing and distribution of
the Notification and the Registration Statement (including financial
statements and exhibits), any preliminary prospectus, the Prospectus
and all amendments and supplements to any of the foregoing, including
the mailing and delivering of copies thereof to the Underwriters and
dealers in the quantities specified herein, (ii) all costs and expenses
related to the transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) all costs
of printing or producing this Agreement, the Fund Agreements (as
defined in Section 7) and any other agreements or documents in
connection with the offering, purchase, sale or delivery of the Shares,
(iv) all expenses in connection with the registration or qualification
of the Shares for offer and sale under the securities or Blue Sky laws
of the several states and all costs of printing or producing any
Preliminary and Supplemental Blue Sky Memoranda in connection therewith
(including the filing fees and fees and disbursements of counsel for
the Underwriters in connection with such registration or qualification
and memoranda relating thereto), (v) the filing fees and disbursements
of counsel for the Underwriters in connection with the review and
clearance of the offering of the Shares by the National
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<PAGE>
Association of Securities Dealers, Inc., (vi) all fees and expenses in
connection with the registration of the Shares under the Exchange Act
and all costs and expenses incident to the listing of the Shares on the
New York Stock Exchange (the "NYSE"), (vii) the cost of printing
certificates representing the Shares, (viii) the costs and charges of
any transfer agent, registrar and/or depositary, and (ix) all other
costs and expenses incident to the performance of the obligations of
the Fund hereunder for which provision is not otherwise made in this
Section 5(k).
(l) To use its best efforts to list, subject to official
notice of issuance, the Shares on the NYSE and to maintain the listing
of the Shares on the NYSE for a period of three years after the date of
this Agreement.
(m) To use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by
the Fund prior to the Closing Date or any Option Closing Date, as the
case may be, and to satisfy all conditions precedent to the delivery of
the Shares.
(n) If the Registration Statement at the time of the
effectiveness of this Agreement does not cover all of the Shares, to
file a Rule 462(b) Registration Statement with the Commission
registering the Shares not so covered in compliance with Rule 462(b) by
10:00 P.M., New York City time, on the date of this Agreement and to
pay to the Commission the filing fee for such Rule 462(b) Registration
Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under
the Securities Act.
Section 6. Agreements of the Investment Manager. The Investment Manager
agrees with you and the Fund:
(a) To use reasonable efforts to cause the Fund to comply with
each of its covenants and agreements contained in Section 5 hereof.
(b) In the event the transactions contemplated hereunder are
not consummated, to pay all amounts which the Fund is obligated to pay
under Section 5(k).
SECTION 7. Representations and Warranties of the Fund. The Fund and the
Investment Manager, jointly and severally, represent and warrant to each
Underwriter that:
(a) The Registration Statement has become effective (other
than any Rule 462(b) Registration Statement to be filed by the Fund
after the
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<PAGE>
effectiveness of this Agreement); any Rule 462(b) Registration
Statement filed after the effectiveness of this Agreement will become
effective no later than 10:00 P.M., New York City time, on the date of
this Agreement; and no stop order suspending the effectiveness of the
Registration Statement is in effect, and no proceedings for such
purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Fund after the effectiveness
of this Agreement), when it became effective, did not contain and, as
amended, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading,
(ii) the Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Fund after the effectiveness
of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with
the Acts and the Exchange Act, (iii) if the Fund is required to file a
Rule 462(b) Registration Statement after the effectiveness of this
Agreement, such Rule 462(b) Registration Statement and any amendments
thereto, when they become effective (A) will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading and (B) will comply in all material respects with the Acts
and the Exchange Act and (iv) the Prospectus does not contain and, as
amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except that the representations
and warranties set forth in this paragraph do not apply to statements
or omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Fund in
writing by such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 497 under the Securities Act,
complied when so filed in all material respects with the Acts, and did
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or
omissions in any preliminary prospectus based upon
10
<PAGE>
information relating to any Underwriter furnished to the Fund in
writing by such Underwriter through you expressly for use therein.
(d) The Fund has been duly formed, is validly existing as a
business trust in good standing under the laws of the State of Delaware
and has the power and authority to carry on its business as described
in the Prospectus and is duly qualified to do business and in good
standing in each jurisdiction in which the nature of its business
requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the business,
prospects, financial condition or results of operations of the Fund.
(e) The Fund is registered with the Commission as a
non-diversified, closed-end management investment company under the
Investment Company Act and no order of suspension or revocation of such
registration has been issued or proceedings therefor initiated or, to
the knowledge of the Fund or the Investment Manager, threatened by the
Commission. No person is serving or acting as an officer or director
of, or investment adviser to, the Fund except in accordance with the
provisions of the Investment Company Act and the Investment Advisers
Act of 1940, as amended, and the rules and regulations of the
Commission thereunder (such act and rules being collectively referred
to as the "Advisers Act").
(f) Each of this Agreement, the Investment Management
Agreement between the Investment Manager and the Fund (the "Management
Agreement"), the Administration Agreement between First Data Investor
Services Group, Inc.(the "Administrator") and the Fund (the
"Administration Agreement"), the Custodian and Transfer and Dividend
Disbursing Agent Agreement among Citibank N.A. (the "Custodian"), First
Data Investor Services Group, Inc. (the "Transfer and Dividend
Disbursing Agent") and the Fund (the "Custody, Transfer and Dividend
Disbursing Agreement") (this Agreement, the Management Agreement, the
Administration Agreement and the Custody, Transfer and Dividend
Disbursing Agreement are referred to herein, collectively, as the "Fund
Agreements"), respectively, has been duly authorized, executed and
delivered by the Fund. Each Fund Agreement, other than this Agreement,
assuming due authorization, execution and delivery by the other parties
thereto, and the Plan constitutes the legal, valid and binding
obligation of the Fund, enforceable against the Fund in accordance with
its terms except as such enforceability may be limited by applicable
bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or
similar laws affecting creditors' rights generally and by general
principles of
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<PAGE>
equity, regardless of whether considered in a proceeding in equity or
at law.
(g) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
granted or issued by the Fund relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the
Fund, except as otherwise disclosed in the Registration Statement.
(h) All the outstanding shares of capital stock of the Fund
have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights; and
the Shares have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor as provided by this
Agreement, will be validly issued, fully paid and non-assessable, and
the issuance of such Shares will not be subject to any preemptive or
similar rights.
(i) The authorized capital stock of the Fund conforms in all
material respects to the description thereof contained in the
Prospectus, and the Agreement and Declaration of Trust dated as of
April 24, 1998 (the "Declaration of Trust") and by-laws of the Fund,
the Fund Agreements and the Plan conform in all material respects to
the descriptions thereof contained in the Prospectus.
(j) The Declaration of Trust and by-laws of the Fund, the Fund
Agreements and the Plan comply with all applicable provisions of the
Acts, and all approvals of such documents required under the Investment
Company Act by the Fund's shareholders and trustees have been obtained
and are in full force and effect.
(k) The Fund is not in violation of the Declaration of Trust
or by-laws or in default in the performance of any obligation,
agreement, covenant or condition contained in any agreement or
instrument that is material to the Fund to which it is a party or by
which it or its property is bound.
(l) The Fund intends to direct the investment of the proceeds
of the offering described in the Prospectus in such a manner as to
comply with the requirements of Subchapter M of the Code, and the Fund
is eligible to qualify as a regulated investment company under
Subchapter M of the Code.
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(m) The execution, delivery and performance by the Fund of
each Fund Agreement, the compliance by the Fund with all the provisions
thereof and the consummation of the transactions contemplated thereby
will not (i) require any consent, approval, authorization or other
order of, or qualification with, any court or governmental body or
agency (except such as may be required under the securities or Blue Sky
laws of the various states), (ii) conflict with or constitute a breach
of any of the terms or provisions of, or a default under, the
Declaration of Trust or by-laws of the Fund or any agreement or
instrument that is material to the Fund to which it is a party or by
which it or its property is bound, (iii) violate or conflict with any
applicable law or any rule, regulation, judgment, order or decree of
any court or any governmental body or agency having jurisdiction over
it or its property or (iv) result in the suspension, termination or
revocation of any Authorization (as defined below) of the Fund or any
other impairment of the rights of the holder of any such Authorization.
(n) There are no legal or governmental proceedings pending or
threatened to which the Fund is or could be a party or to which any of
its property is or could be subject that are required to be described
in the Registration Statement or the Prospectus and are not so
described; nor are there any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not so described or filed as required.
(o) The Fund has such consents, orders (including exemptive
orders), certificates, authorizations and other approvals (each, an
"Authorization") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, as are necessary to
own and use its assets and to conduct its business in the manner
described in the Prospectus, except where the failure to have any such
Authorization or to make any such filing or notice would not, singly or
in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Fund.
Each such Authorization is valid and in full force and effect and the
Fund is in compliance with all the terms and conditions thereof and
with the rules and regulations of the authorities and governing bodies
having jurisdiction with respect thereto; and no event has occurred
(including, without limitation, the receipt of any notice from any
authority or governing body) which allows or, after notice or lapse of
time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or
both, would
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<PAGE>
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Fund; except where such failure to be valid and in
full force and effect or to be in compliance, the occurrence of any
such event or the presence of any such restriction would not, singly or
in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Fund.
(p) Ernst & Young LLP are independent public accountants with
respect to the Fund as required by the Acts.
(q) The statement of assets and liabilities included in the
Registration Statement and the Prospectus (and any amendment or
supplement thereto), presents fairly the financial position of the Fund
as of the date indicated and such statement has been prepared in
accordance with generally accepted accounting principles.
(r) Since the respective dates as of which information is
given in the Prospectus other than as set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), (i) there has not occurred any material
adverse change or any development involving a prospective material
adverse change in the condition, financial or otherwise, or the
earnings, business, management or operations of the Fund from that set
forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) and (ii) there have
been no transactions entered into by the Fund which are material to the
Fund other than those in the ordinary course of its business or as
described in the Prospectus.
(s) The Fund Agreements (other than this Agreement) and the
Plan are in full force and effect and neither the Fund nor, to the
Fund's knowledge, any other party to any such agreement is in default
thereunder and, to the knowledge of the Fund and the Investment
Manager, no event has occurred which with the passage of time or the
giving of notice or both would constitute a default thereunder. The
Fund is not currently in breach of, or in default under, any other
written agreement or instrument to which it or its property is bound or
affected.
(t) The Shares and any shares of Common Shares outstanding
prior to the issuance of the Shares have been approved for listing on
the NYSE, subject to official notice of issuance.
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<PAGE>
(u) There are no material restrictions, limitations or
regulations with respect to the ability of the Fund to invest its
assets as described in the Prospectus, other than as described therein.
(v) Any advertisement used with the written consent of the
Fund in the public offering of the Shares pursuant to Rule 482 under
the Securities Act (an "Omitting Prospectus") complies with the
requirements of Rule 482, and does not contain an untrue statement of a
material fact.
SECTION 8. Representations and Warranties Relating to the Investment
Manager. The Investment Manager represents and warrants to each Underwriter
that:
(a) The Investment Manager has been duly incorporated, is
validly existing as a [corporation] in good standing under the laws of
the State of [Delaware], has the corporate power and authority to carry
on its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which
the nature of its business requires such qualification, except where
failure to be so qualified would not have a material adverse effect on
the Investment Manager.
(b) The Investment Manager is duly registered as an investment
adviser under the Advisers Act, and is not prohibited by the Investment
Advisers Act of 1940 or the Investment Company Act from acting under
the Management Agreement as an investment adviser to the Fund as
contemplated by the Prospectus, and no order of suspension or
revocation of such registration has been issued or proceedings therefor
initiated or, to the knowledge of the Investment Manager, threatened by
the Commission.
(c) Each of this Agreement and the Management Agreement has
been duly authorized, executed and delivered by the Investment Manager
and complies with all applicable provisions of the Investment Company
Act and the Investment Advisers Act. The Management Agreement, assuming
due authorization, execution and delivery by the other parties thereto,
constitutes the legal, valid and binding obligation of the Investment
Manager, enforceable against the Investment Manager in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or
similar laws affecting creditors' rights generally and by general
principles of
15
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equity, regardless of whether considered in a proceeding in equity or
at law.
(d) The execution and delivery by the Investment Manager of,
and the performance by the Investment Manager of its obligations under,
this Agreement and the Management Agreement do not and will not
contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Investment Manager or any agreement or
other instrument binding upon the Investment Manager that is material
to the Investment Manager, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the
Investment Manager. No consent, approval, authorization, or other order
of or qualification with, any court or governmental body or agency,
self-regulatory agency or other tribunal is required for the
performance by the Investment Manager of its obligations under this
Agreement or the Management Agreement except such as have been obtained
and as may be required by the Acts, the Exchange Act or the securities
or Blue Sky laws of the various states in connection with the offer and
sale of the Shares.
(e) There are no legal or governmental proceedings pending or
threatened, to which the Investment Manager is or could be a party or
is or could be subject that are required to be described in the
Registration Statement or the Prospectus and are not so described.
(f) The Investment Manager has such Authorizations of, and has
made all filings with and notices to, all governmental or regulatory
authorities and self-regulatory organizations and all courts and other
tribunals, as are necessary to own and use its assets and to conduct
its business in the manner described in the Prospectus, except where
the failure to have any such Authorization or to make any such filing
or notice would not, singly or in the aggregate, have a material
adverse effect on the business, prospects, financial condition or
results of operations of the Investment Manager. Each such
Authorization is valid and in full force and effect and the Investment
Manager is in compliance with all the terms and conditions thereof and
with the rules and regulations of the authorities and governing bodies
having jurisdiction with respect thereto; and no event has occurred
(including, without limitation, the receipt of any notice from any
authority or governing body) which allows or, after notice or lapse of
time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or
both, would result in any other impairment of the rights of the holder
of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Investment Manager; except
where such failure
16
<PAGE>
to be valid and in full force and effect or to be in compliance, the
occurrence of any such event or the presence of any such restriction
would not, singly or in the aggregate, have a material adverse effect
on the business, prospects, financial condition or results of
operations of the Investment Manager.
(g) The Management Agreement is in full force and effect and
neither the Investment Manager nor, to the Investment Manager's
knowledge, the Fund is in default thereunder and, to the knowledge of
the Investment Manager, no event has occurred which with the passage of
time or the giving of notice or both would constitute a default under
such document.
(h) All information furnished by the Investment Manager for
use in the Registration Statement and Prospectus, including, without
limitation, the description of the Investment Manager, does not, and on
the Closing Date will not, contain any untrue statement of a material
fact or omit to state any material fact necessary to make such
information not misleading.
(i) Since the respective dates as of which information is
given in the Prospectus other than as set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), there has not occurred any material adverse
change or any development involving a prospective material adverse
change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Investment Manager from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
SECTION 9. Indemnification. (a) Each of the Fund and the Investment
Manager, jointly and severally, agree to indemnify and hold harmless each
Underwriter, its directors, its officers and each person, if any, who controls
any Underwriter within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any legal or
other expenses incurred in connection with investigating or defending any
matter, including any action, that could give rise to any such losses, claims,
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement (or
any amendment thereto), the Prospectus (or any amendment or supplement thereto),
any Omitting Prospectus or any preliminary prospectus, or caused by any omission
or alleged omission to state therein a material fact required to be stated
17
<PAGE>
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, liabilities or judgments are caused by
any such untrue statement or omission or alleged untrue statement or omission
based upon information relating to any Underwriter furnished in writing to the
Fund by such Underwriter through you expressly for use therein; provided that
the foregoing indemnity agreement with respect to any Omitting Prospectus or
preliminary prospectus shall not inure to the benefit of any Underwriter who
failed to deliver the Prospectus, as then amended or supplemented (so long as
the Prospectus and any such amendment or supplement was provided by the Fund to
the several Underwriters in the requisite quantity and on a timely basis to
permit proper delivery on or prior to the Closing Date) to the person asserting
any losses, claims, damages, liabilities or judgments caused by any untrue
statement or alleged untrue statement of a material fact contained in such
Omitting Prospectus or preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, if such material
misstatement or omission or alleged material misstatement or omission was cured
in the Prospectus, as so amended or supplemented, and such Prospectus was
required by law to be delivered at or prior to the written confirmation of sale
to such person; provided further, that the Investment Manager will be required
to indemnify and hold harmless any indemnified party pursuant to this paragraph
only to the extent that the Fund fails to indemnify and hold harmless such
indemnified party pursuant to this paragraph.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Fund and the Investment Manager, their respective trustees
or directors, and each officer of the Fund who signs the Registration Statement
and each person, if any, who controls the Fund or the Investment Manager within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, to the same extent as the foregoing indemnity from the Fund and the
Investment Manager to such Underwriter but only with reference to information
relating to such Underwriter furnished in writing to the Fund by such
Underwriter through you expressly for use in the Registration Statement (or any
amendment thereto), the Prospectus (or any amendment or supplement thereto), any
Omitting Prospectus or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 9(a) or 9(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought
18
<PAGE>
pursuant to both Sections 9(a) and 9(b), the Underwriter shall not be required
to assume the defense of such action pursuant to this Section 9(c), but may
employ separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Underwriters and such control persons of Underwriters,
such firm shall be designated in writing by Donaldson, Lufkin & Jenrette
Securities Corporation. In the case of any such separate firm for the Fund, and
such trustees, officers and control persons of the Fund, such firm shall be
designated in writing by the Fund. In the case of any such separate firm for the
Investment Manager, and such directors and control persons of the Investment
Manager, such firm shall be designated in writing by the Investment Manager. The
indemnifying party shall indemnify and hold harmless the indemnified party from
and against any and all losses, claims, damages, liabilities and judgments by
reason of any settlement of any action (i) effected with its written consent or
(ii) effected without its written consent if the settlement is entered into more
than twenty business days after the indemnifying party shall have received a
request from the indemnified party for reimbursement for the fees and expenses
of counsel (in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such
19
<PAGE>
settlement, compromise or judgment (i) includes an unconditional release of the
indemnified party from all liability on claims that are or could have been the
subject matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
(d) To the extent the indemnification provided for in this Section 9
is unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the benefits received by the Fund and
the Investment Manager on the one hand and the Underwriters on the other hand
from the offering of the Shares or (ii) if the allocation provided by clause
9(d)(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Fund and the Investment Manager on the
one hand and the Underwriters on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Fund or the Investment
Manager shall be deemed to equal the aggregate public offering price of the
Shares. The benefits received by the Underwriters shall be deemed to equal the
product of [$.__] times the aggregate number of Shares purchased by the
Underwriters hereunder. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Fund or the Investment Manager on the one
hand or the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Investment Manager agrees to pay or cause to be paid
any amounts that are payable by the Fund pursuant to this paragraph to the
extent that the Fund fails to make all contributions required to be made by the
Fund pursuant to this paragraph.
The Fund, the Investment Manager and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 9(d)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth
20
<PAGE>
above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 9, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 9(d) are several in proportion to the
respective number of Shares purchased by each of the Underwriters hereunder and
not joint.
(e) The indemnity and contribution provisions contained in this
Section 9 and the representations and warranties of the Fund and the Investment
Manager contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter, its officers or directors
or any person controlling any Underwriter, the Investment Manager, its officers
or directors or any person controlling the Investment Manager or the Fund, its
trustees or directors or any person controlling the Fund and (iii) acceptance of
and payment for any of the Shares.
(f) The remedies provided for in this Section 9 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
SECTION 10. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Fund and the
Investment Manager contained in this Agreement shall be true and
correct on the Closing Date with the same force and effect as if made
on and as of the Closing Date.
(b) If the Fund is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New
York City time, on the date of this Agreement; and no stop order
suspending the effectiveness of the Registration Statement shall have
been
21
<PAGE>
issued and no proceedings for that purpose shall have been commenced or
shall be pending before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate
dated the Closing Date, signed by G. Moffett Cochran and Martin Jaffe,
in their capacities as the President and Vice-President of the Fund,
confirming the matters set forth in Sections 7(r), 10(a) and 10(b) and
that the Fund has complied with all of the agreements and satisfied all
of the conditions herein contained and required to be complied with or
satisfied by the Fund on or prior to the Closing Date.
(d) You shall have received on the Closing Date a certificate
dated the Closing Date, signed by G. Moffett Cochran and Martin Jaffe,
in their capacities as the President and Vice-President of the
Investment Manager, confirming the matters set forth in Sections 8(j),
10(a) and 10(b) and that the Investment Manager has complied with all
of the agreements and satisfied all of the conditions herein contained
and required to be complied with or satisfied by the Investment Manager
on or prior to the Closing Date.
(e) Since the respective dates as of which information is
given in the Prospectus other than as set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), (i) there shall not have occurred any change
or any development involving a prospective change in the condition,
financial or otherwise, or the earnings, business, management or
operations of the Fund or the Investment Manager, from that set forth
in the Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) and (ii) there have been no
transactions entered into by the Fund or the Investment Manager which
are material to the Fund or the Investment Manager other than those in
the ordinary course of their business or as described in the
Prospectus, the effect of which, in any such case described in clause
(i) or (ii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus.
(f) You shall have received on the Closing Date an opinion
(reasonably satisfactory to you and counsel for the Underwriters),
dated the Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP,
counsel for the Fund, to the effect that:
(i) the Fund has been duly formed, is validly
existing as a business trust in good standing under the laws
of the State of
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<PAGE>
Delaware and has the power and authority to carry on its
business as described in the Prospectus;
(ii) the Fund is duly qualified and is in good
standing to do business in each jurisdiction in which the
nature of its business requires such qualification, except
where the failure to be so qualified would not have a material
adverse effect on the business, prospects, financial condition
or results of operations of the Fund;
(iii) the Fund is registered with the Commission as a
non-diversified, closed-end management investment company
under the Investment Company Act and no order of suspension or
revocation of such registration has been issued or proceedings
therefor initiated or, to the best of counsel's knowledge,
threatened by the Commission;
(iv) each Fund Agreement has been duly authorized,
executed and delivered by the Fund. Each Fund Agreement, other
than this Agreement, assuming due authorization, execution and
delivery by the other parties thereto, and the Plan,
constitutes the legal, valid and binding obligation of the
Fund, enforceable against the Fund in accordance with its
terms except as such enforceability may be limited by
applicable bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws affecting
creditors' rights generally and by general principles of
equity, regardless of whether considered in a proceeding in
equity or at law;
(v) all the outstanding capital shares of the Fund
have been duly authorized and validly issued and are fully
paid, non-assessable and not subject to any preemptive or
similar rights;
(vi) the Shares have been duly authorized and, when
issued and delivered to the Underwriters against payment
therefor as provided by this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive or similar
rights;
(vii) the authorized capital shares of the Fund
conforms as to legal matters to the description thereof
contained in the Prospectus, and the Declaration of Trust and
by-laws of the Fund, conform in all material respects to the
descriptions thereof contained in the Prospectus;
23
<PAGE>
(viii) the Shares have been approved for listing on the
NYSE, subject to official notice of issuance;
(ix) the Fund does not require any tax r other rulings
to enable it to qualify as a regulated investment company
under Subchapter M of the Code;
(x) the Registration Statement has become effective
under the Acts, no stop order suspending its effectiveness has
been issued and no proceedings for that purpose are, to the
best of such counsel's knowledge after due inquiry, pending
before or contemplated by the Commission;
(xi) the statements under the captions "Description of
Shares" and "Taxes" in the Prospectus and Item 29 of Part C of
the Registration Statement, insofar as such statements
constitute a summary of the legal matters, documents or
proceedings referred to therein, fairly present the
information called for with respect to such legal matters,
documents and proceedings;
(xii) the Fund is not in violation of its Declaration
of Trust or by-laws and, to the best of such counsel's
knowledge after due inquiry, the Fund is not in default in the
performance of any obligation, agreement, covenant or
condition contained in any agreement or instrument that is
material to the Fund, to which it is a party or by which its
property is bound;
(xiii) the execution, delivery and performance by the
Fund of each Fund Agreement, the compliance by the Fund with
all the provisions hereof and the consummation of the
transactions contemplated thereby will not (A) require any
consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency
(except such as may be required under the securities or Blue
Sky laws of the various states), (B) conflict with or
constitute a breach of any of the terms or provisions of, or a
default under, the Declaration of Trust or by-laws of the Fund
or any agreement or instrument that is material to the Fund to
which it is a party or by which it or its property is bound,
(C) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over it or its
property or (D) result in the suspension, termination or
revocation
24
<PAGE>
of any Authorization of the Fund or any other impairment of
the rights of the holder of any such Authorization;
(xiv) such counsel does not know of any legal or
governmental proceedings pending or threatened to which the
Fund is or could be a party or to which its property is or
could be subject that are required to be described in the
Registration Statement or the Prospectus and are not so
described, or of any statutes, regulations, contracts or other
documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not so
described or filed as required;
(xv) the Fund has such Authorizations of, and has made
all filings with and notices to, all governmental or
regulatory authorities and self-regulatory organizations and
all courts and other tribunals as are necessary to own and use
its assets and to conduct its business, except where the
failure to have any such Authorization or to make any such
filing or notice would not, singly or in the aggregate, have a
material adverse effect on the business, prospects, financial
condition or results of operations of the Fund; each such
Authorization is valid and in full force and effect and the
Fund is in compliance with all the terms and conditions
thereof and with the rules and regulations of the authorities
and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the
receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would
allow, revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time or
both, would result in any other impairment of the rights of
the holder of any such Authorization; and such Authorizations
contain no restrictions that are burdensome to the Fund; and
(xvi) (A) the Registration Statement, the Notification,
and the Prospectus and any supplement or amendment thereto
(except for the financial statements and other financial data
included therein as to which no opinion need be expressed)
comply as to form with the Acts, (B) such counsel has no
reason to believe that at the time the Registration Statement
became effective or on the date of this Agreement, the
Registration Statement and the prospectus included therein
(except for the financial statements and other financial data
as to which such counsel need not express any
25
<PAGE>
belief) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and
(C) such counsel has no reason to believe that the Prospectus,
as amended or supplemented, if applicable (except for the
financial statements and other financial data, as aforesaid)
contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP described in
Section 10(f) above shall be rendered to you at the request of the Fund and
shall so state therein.
(g) You shall have received on the Closing Date an opinion,
dated the Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP,
counsel for the Investment Manager, to the effect that:
(i) the Investment Manager has been duly
incorporated, is validly existing as a corporation in good
standing under the laws of the State of Delaware, has the
corporate power and authority to carry on its business as
described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which
the nature of its business requires such qualification, except
where failure to be so qualified would not have a material
adverse effect on the Investment Manager;
(ii) the Investment Manager is duly registered as an
investment adviser under the Advisers Act and is not
prohibited by the Advisers Act or the Investment Company Act
from acting under the Management Agreement as an investment
adviser to the Fund as contemplated by the Prospectus, and no
order of suspension or revocation of such registration has
been issued or proceedings therefor initiated or, to the
knowledge of the Investment Manager, threatened by the
Commission;
(iii) each of this Agreement and the Management
Agreement has been duly authorized, executed and delivered by
the Investment Manager and complies with all applicable
provisions of the Acts. The Management Agreement, assuming due
authorization, execution and delivery by the other parties
thereto, constitutes the legal, valid and binding obligation
of the Investment Manager, enforceable against the Investment
Manager in accord-
26
<PAGE>
ance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws
affecting creditors' rights generally and by general
principles of equity, regardless of whether considered in a
proceeding in equity or at law;
(iv) the execution and delivery by the Investment
Manager of, and the performance by the Investment Manager of
its obligations under, this Agreement and the Management
Agreement do not and will not contravene any provision of
applicable law or the certificate of incorporation or by-laws
of the Investment Manager or any agreement or other instrument
binding upon the Investment Manager that is material to the
Investment Manager, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over
the Investment Manager. No consent, approval, authorization,
or other order of or qualification with, any court or
governmental body or agency, self-regulatory agency or other
tribunal is required for the performance by the Investment
Manager of its obligations under this Agreement or the
Management Agreement except such as have been obtained and as
may be required by the Acts, the Exchange Act or the
securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares;
(v) such counsel does not know of any legal or
governmental proceedings pending or threatened, to which the
Investment Manager is or could be a party or is or could be
subject that are required to be described in the Registration
Statement or the Prospectus and are not so described, or of
any statutes, regulations, contracts or other documents that
are required to be described in the Registration Statement or
the Prospectus or to be filed as exhibits to the Registration
Statement that are not so described or filed as required;
(vi) the Investment Manager has such Authorizations
of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, as are
necessary to own and use its assets and to conduct its
business in the manner described in the Prospectus, except
where the failure to have any such Authorization or to make
any such filing or notice would not, singly or in the
aggregate, have a material adverse effect on the
27
<PAGE>
business, prospects, financial condition or results of
operations of the Investment Manager. Each such Authorization
is valid and in full force and effect and the Investment
Manager is in compliance with all the terms and conditions
thereof and with the rules and regulations of the authorities
and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the
receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would
allow, revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time or
both, would result in any other impairment of the rights of
the holder of any such Authorization; and such Authorizations
contain no restrictions that are burdensome to the Investment
Manager; and
(vii) the description of the Investment Manager in the
Registration Statement and Prospectus does not contain any
untrue statement of a material fact or omit to state any
material fact necessary to make such the statements therein,
in light of the circumstances under which they were made, not
misleading.
(h) You shall have received on the Closing Date an opinion,
dated the Closing Date, of Davis Polk & Wardwell, counsel for the
Underwriters, as to the matters referred to in Sections 10(f)(iv) (but
only as to this Agreement), 10(f)(vi), 10(f)(xi) (but only with respect
to the statements under the caption "Description of Shares" and
"Underwriting") and 10(f)(xvi).
In giving such opinions with respect to the matters
covered by Section 10(f)(xvi) Skadden, Arps, Slate, Meagher &
Flom LLP and Davis Polk & Wardwell may state that their
opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and
any amendments or supplements thereto and review and
discussion of the contents thereof, but are without
independent check or verification except as specified.
(i) You shall have received on the Closing Date a certificate
from a duly authorized officer of the Custodian and the Transfer and
Dividend Disbursing Agent, certifying that the Custody, Transfer and
Dividend Disbursing Agreement is in full force and effect and is the
legal, valid, binding and enforceable obligation of the Custodian and
the Transfer and Dividend Disbursing Agent, assuming that such
Agreement is a legal, valid, binding and enforceable obligation of the
other party thereto.
28
<PAGE>
(j) You shall have received on the Closing Date a certificate
from a duly authorized officer of the Administrator certifying that the
Administration Agreement is in full force and effect and is the legal,
valid, binding and enforceable obligation of the Administrator,
assuming that such Agreement is a legal, valid, binding and enforceable
obligation of the other party thereto.
(k) You shall have received, on each of the date hereof and
the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to you, from
Ernst & Young LLP, independent public accountants, containing the
information and statements of the type ordinarily included in
accountants' "comfort letters" to Underwriters regarding the Fund
contained in the Registration Statement and the Prospectus.
(l) All proceedings taken by the Fund and the Investment
Manager in connection with the organization and registration of the
Fund and the Shares under the Acts shall be satisfactory in form and
substance to you and counsel for the Underwriters.
(m) No proceedings shall have been instituted or threatened by
the Commission which would adversely affect the Fund's standing as a
registered investment company under the Investment Company Act or the
standing of the Investment Manager as a registered investment adviser
under the Advisers Act.
(n) The Shares shall have been duly authorized for listing,
subject only to official notice of issuance, on the NYSE.
(o) The Fund and the Investment Manager shall not have failed
on or prior to the Closing Date to perform or comply with any of the
agreements herein contained and required to be performed or complied
with by the Fund and the Investment Manager on or prior to the Closing
Date.
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Fund and the Investment Manager, the due authorization and
issuance of such Additional Shares and other matters related to the issuance of
such Additional Shares.
29
<PAGE>
Section 11. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Fund if any of the following has occurred:
(i) any outbreak or escalation of hostilities or other national or international
calamity or crisis or change in economic conditions or in the financial markets
of the United States or elsewhere that, in your judgment, is material and
adverse and, in your judgment, makes it impracticable to market the Shares on
the terms and in the manner contemplated in the Prospectus, (ii) the suspension
or material limitation of trading in securities or other instruments on the
NYSE, the American Stock Exchange, the Chicago Board of Options Exchange, the
Chicago Mercantile Exchange, the Chicago Board of Trade or the NASDAQ National
Market or limitation on prices for securities or other instruments on any such
exchange or the NASDAQ National Market, (iii) the enactment, publication, decree
or other promulgation of any federal or state statute, regulation, rule or order
of any court or other governmental authority which in your opinion materially
and adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Fund, (iv) the
declaration of a banking moratorium by either federal or New York State
authorities or (v) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
opinion has a material adverse effect on the financial markets in the United
States and that, in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each
non-defaulting Underwriter shall be obligated severally, in the proportion which
the number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Shares which any Underwriter
has agreed to purchase pursuant to Section 2 hereof be increased pursuant to
this Section 11 by an
30
<PAGE>
amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If on the Closing Date any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased by all
Underwriters and arrangements satisfactory to you and the Fund for purchase of
such Firm Shares are not made within 48 hours after such default, this Agreement
will terminate without liability on the part of any non-defaulting Underwriter,
the Fund and the Investment Manager. In any such case which does not result in
termination of this Agreement, either you or the Fund shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. If, on an
Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased on such date, the non-defaulting
Underwriters shall have the option to (i) terminate their obligation hereunder
to purchase such Additional Shares or (ii) purchase not less than the number of
Additional Shares that such non-defaulting Underwriters would have been
obligated to purchase on such date in the absence of such default. Any action
taken under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of any such Underwriter under this
Agreement.
Section 12. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Fund, to DLJ High
Yield Bond Fund, 277 Park Avenue, New York, New York 10172; (ii) if to the
Investment Manager, to DLJ Investment Management Corp., 277 Park Avenue, New
York, New York 10172; and (iii) if to any Underwriter or to you, to you c/o
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York,
New York 10172, Attention: Syndicate Department, or in any case to such other
address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Fund, the Investment Manager and the
several Underwriters set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Shares, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, the Fund,
the officers or trustees of the Fund or any person controlling the Fund, the
Investment Manager, the officers or directors of the Investment Manager or any
person controlling the
31
<PAGE>
Investment Manager, (ii) acceptance of the Shares and payment for them hereunder
and (iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of the
Fund as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 11), the Fund agrees to reimburse the several
Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by them. The Fund also agrees to reimburse
the several Underwriters, their directors and officers and any persons
controlling any of the Underwriters for any and all fees and expenses
(including, without limitation, the fees disbursements of counsel) incurred by
them in connection with enforcing their rights hereunder (including, without
limitation, pursuant to Section 9 hereof).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Fund, the Investment
Manager, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, the Fund's and the Investment Manager's
trustees or directors and the Fund's officers who sign the Registration
Statement and their respective successors and assigns, all as and to the extent
provided in this Agreement, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include a purchaser of any of the Shares from any of the several
Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
32
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Fund, the Investment Manager and the several Underwriters.
Very truly yours,
DLJ HIGH YIELD BOND FUND
By:
--------------------------------
Title:
DLJ INVESTMENT MANAGEMENT
CORP.
By:
--------------------------------
Title:
<PAGE>
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ADVEST, INC.
FAC/EQUITIES
FAHNESTOCK & CO. INC.
FIRST OF MICHIGAN CORPORATION
GRUNTAL & CO., L.L.C.
INTERSTATE/JOHNSON LANE
CORPORATION
JANNEY MONTGOMERY SCOTT INC.
SANDS BROTHERS & CO. LTD.
SUTRO & CO. INCORPORATED
TUCKER ANTHONY INCORPORATED
Acting severally on behalf of themselves and the
several Underwriters named in Schedule I
hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
--------------------------------
Title:
33
<PAGE>
SCHEDULE I
Number of Firm Shares
Underwriters to be Purchased
------------ -------------------------
Donaldson, Lufkin & Jenrette Securities
Corporation
Advest, Inc.
FAC/Equities
Fahnestock & Co. Inc.
First of Michigan Corporation
Gruntal & Co., L.L.C.
Interstate/Johnson Lane
Corporation
Janney Montgomery Scott Inc.
Sands Brothers & Co. Ltd.
Sutro & Co. Incorporated
Tucker Anthony Incorporated
-------------------------
Total
<PAGE>
CROSS-REFERENCE TARGET LIST
NOTE: Due to the number of targets some target names may not appear in the
target pull-down list. (This list is for the use of the wordprocessor only, is
not a part of this document and may be discarded.)
<TABLE>
<CAPTION>
ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME
- ---------------------------------- --------------- ----------- --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1...................reg.stmt.pros
2.............agt.sell.purch.lock
3....................term.pub.off
4.........................del.pay
5..........................co.agt
5(e).................co.furn.pros
5(k)...................co.pay.exp
6.....................agmt.invest
7......................rep.war.co
7(r)...............no.mat.adv.chg
9...........................indem
9(a).....................co.indem
9(b)....................und.indem
9(c)......................act.com
9(d)................indem.unavail
9(d)(i)....................propor
9(f).........................reme
10.................cond.und.oblig
10(a).............co.rep.war.true
10(b)....................rule462b
10(e)(i)..............no.chg.cond
10(f)................opin.coun.co
10(f)(xi)............fair.present
10(f)(xvi)........reg.pros.comply
11...................eff.agt.term
12...........................misc
</TABLE>
MASTER DEALER AGREEMENT
December 1, 1987
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
140 Broadway
New York, N.Y. 10005
Dear Sirs:
In connection with public offerings of securities underwritten by you, or by
a group of Underwriters represented by you, we may be offered the opportunity to
purchase a portion of such securities, as principal, at a discount from the
public offering price representing a selling concession or reallowance granted
as consideration for services rendered by us in the distribution of such
securities. We understand that you are requesting us to agree to the following
terms and provisions, and make the following representations, which, together
with any additional terms and provisions set forth in any wire or letter sent to
us in connection with a particular offering, will govern all such purchases of
securities and the reoffering thereof by us.
Our subscription to, or purchase of, such securities will constitute our
reaffirmation of this Agreement.
1. When you are acting as Representative of the Underwriters in offering
securities to us, it is understood that all offers are made subject to prior
sale of the subject securities, when, as and if such securities are delivered to
and accepted by the Underwriters and subject to the approval of legal matters by
their counsel. In such cases, any order from us for securities will be strictly
subject to confirmation and you reserve the right in your absolute discretion to
reject any order in whole or in part. Upon release by you, we may reoffer such
securities at the public offering price fixed by you. With your consent, we may
allow a discount, not in excess of the reallowance fixed by you, in selling such
securities to other dealers, provided that in doing so we comply with the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (the
"NASD"). Upon your request, we will advise you of the identity of any dealer to
whom we allow such a discount and any Underwriter or dealer from whom we receive
such a discount. After the securities are released for sale to the public, you
may vary the public offering price and other selling terms.
We represent that we have at all times complied with the provisions of Rule
10b-6 of the Securities and Exchange Commission applicable to this offering.
We agree to advise you from time to time upon request, prior to the
termination of this Agreement with respect to any offering of securities covered
hereby, of the number or amount of offered securities remaining unsold which
were purchased by us from you or from any dealer at a concession from the public
offering price and, on your request, we will resell to you any such securities
remaining unsold at the public offering price less an amount to be determined by
you not in excess of the concession allowed to us.
If prior to the termination of this Agreement with respect to any offering
of securities covered hereby, you purchase or contract to purchase any
securities which were purchased by us from you or from any dealer at a
concession from the public offering price (including any securities represented
by certificates which may have been issued on transfer of or in exchange for
certificates originally representing such securities), in your discretion you
may (i) sell for our account the securities so purchased and debit or credit our
account for the loss or profit resulting from such sale, (ii) charge our account
with an amount equal to the concession to dealers with respect thereto and
credit such amount against the cost thereof or (iii) require us to purchase such
securities at a price equal to the total cost of such purchase including
commissions, accrued interest, amortization of original issue discount or
dividends and transfer taxes on redelivery.
<PAGE>
2. Delivery and Payment. If we purchase any securities from you hereunder,
we agree that such purchases will be evidenced by your written confirmation and
will be subject to the terms and conditions set forth in the confirmation and in
any offering circular or prospectus relating to such securities.
Unless you advise us otherwise, securities purchased by us from you
hereunder shall be paid for in full at the public offering price (plus accrued
interest, amortization of original issue discount or dividends, if any), or, if
you shall so advise us, at such price (plus accrued interest, amortization of
original issue discount or dividends, if any) less the applicable concession, at
the office of Donaldson, Lufkin & Jenrette Securities Corporation, 140 Broadway,
New York, N.Y. 10005, at such time and on such day as you may advise us, by
certified or official bank check payable in New York Clearing House funds to the
order of Donaldson, Lufkin & Jenrette Securities Corporation against delivery of
the securities. If we are called upon to pay the public offering price for the
securities purchased by us, the applicable concession will be paid to us, less
any amounts charged to our account pursuant to Article I above, promptly after
this Agreement terminates with respect to any offering of securities covered
hereby.
3. Termination. You will advise us of the date and time of termination of
this Agreement or of any designated provisions hereof with respect to any
offering of securities covered hereby. With respect to any offering of
securities covered hereby, this Agreement shall in any event terminate 30
business days after the date of the initial date of such offering of securities
unless sooner terminated by you.
4. Representations and Liability of Dealers and Underwriters. We represent
that we are a member in good standing of the NASD or that we are a foreign bank
or dealer not eligible for membership in the NASD which agrees to make no sales
of securities within the United States, its territories or its possessions, or
to persons who are citizens thereof or resident therein. In making sales of
securities, if we are such a member of the NASD. we agree to comply with all
applicable rules of the NASD, including, without limitation, the NASD's
Interpretation with Respect to Free-Riding and Withholding and Section 24 of
Article III of the NASD's Rules of Fair Practice, or, if we are such a foreign
bank or dealer, we agree to comply with such Interpretation, Sections 8, 24 and
36 of such Article as though we were such a member and Section 25 of such
Article as it applies to a non-member broker or dealer in a foreign country. We
represent that we are fully familiar with the above provisions of the Rules of
Fair Practice of the NASD.
If we are a foreign bank or dealer, we represent that in connection with
sales and offers to sell securities made by us outside the United States, (a) we
will not offer or sell any securities in any jurisdiction except in compliance
with applicable laws and (b) we will either furnish to each person to whom any
such sale or offer is made a copy of the then current offering circular or
prospectus or inform such person that such offering circular or prospectus will
be available upon request. It is understood that no action has been taken to
permit a public offering in any jurisdiction other than the United States where
action would be required for such purpose.
If the securities have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), we confirm that we are familiar with the rules
and policies of the Securities and Exchange Commission relating to the
distribution of preliminary and final prospectuses, and we agree that we will
comply therewith in any offering of securities covered by this Agreement. In any
offering of securities covered by this Agreement, we are not authorized to give
any information or make any representation not contained in the offering
circular or prospectus relating thereto.
We agree that you have full authority to take such action as may seem
advisable to you in respect to all matters pertaining to the offering of the
securities. You shall not be under any liability to us for any act or omission,
except for obligations expressly assumed by you in this Agreement.
We agree that in connection with any offering of securities covered by this
Agreement we will comply with the applicable provisions of the Securities Act
and the Securities Exchange Act of 1934 and the applicable rules and regulations
of the Securities and Exchange Commission thereunder, the applicable rules and
regulations of the NASD, and the applicable rules of any securities exchange
having jurisdiction over the offering. Without limiting the generality of the
foregoing, we agree that we will comply with such prospectus delivery
requirements of Rule 15c2-8 under the Securities Exchange Act of 1934 as are
applicable to us.
2
<PAGE>
All communications to you relating to the subject matter of this Agreement
shall be addressed to the Syndicate Department, Donaldson, Lufkin & Jenrette
Securities Corporation, 140 Broadway, New York, N.Y. 10005, and any notices to
us shall be deemed to have been duly given if mailed or telegraphed to us at the
address shown below.
5. Blue Sky Matters. You will not have any responsibility with respect to
the right of any dealer to sell securities in any jurisdiction, notwithstanding
any information you may furnish in that connection.
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
Very truly yours,
By
-------------------------------------------
Authorized Signatory
Address:
---------------------------------------------
---------------------------------------------
---------------------------------------------
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GLOBAL CUSTODIAL SERVICES
AGREEMENT
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TABLE OF CONTENTS
1. DEFINITIONS................................................................1
2. APPOINTMENT OF CUSTODIAN...................................................3
3. PROPERTY ACCEPTED..........................................................3
4. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS...............................3
5. INSTRUCTIONS...............................................................4
6. PERFORMANCE BY THE CUSTODIAN...............................................5
7. POOLING, REGISTRATION AND OTHER ACTION.....................................6
8. CUSTODY CASH ACCOUNT PAYMENTS..............................................7
9. ASSURED INCOME PAYMENT SERVICE.............................................8
10. WITHDRAWAL AND DELIVERY...................................................8
11. ACCESS AND RECORDS.......................................................8
12. USE OF AGENTS.............................................................9
13. CITICORP ORGANIZATION INVOLVEMENT.........................................9
14. SCOPE OF RESPONSIBILITY..................................................10
15. LITIGATION; INDEMNITY....................................................11
16. LIEN.....................................................................12
17. FEES AND EXPENSES........................................................13
18. TAX STATUS/WITHHOLDING TAXES.............................................13
19. TERMINATION..............................................................14
20. ASSIGNMENT...............................................................14
21. JOINT AND SEVERAL LIABILITY..............................................14
22. DISCLOSURE...............................................................14
23. NOTICES..................................................................15
24. GOVERNING LAW AND JURISDICTION...........................................15
25. MISCELLANEOUS............................................................16
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THIS GLOBAL CUSTODIAL SERVICES AGREEMENT is made on the 30th day of June, 1998,
by and between DLJ HIGH YIELD BOND FUND, a closed-end management investment
company, organized under the laws of Delaware, acting on its own behalf and/or
as agent on behalf of its customers, (the "Client"), having its principal place
of business at 277 Park Avenue, New York, New York 10172 and CITIBANK, N.A.,
acting as a custodian hereunder through its office located at 111 Wall Street,
New York, New York 10005 (the "Custodian").
1. DEFINITIONS
"Agreement" means this Global Custodial Services Agreement, as amended
from time to time, and any other terms and conditions agreed upon by the Client
and the Custodian in writing from time to time in connection with this
Agreement.
"Assured Income Payment Service" means the Custodian's services in which
interest, dividends or other such periodic income, to which the Client is
entitled, on Securities specified by the Custodian from time to time at its
absolute discretion, are credited to the Custody Cash Account in respect of such
Securities.
"Assured Income Payment Standards" means the terms and conditions
governing the Assured Income Payment Service, as such terms and conditions are
amended and/or supplemented from time to time by, and at the absolute discretion
of, the Custodian.
"Assured Payment" means, in relation to those Securities specified by the
Custodian under the Assured Income Payment Service, an amount equal to the
interest, dividends or periodic income that is due to the Client in respect of
such Securities less any taxes, duties, levies, charges or any other withholding
payments payable in respect of such interest, dividends or periodic income.
"Assured Payment Date" means, in relation to the payment of any interest,
dividend or periodic income of any particular Securities specified by the
Custodian under the Assured Income Payment Service, the date on which such
interest, dividend or periodic income is normally payable in respect of such
Securities or such other date as may be notified by the Custodian to the Client
from time to time.
"Authorized Person" means (i) any person who has been authorized by the
Client, by notice in writing to the Custodian, to act on its behalf in the
performance of any act, discretion or duty under this Agreement, or (ii) any
other person holding a duly executed power of attorney from the Client which is
in a form acceptable to the Custodian (including, for avoidance of doubt, any
officer or employee of such agent or person).
"Branch" means any branch or office of Citibank, N.A.
"Citicorp Organization" means Citicorp and any company of which Citicorp
is, now or hereafter, directly or indirectly a shareholder or owner. For the
purposes of this Agreement, each Branch shall be deemed to be a separate member
of the Citicorp Organization.
"Clearance System" means The Federal Reserve Bank of New York, The
Depository Trust Company, Participants Trust Company, Cedel Bank, S.A., the
Euroclear System operated by Morgan Guaranty Trust Company of New York, the
CREST system operated by CREST CO. Limited, the Central Money Markets Office,
the Central Gilts Office and such other clearing agency, settlement system or
depository as may from time to time be used in connection with transactions
relating to Securities, and any nominee, clearing agency, or depository for any
of the foregoing.
"Custody Account" means the custody account or accounts in the name of the
Client and/or such other name as the Client may reasonably designate, for the
deposit of any Property (other than cash) from time to time received by the
Custodian for the account of the Client.
1
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"Custody Cash Account" means the cash account or accounts, which, at the
discretion of the Client, may be either a subaccount(s) of the Custody Account
or a demand deposit account(s), in the name of the Client and/or such other name
as the Client may reasonably designate, for the deposit of cash in any currency
received by the Custodian from time to time for the account of the Client,
whether by way of deposit or arising out of or in connection with any Property
in the Custody Account.
"Fee Agreement" means the agreement between the Custodian and the Client
setting forth the fees, costs and expenses to be paid by the Client to the
Custodian in connection with the custodial services provided pursuant to this
Agreement, as such fee agreement may be amended at the Custodian's reasonable
discretion from time to time by prior written notice to the Client.
"Instructions" means any and all instructions received by the Custodian
from, or reasonably believed by the Custodian in good faith to be from, any
Authorized Person, including any instructions communicated through any manual or
electronic medium or system agreed between the Client and the Custodian and on
such terms and conditions as the Custodian may specify from time to time.
"person" means any person, firm, company, corporation, government, state
or agency of a state, or any association or partnership (whether or not having
separate legal personality) of two or more of the foregoing.
"Property" means, as the context requires, all or any part of any
Securities, cash, or any other property from time to time held for the Client
under the terms of this Agreement.
"Rules" means any rules and regulations (whether of a local regulatory
authority, stock exchange or other entity) in any jurisdiction with which the
Custodian may from time to time be required to comply in the provision of its
services hereunder.
"Securities" means bonds, debentures, notes, stocks, shares, securities or
other financial assets acceptable to the Custodian and all moneys, rights or
property which may at any time accrue or be offered (whether by way of bonus,
redemption, preference, option or otherwise) in respect of any of the foregoing
and any certificates, receipts, warrants or other instruments (whether in
registered or unregistered form) representing rights to receive, purchase or
subscribe for any of the foregoing or evidencing or representing any other
rights or interests therein (including, without limitation, any of the foregoing
not constituted, evidenced or represented by a certificate or other document but
by an entry in the books or other permanent records of the issuer, a trustee or
other fiduciary thereof, a Clearance System or other person).
"Service Standards" means any written service standards governing the day
to day operations of the custodial services which may be provided to the Client
or modified by the Custodian by notice to the Client from time to time.
"Subcustodian" means a subcustodian (other than a Clearance System)
appointed by the Custodian for the safe-keeping, administration, clearance and
settlement of Securities.
"Taxes" means all taxes, levies, imposts, charges, assessments,
deductions, withholdings and related liabilities, including additions to tax,
penalties and interest imposed on or in respect of the Property, the
transactions effected under this Agreement or the Client; PROVIDED THAT Taxes
does not include income or franchise taxes imposed on or measured by the net
income of the Custodian or its agents.
2. APPOINTMENT OF CUSTODIAN
(A) The Client hereby appoints the Custodian to act as its custodian in
accordance with the terms hereof and authorizes the Custodian to establish on
its books, on the terms of this Agreement, the Custody Account, to be
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designated to show that the Securities belong to the Client and are segregated
from the Custodian's assets and the Client Cash Account.
(B) Subject to the express terms of this Agreement, the Client understands and
agrees that the obligations and duties hereunder of the Custodian shall be
performed only by the Custodian or its agents, and shall not be deemed
obligations or duties of any other member of the Citicorp Organization. The
Client agrees that the Custodian may register or record legal title to any
Securities in the name of a nominee company or a Subcustodian in the Citicorp
Organization and may appoint a member of the Citicorp Organization to be a
Subcustodian.
(C) The Client agrees to take any such action which may be necessary and to
execute further documents and provide such materials and information as may be
reasonably requested by the Custodian to enable the Custodian to perform the
duties and obligations under this Agreement, including participation in any
relevant Clearance System, and will notify the Custodian as soon as it becomes
aware of any inaccuracy in such materials or information.
(D) All custody services by the Custodian hereunder shall be provided in
accordance with the Service Standards, a copy of which the Custodian may supply
to the Client from time to time.. In the event of any conflict between any term
of this Global Custodial Services Agreement and any term of the Service
Standards, the Global Custodial Services Agreement shall prevail with respect to
such term.
(E) The Client agrees to comply with any relevant security procedures relating
to the provision of custody services under this Agreement which may be specified
by the Custodian or imposed on the Client by any relevant Clearance System.
3. PROPERTY ACCEPTED
(A) Subject to Section 3(C) below, the Custodian agrees to accept for custody in
the Custody Account any Securities which are capable of deposit under the terms
of this Agreement.
(B) Subject to Section 3(C) below, the Custodian agrees to accept for deposit in
the Client Cash Account, cash in any currency (which shall, if necessary, be
credited by the Custodian to different accounts in the currencies concerned),
such cash to be owed to the Client by the Custodian as banker.
(C) The Custodian may in its reasonable discretion refuse to accept (in whole or
in part) any proposed deposit in either the Custody Account or the Custody Cash
Account if the Custodian reasonably believes that the acceptance of such deposit
would violate any law, rule, regulation, practice or policy to which the
Custodian is subject.
4. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS
(A) The Client hereby represents, warrants and undertakes to the Custodian that:
(i) it is duly organized and validly existing under the laws of the
jurisdiction of its organization;
(ii) during the term of this Agreement it (and any person on whose
behalf it may act as agent or otherwise in a representative
capacity) has and will continue to have, or will take all action
necessary to obtain, full capacity and authority to enter into
this Agreement and to carry out the transactions contemplated
herein, and has taken and will continue to take all action
(including, without limitation, the obtaining of all necessary
governmental consents in any applicable jurisdiction) to
authorize the execution, delivery and performance of obligations
of the Client, and the validity and enforceability of such
obligations and the rights of the Custodian, under this Agreement;
(iii) it will not assert any interest in Property held by the Custodian in
any Clearance System in any way
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which could present a transfer of title to a unit of such Property
by the Custodian (or by any other person) where such transfer is
required by the Clearance System;
(iv) this Agreement is legal, valid and binding on the Client;
(v) on or prior to the execution of this Agreement, the Client has
provided to the Custodian certified true copies of evidence of the
due authorization for the execution, delivery and performance of
this Agreement;
(vi) except as provided in Clause 16 of this Agreement, all Property
deposited with the Custodian shall, at all times, be free from all
charges, mortgages, pledges or other such encumbrances; and
(vii) the Client shall, at all times, be entitled or otherwise duly
authorized to deal with, and dispose of, all or any part of the
Property, whether through a relevant Clearance System or otherwise.
The Client agrees to inform the Custodian promptly if any statement set forth in
this Section 4(A) ceases to be true and correct as of any date after the date
hereof.
(B) The Custodian hereby represents, warrants and undertakes to the Client that:
(i) it is duly organized and validly existing under the laws of the
jurisdiction of its organization;
(ii) during the term of this Agreement it has and will continue to
have, or will take all action necessary to obtain, full capacity
and authority to enter into this Agreement and to carry out the
transactions contemplated herein, and has taken and will continue
to take all action (including, without limitation, the obtaining
of all necessary governmental consents in any applicable
jurisdiction) to authorize the execution, delivery and
performance of this Agreement; and
(iii) this Agreement is legal, valid and binding on the Custodian.
The Custodian agrees to inform the Client promptly if any statement set
forth in this Section 4(B) ceases to be true and correct as of any date
after the date hereof.
5. INSTRUCTIONS
(A) The Custodian may, in its absolute discretion and without liability on its
part, rely and act upon (and the Client shall be bound by) any Instructions.
Instructions shall continue in full force and effect until canceled or
superseded; PROVIDED THAT any Instruction canceling or superseding a prior
Instruction must be received by the Custodian at a time and in a manner that
accords the Custodian a reasonable opportunity to act upon such Instruction. The
Custodian shall be entitled to rely upon the continued authority of any
Authorized Person to give Instructions until the Custodian receives notice from
the Client to the contrary.
(B) Instructions shall be governed by and carried out subject to the prevailing
laws, rules, operating procedures and market practice of any relevant stock
exchange, Clearance System or market where or through which they are to be
executed or carried out, and shall be acted upon only during banking hours
(including applicable cut-off times) and on banking days when the applicable
financial markets are open for business.
(C) Instructions delivered to the Custodian by telephone or facsimile shall be
promptly confirmed in writing, by tested telex, SWIFT, letter, the Custodian's
proprietary electronic banking system or as provided in the Service Standards,
such confirmation shall, where relevant, be made by an Authorized Person.
However, the Custodian may, in its absolute discretion, in good faith, rely and
act upon telephone or facsimile Instructions before the written confirmation is
received.
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(D) The Custodian has offered the Client security procedures for the
transmission of Instructions to the Custodian (and the Client acknowledges that
it has received the same and agrees that the security procedures mutually agreed
to by the Client and the Custodian are commercially reasonable). As long as the
Custodian acts in compliance with such security procedures and this Section 5,
it shall have no further duty to verify the identity or authority of the person
giving or confirming, or the genuineness or contents of, any Instruction.
(E) The Custodian is authorized to in good faith rely upon any Instructions
received by any means, provided that the Custodian and the Client have agreed
upon the means of transmission and the method of identification for such
Instructions.
(F) Instructions are to be given in the English language. The Custodian may in
its reasonable discretion and without any liability on its part, act upon what
it reasonably believes in good faith such Instructions to be; notwithstanding
any other provision hereof, the Custodian shall have the right, in its
reasonable discretion to refuse to execute any such Instruction, in which event
the Custodian shall notify the Client of such refusal without undue delay.
(G) The Client agrees to be bound by any Instructions, whether or not
authorized, given to the Custodian in the Client's name and accepted by the
Custodian in accordance with the provisions of this Section 5.
6. PERFORMANCE BY THE CUSTODIAN
(A) Custodial duties not requiring further Instructions. In the absence of
contrary Instructions, the Custodian is authorized by the Client to, and where
applicable, the Custodian shall, carry out the following actions in relation to
the Property:
(i) except as otherwise provided in this Agreement, separately identify
the Property on its records as being held for the account of the
Client and segregate all Property held on behalf of the Client by
the Custodian from the assets of the Custodian;
(ii) sign any affidavits, certificates of ownership or other
certificates relating to the Property which may be required by
any tax or regulatory authority or under the laws of any relevant
jurisdiction, whether governmental or otherwise, and whether
relating to ownership, or income, capital gains or other tax,
duty or levy (and the Client further agrees to ratify and to
confirm or to do, or to procure the doing of, such things as may
be necessary or appropriate to complete or evidence the
Custodian's actions under this Section 6(A)(ii) or otherwise
under the terms of this Agreement);
(iii) collect and receive, for the account of the Client, all income,
payments and distributions in respect of the Property, and credit
the same to the Custody Cash Account;
(iv) take any action which is necessary and proper in connection with the
receipt of income, payments and distributions as are referred to in
Section 6(A)(iii) above, including, without limitation, the
presentation of coupons and other interest items;
(v) collect, receive and hold for the account of the Client any capital
arising out of or in connection with the Property whether as a
result of it being called or redeemed or otherwise becoming payable
and credit the same to the Custody Cash Account;
(vi) take any action which is necessary and proper in connection with the
receipt of any capital as is referred to in Section 6(A)(v) above,
including, without limitation, the presentation for payment of any
Property which becomes payable as a result of its being called or
redeemed or otherwise becoming payable and the endorsement for
collection of checks, drafts and other negotiable instruments;
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(vii) take any action which is necessary and proper to enable the
Custodian to provide services to the Client within, and to observe
and perform its obligations in respect of, any relevant Clearance
System;
(viii)receive and hold for the account of the Client all Securities
received by the Custodian as a result of a stock dividend, share
sub-division or reorganization, capitalization of reserves or
otherwise;
(ix) exchange interim or temporary receipts for definitive certificates,
and old or overstamped certificates for new certificates and hold
such definitive and/or new certificates in the Custody Account;
(x) make cash disbursements for any necessary and proper expenses
incurred in handling the Property and for similar items in
connection with the Custodian's duties under this Agreement in
accordance with the Fee Agreement, and debit the same to the Client
Cash Account or any other account of the Client with the Custodian;
and
(xi) deliver to the Client transaction advices and/or regular statements
of account showing the Property held at such intervals as may be
agreed between the parties hereto but subject always to applicable
Rules.
(B) Custodial duties requiring Instructions. The Custodian is authorized by the
Client to, and where applicable, the Custodian shall, carry out the following
actions in relation to the Property only upon receipt of and in accordance with
specific Instructions:
(i) make payment for and receive Property, or deliver or dispose of
Property;
(ii) (subject to Section 7(D)) deal with subscription, rights, bonus or
scrip issues, conversions, options, warrants and other similar
interests or any other discretionary right in connection with the
Property; and
(iii) subject to the agreement of the Custodian, to carry out any action
other than those mentioned in Section 6(A) above.
7. POOLING, REGISTRATION AND OTHER ACTION
(A) Subject to applicable laws, rules and regulations, any Property may be
pooled with other property of the Custodian's customers, like with like, and the
Client is beneficially entitled to such portion of the property that has been
pooled as shall correspond to the Property deposited with the Custodian by the
Client (as increased or diminished by subsequent sales or purchases from time to
time);
(B) The Client understands and agrees that, except as may be specified in the
Service Standards, Property shall be registered as the Custodian may direct
either in the name of the Custodian, Subcustodian or Clearance System, or
nominee of any of them, in the jurisdiction where the Property is required to be
registered or otherwise held. Where feasible, the Custodian will arrange on
written request by the Client for the registration of Property with the issuer
or its agent in the name of the Client or its nominee. The Client understands
and agrees, however, that the Custodian shall have discretion to determine
whether such direct registration is feasible.
(C) The Custodian shall, to the extent reasonably possible, notify, make
available or deliver to the Client, in a timely manner, all official notices,
circulars, reports and announcements that are received by the Custodian in such
capacity concerning the Securities held on the Client's behalf that require
discretionary action.
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(D) The Custodian shall provide proxy services to the Client only where there is
a separate agreement in relation to proxy services between the Custodian and the
Client.
(E) Upon receipt of each transaction advice and/or statement of account, the
Client shall examine the same and notify the Custodian within thirty (30) days
of the date of any such advice or statement of any discrepancy between
Instructions given and the situation shown in the transaction advice and/or
statement, and/or of any other errors therein. In the event that the Client does
not inform the Custodian in writing of any exceptions or objections within
thirty (30) days after the date of such transaction advice and/or statement, the
Client shall be deemed to have approved such transaction advice and/or
statement.
8. CUSTODY CASH ACCOUNT PAYMENTS
(A) Except as otherwise provided herein, the Custodian shall make, or cause its
agents to make, payments of cash credited to the Custody Cash Account:
(i) in connection with the purchase of Property (other than cash) for
the account of the Client in accordance with Instructions;
(ii) in payment for the account of the Client of (A) all Taxes, claims,
liabilities, fees, costs and expenses incurred by the Custodian or
its agents under or in connection with the terms of this Agreement,
and (B) all amounts owed to the Custodian pursuant to the Fee
Agreement;
(iii) for payments to be made in connection with the conversion, exchange
or surrender of Property held in the Custody Account;
(iv) pursuant to assured payment obligations incurred in the capacity of
settlement bank on behalf of the Client within a relevant Clearance
System;
(v) for other purposes as may be specified by the Client in its
Instructions; or
(vi) upon the termination of this Agreement on the terms hereof;
PROVIDED THAT, unless otherwise agreed, the payments referred to above shall not
exceed the funds available in the Custody Cash Account at any time. The Client
shall promptly reimburse the Custodian for any advance of cash or any such
taxes, charges, expenses, assessments, claims or liabilities upon request for
payment. Notwithstanding the foregoing, nothing in this Agreement shall obligate
the Custodian to extend credit, grant financial accommodation or otherwise
advance moneys to the Client or assume financial risk on behalf of the Client
for the purpose of meeting any such payments or otherwise carrying out any
Instructions.
(B) Unless otherwise provided herein, the proceeds from the sale or exchange of
Property will be credited to the Custody Cash Account on the date the proceeds
are actually received by the Custodian.
9. ASSURED INCOME PAYMENT SERVICE
(A) The Custodian may, at its absolute discretion, offer the Client an Assured
Income Payment Service in respect of specific Securities, as may be notified by
the Custodian to the Client from time to time. In relation to any such
Securities, the Custodian may, at its absolute discretion, cause the Custody
Cash Account to be credited with an Assured Payment on the Assured Payment Date
relevant thereto; PROVIDED THAT the Custodian shall be entitled to reverse any
credit (in whole or in part) made in respect of that Assured Payment if the
Custodian fails to receive the full amount corresponding to such Assured Payment
within a reasonable time, as determined by the Custodian in its absolute
discretion, after the relevant Assured Payment Date, for any reason whatsoever
other than as a result of the negligence or willful default of the Custodian.
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The Assured Income Payment Service shall be provided by the Custodian in
accordance with the Assured Income Payment Standards.
(B) Where the Custodian acts as a settlement bank in any relevant Clearance
System:
(i) upon the Custodian incurring any assured payment obligation, the
Client shall reimburse the Custodian for such amount, and the
Custodian may debit the Client Cash Account with such amount;
(ii) the Custodian may without notice set, revise or disable debit caps
in respect of the maximum aggregate amount of assured payment
obligations it will incur on behalf of the Client; and
(iii) if another settlement bank in such Clearance System defaults on an
assured payment obligation owed to the Custodian wholly or
partially, the Custodian has no liability to make good the loss and
will, where appropriate, attribute the loss pro rata between all
Clients on whose behalf such payment should have been received by
the Custodian.
10. WITHDRAWAL AND DELIVERY
Subject to the terms of this Agreement, the Client may at any time demand
withdrawal of all or any part of the Property in the Custody Account and/or the
Custody Cash Account. Delivery of any Property will be made without undue delay
at the expense of the Client at such location as the parties hereto may agree;
PROVIDED THAT if the Custodian has effected any transaction on behalf of the
Client the settlement of which is likely to occur after a withdrawal pursuant to
this Section 10, then the Custodian shall be entitled in its absolute discretion
to close out or complete such transaction and to retain sufficient funds from
the Property for that purpose.
11. ACCESS AND RECORDS
(A) Access to the Custodian's Records. Except as otherwise provided in this
Agreement, during the Custodian's regular business hours and upon receipt of
reasonable notice from the Client, any officer or employee of the Client, any
independent public accountant(s) selected by the Client and any person
designated by any regulatory authority having jurisdiction over the Client shall
be entitled to examine on the Custodian's premises Property held by the
Custodian and the Custodian's records regarding Property deposited with entities
authorized to hold Property in accordance with Section 12 hereof, but only upon
the Client's furnishing the Custodian with Instructions to that effect; PROVIDED
THAT such examination shall be consistent with the Custodian's obligations of
confidentiality to other parties. The Custodian's reasonable costs and expenses
in facilitating such examinations, including but not limited to the cost to the
Custodian of providing personnel in connection with examinations, shall be borne
by the Client.
(B) Access to Third Party Records. The Custodian shall also, subject to
restrictions under applicable laws and regulations, seek to obtain from any
entity with which the Custodian maintains the physical possession or book-entry
record of any of the Property in the Custody Account or the Custody Cash Account
such records as may be required by the Client or its agents.
12. USE OF AGENTS
(A) The Custodian is authorized subject to any relevant Rules, to appoint agents
(each an "agent", which term includes, without limitation, service providers and
Subcustodians, but not Clearance Systems, and which agents may be a member or
members of the Citicorp Organization) and to participate in Clearance Systems,
whether in its own name or that of the Client, and whether by participation as a
member, sponsor or settlement bank within the
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Clearance System, to perform any of the duties of the Custodian under this
Agreement. The Custodian may delegate to any such agent or Clearance System any
of its functions under this Agreement, including, without limitation, the
collection of any payment or payments, whether of an income or a capital nature,
due on the Property. Notwithstanding anything else in this Agreement, each
Clearance System that is a U.S. depository shall be an entity eligible under
Rule 17f-4 promulgated under the Investment Company Act of 1940 and notice shall
be given to the Client of the use of any non-U.S. depository.
(B) In the selection and use of such agents and participation in such Clearance
Systems, the Custodian shall comply with any relevant Rules, and shall be
responsible only for the negligence in the selection of such agents and
Clearance Systems but shall otherwise have no responsibility for the performance
by such agents or Clearance System of any of the duties delegated to them under
this Agreement; notwithstanding the foregoing, the Custodian shall be
responsible for the negligence, fraud or willful default of any Subcustodian
that is a Branch or subsidiary of Citibank, N.A., and shall have the same level
of responsibility to the Client for any nominee company controlled by the
Custodian or by any of the Custodian's affiliated companies as the Custodian has
for itself.
(C) Subject to any relevant Rules and regulations, the Property may be deposited
with any Subcustodian deemed appropriate by the Custodian or in any Clearance
System deemed appropriate by the Custodian or a Subcustodian, as the case may
be. Property held in any Clearance System shall be subject to the rules or
operating procedures of such Clearance System, including rules regarding
supervision or termination of membership of such Clearance System, and such
further information provided by the Custodian to the Client, or acknowledgments
or agreements which may be required from the Client, for the purposes of this
Section 12(C) in connection with use of a Clearance System from time to time.
The Custodian will direct each Subcustodian and Clearance System to separately
identify on its books Securities held by it pursuant to this Agreement as being
held for the account of the Custodian's customers. The Custodian will direct
each Subcustodian and Clearance System to segregate any such Securities held by
such entity from the assets of the Custodian and such entity.
The Client is hereby advised that, where the Custodian arranges for any Property
to be held overseas, there may be different settlement, legal and regulatory
requirements in overseas jurisdictions from those applying in the United States,
together with different practices for the separate identification of the
Client's Property.
13. CITICORP ORGANIZATION INVOLVEMENT
(A) To the extent permitted by applicable law, the Client hereby authorizes the
Custodian without the need for the Custodian to obtain the Client's prior
consent:
(i) when acting on Instructions to purchase and/or sell Property (other
than cash) from, to or through itself or any other member of the
Citicorp Organization and from and/or to any other customer of the
Custodian or any other member of the Citicorp Organization; and
(ii) to obtain and keep, without being liable to account to the Client,
any commission payable by any third party or any other member of the
Citicorp Organization in connection with dealings arising out of or
in connection with the Custody Account and/or the Custody Cash
Account.
(B) The Client agrees and understands that if in accordance with Instructions,
an investment is made in any property, held, issued or managed by any member of
the Citicorp Organization, then such member of the Citicorp Organization may
retain a profit arising therefrom (in addition to the charges, commissions and
fees payable by the Client under this Agreement) without being liable to account
to the Client for such profit.
(C) The Client agrees and understands that (i) the Custodian and other members
of the Citicorp Organization may have banking or other business relationships
with issuers of Securities held in the Custody Account or Securities purchased
and sold for the Custody Account, and (ii) the Custodian shall not have any
obligations to the Client as a result of such relationships.
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14. SCOPE OF RESPONSIBILITY
(A) Subject to the terms hereof, the Custodian shall use all reasonable care in
the performance of its duties under this Agreement and will exercise the due
care of a professional custodian for hire with respect to the Property in its
possession or control. The Custodian shall not be responsible for any loss or
damage suffered by the Client as a result of the Custodian performing such
duties unless the same results from an act of fraud, negligence or willful
default on the part of the Custodian and as provided in Section 12(B) hereof; in
which event the liability of the Custodian in connection with any Property shall
not exceed the market value of the Property, to which such loss or damage
relates, at the time of such fraud, negligence or willful default plus interest
at the rate applicable to the base currency of the Custody Cash Account accruing
from the date of such fraud, negligence or willful default until the date of
discharge. Notwithstanding the foregoing, in no event shall the Custodian be
liable to the Client for indirect, special or consequential damages, even if
advised of the possibility of such damages.
(B) The Custodian is not obliged to maintain any insurance on the Property held
under the terms of this Agreement.
(C) In the event that any law, regulation, decree, order, government act,
custom, procedure or practice to which the Custodian, or any Subcustodian or
Clearance System is subject, or to which the Property is subject, prevents or
limits the performance of the duties and obligations of the Custodian, or any
Subcustodian or Clearance System, then until such time as the Custodian,
Subcustodian or Clearance System is again able to perform such duties and
obligations hereunder, such duties and obligations of the Custodian,
Subcustodian or Clearance System shall be suspended.
(D) Neither the Custodian nor any member of the Citicorp Organization shall be
responsible for any loss or damage, or failure to comply or delay in complying
with any duty or obligation, under or pursuant to this Agreement arising as a
direct or indirect result of any reason, cause or contingency beyond its
reasonable control, including (without limitation) natural disasters,
nationalization, currency restrictions, act of war, act of terrorism, act of
God, postal or other strikes or industrial actions, or the failure, suspension
or disruption of any relevant stock exchange, Clearance System or market.
(E) Subject to Section 14(A) above, the Custodian shall not be liable for any
loss resulting from, or caused by, the collection of any Property and/or any
funds or other property paid or distributed in respect of the Property.
(F) The Custodian does not warrant or guarantee the authenticity or validity of
any Security or other Property received by the Custodian, or any other entity
authorized to hold Property under this Agreement. If the Custodian becomes aware
of any defect in title or forgery of any Property, the Custodian shall promptly
notify the Client.
(G) The Client shall be responsible for all filings, tax returns and reports on
any transactions undertaken pursuant to this Agreement, or in respect of the
Property or collections relating to the Property as may be requested by any
relevant authority, whether governmental or otherwise, and for the payment of
all unpaid calls, Taxes (including without limitation any value added tax),
imposts, levies or duties due on or with respect to any principal, interest or
other collections, or any other liability or payment arising out of or in
connection with the Property, and in so far as the Custodian is under any
obligation (whether of a governmental nature or otherwise) to pay the same on
behalf of the Client it may do so out of any Property held by the Custodian
pursuant to the terms of this Agreement.
(H) The Custodian is not acting under this Agreement as an investment manager,
nor as an investment, legal or tax adviser to the Client and the Custodian's
duty is solely to act as a custodian in accordance with the terms of this
Agreement.
(I) Nothing herein shall obligate the Custodian to perform any obligation or to
allow, take or omit taking any action which will breach any relevant Rules, or
any law, rule, regulation or practice of any relevant government,
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stock exchange, Clearance System, self-regulatory organization or market.
(J) The Custodian may at any time suspend or terminate its participation and
holding of assets in a Clearance System, and will give reasonable notice to the
Client of any such action. In such case, or in the event of suspension as
contemplated in Section 14(C) above, the Custodian may arrange for the relevant
Securities to be held in certificated form.
(K) The Custodian shall not be responsible for the acts or omissions, default or
insolvency of any broker, counterparty, issuer of Securities or, except as
provided in Section 12(B), Subcustodian, agent or Clearance System.
(L) The Custodian shall not be responsible for the accuracy, content or
translation of any notice, circular, report, announcement or other material
forwarded to the Client.
(M) The Custodian shall only have such duties and responsibilities as are
specifically set forth or referred to in this Agreement, and no covenant or
obligation shall be implied in this Agreement against the Custodian.
15. LITIGATION; INDEMNITY
(A) The Custodian or any of its agents, as the case may be, may (but without
being under any duty or obligation to) institute or defend legal proceedings, or
take any other action arising out of or in connection with the Property and the
Client shall indemnify the Custodian or agent against any costs and expenses,
including without limitation any reasonable attorneys' fees and disbursements,
arising from such proceedings or other action and make available to the
Custodian such security in respect of such costs and expenses as the Custodian
or agent in its absolute discretion deems necessary or appropriate.
(B) In the event the Custodian does not institute or defend legal proceedings,
or take any other action arising out of or in connection with the Property, the
Custodian hereby agrees that the Client shall, to the extent of any loss of the
Client's interest in the Property and to the extent permitted by applicable law
and not prohibited by contract, be subrogated to all of the rights of recovery
of the Custodian therefor against any third party person or entity; PROVIDED
THAT nothing herein shall be interpreted as granting the Client any rights to
bring any direct action under any insurance policy issued in favor of the
Custodian or as limiting the Custodian's right to bring any action against any
such third party for any damages suffered by the Custodian. Notwithstanding any
other provision hereof, in no event shall the Custodian be obliged to bring suit
in its own name or be obliged to allow suit to be brought in its name. Subject
to the terms of this Section 15(B) and to the extent permitted by law, the
Custodian shall execute and deliver any and all such instruments and documents
which the Client may reasonably request and take such other actions as
reasonably necessary or appropriate to assist the Client in the exercise of such
rights of recovery and to enable the Client to recover against any and all such
third party persons or entities. The Client shall reimburse the Custodian for
any reasonable out-of-pocket costs incurred in connection with the actions
contemplated by this Section 15(B).
(C) The Client agrees to indemnify the Custodian and to defend and hold the
Custodian harmless against all losses, liabilities, claims, expenses and Taxes,
including any reasonable legal fees and disbursements, (each referred to as a
"LOSS") arising directly or indirectly:
(i) from the fact that the Property is registered in the name of or held
by the Custodian or any nominee or agent of the Custodian or any
Clearance System;
(ii) without limiting the generality of Section 15(C)(i), from any act
which the Custodian or any nominee or agent performs or permits
(including the provision of any overdraft or other financial
accommodation which arises on the books of the Custodian, whether on
an advised or unadvised basis) in relation to the Property pursuant
to this Agreement or any Instructions;
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(iii) from the Custodian or any such nominee, agent or Clearance System
carrying out any Instructions pursuant to the terms of this
Agreement, including, without limitation, Instructions transmitted
orally, by telephone, telex, facsimile transmission or any other
means agreed by the Client and the Custodian from time to time or
otherwise;
(iv) from any reclaim or refund of Taxes effected by the Custodian or any
agent for the Client; and
(v) from the Custodian's reliance or action on any information provided
by the Client in connection with this Agreement;
PROVIDED THAT the Custodian shall not be indemnified against or held harmless
from any liability arising out of the Custodian's negligence, fraud or willful
default.
(D) The disclosure by the Client to the Custodian that the Client has entered
into this Agreement as the agent or representative of another person shall not
prevent the Custodian from being entitled to treat the Client as incurring all
obligations as principal under this Agreement.
(E) The Custodian shall give notice of any Loss in respect of which the Client
is obliged to provide indemnification pursuant to this Agreement. Such notice
shall describe the Loss in reasonable detail, and shall indicate the amount
(estimated, if necessary, and to the extent feasible) of the Loss that has been
or may be suffered by Custodian.
16. LIEN AND SET-OFF
In addition to any remedies available to the Custodian under applicable law, the
Custodian shall have, and the Client hereby grants, a continuing general lien on
all Property (other than cash) to secure payment of fees and expenses for
services rendered under this Agreement. If the Custodian advances cash or
securities to the Client for any purpose or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of its
duties hereunder, except such as may arise from its or its nominee's negligent
action, neglect failure to act or willful misconduct, any Property at any time
held for the Custody Account shall be security therefor and the Client hereby
grants a security interest therein to the Custodian. The Client shall promptly
reimburse the Custodian for any such advance of cash or securities or any such
taxes, charges, expenses, assessments, claims or liabilities upon the request
for payment, but should the Client fail to so reimburse the Custodian, the
Custodian shall be entitled to dispose of such Property to the extent necessary
to obtain reimbursement. The Custodian shall be entitled to debit any Account,
in connection with any such advance and any interest on such advance as the
Custodian deems reasonable.
17. FEES AND EXPENSES
Without prejudice to any of its liabilities and obligations under this
Agreement, the Client agrees to pay to the Custodian from time to time such fees
and commissions for its services pursuant to this Agreement as determined in
accordance with the terms of the Fee Agreement, together with any applicable
taxes or levies, including, without limitation, all those items referred to in
Section 8(ii) hereof. If the Client fails to pay amounts after notice, the
Custodian is further authorized to debit (as well after as before the date of
any termination pursuant to Section 19 hereof) any account of the Client with
the Custodian, including, without limitation, the Custody Cash Account, for any
amount owing to the Custodian from time to time under this Agreement.
18. TAX STATUS/WITHHOLDING TAXES
(A) The Client will provide the Custodian with information as to its tax status
as reasonably requested by the Custodian from time to time.
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(B) The Client may be required from time to time to file such proof of taxpayer
status or residence, to execute such certificates and to make such
representations and warranties, or to provide any other information or documents
in respect of the Property, as the Custodian or any of its agents may deem
necessary or proper to fulfill the obligations of the Custodian or its agents
under applicable law. The Client shall provide the Custodian or its agents, as
appropriate, in a timely manner, with copies, or originals if necessary and
appropriate, of any such proofs of residence, taxpayer status or identity,
beneficial ownership of Property and any other information or documents which
the Custodian or its agents may reasonably request.
(C) If any Taxes shall become payable with respect to any payment due to the
Client, such Taxes may be withheld from such payment in accordance with
applicable law. The Custodian and any agents may withhold any interest, any
dividends or other distributions or securities receivable in respect of
Securities, proceeds from the sale or distribution of Securities ("Payments"),
or may sell for the account of the Client any part thereof or all of the
Securities, and may apply such Payment and/or cash from the Custody Cash Account
in satisfaction of such Taxes, the Client remaining liable for any deficiency.
If any Taxes shall become payable with respect to any payment made to the Client
by the Custodian or its agents in a prior year, the Custodian or its agents may
withhold Payments in satisfaction of such prior year's Taxes.
(D) In the event the Client requests that the Custodian provide tax relief
services and the Custodian agrees to provide such services, the Custodian or any
of its agents, shall apply for appropriate tax relief (either by way of reduced
tax rates at the time of an income payment or retrospective tax reclaims in
certain markets as agreed from time to time); PROVIDED THAT the Client provides
to the Custodian such documentation and information as is necessary to secure
such tax relief. In no event shall the Custodian or any of its agents be
responsible for the difference between the statutory rate of withholding and the
treaty rate of withholding if the Custodian or any of its agents are unable to
secure tax relief.
19. TERMINATION
(A) Either of the parties hereto may terminate this Agreement by giving not less
than 60 days' prior written notice to the other party; PROVIDED THAT within 60
days of such notice, the Client shall provide the Custodian with Instructions
specifying the person to whom the Custodian shall deliver the Property in the
Custody Account and Custody Cash Accounts; PROVIDED FURTHER THAT if the
Custodian has effected any transaction on behalf of the Client the settlement of
which is likely to extend beyond the expiration of such notice, then the
Custodian shall be entitled in its absolute discretion to close out or complete
such transaction and to retain sufficient funds from the Property for that
purpose. If within 60 days following termination, the Client fails to give the
Custodian Instructions specifying the person to whom the Custodian shall deliver
the Property in the Custody Account and Custody Cash Account, the Custodian
shall deliver the Property to the Client at its address set out above.
(B) The rights and obligations contained in Sections 15, 16, 17 and 18 of this
Agreement shall survive the termination of this Agreement.
20. ASSIGNMENT
This Agreement shall bind and enure for the benefit of the parties hereto
and their respective successors and permitted assigns, and the Client shall not
assign, transfer or charge all or any rights or benefits hereunder without the
written consent of the Custodian. The Custodian may not assign, transfer or
charge all or any of its rights or benefits hereunder without the written
consent of the Client; PROVIDED HOWEVER that this Agreement may be assigned by
the Custodian to another member of the Citicorp Organization with prior written
notice to the Client, and such assignee shall, without the execution or filing
of any consents or other documents, succeed to and be substituted for the
Custodian with like effect as though such assignee had been originally named as
the Custodian hereunder. Any purported assignment, transfer or charge made in
contravention of this Section shall be null and void and of no effect
whatsoever.
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21. JOINT AND SEVERAL LIABILITY
Where the Client comprises two or more persons, all obligations and
liabilities under this Agreement shall be deemed to be joint and several, and
any notice served on any one of such persons shall be deemed to have been served
on such other person or persons, as the case may be.
22. DISCLOSURE
(A) The Client agrees and understands that the Custodian or its agents may
disclose information regarding the Custody Account and/or the Custody Cash
Account if required to do so (i) to establish under the laws of any relevant
jurisdiction the nominee (or similar) status of the Custodian or its agents with
respect to Property in the Custody Account and/or Custody Cash Account for the
purpose of performing or discharging its duties and obligations under this
Agreement, (ii) to enable auditors to perform auditing services, (iii) to make
the required tax certifications in the relevant jurisdictions, (iv) by any
applicable law, statute or regulation or court order or similar process in any
relevant jurisdiction, (v) by order of an authority having power over the
Custodian or its agents within the jurisdiction of such authority, whether of a
governmental nature or otherwise, or (vi) where required by the operating rules
of any relevant Clearance System.
(B) The Client hereby authorizes (i) the collection, storage and processing of
any information relating to the Client by the Custodian and the Branches,
subsidiaries, affiliates and agents of, or Clearance Systems used by, Citibank,
N.A.; and (ii) the transfer of any information relating to the Client to and
between the Branches, subsidiaries, affiliates and agents of, or Clearance
Systems used by, Citibank, N.A. and third parties selected by any of them,
wherever situated, for confidential use in connection with the provision of
services to the Client, and further acknowledges that any such Branch,
subsidiary, affiliate, agent, third party or Clearance System shall be entitled
to transfer any such information as required by any law, court, legal process or
as requested by any authority in accordance with which it is required to act, as
it shall reasonably determine.
(C) The Client agrees that the terms of this Agreement shall be kept strictly
confidential and no printed materials or other matter in any language (including
without limitation, prospectuses, statements of additional information, notices
to shareholders, annual reports and promotional materials) which mention
Citicorp, Citibank, N.A. or the Custodian's name, or the rights, powers or
duties of the Custodian, shall be issued by the Client or on the Client's behalf
unless Citibank, N.A. and/or the Custodian (as applicable) shall first have
given its specific written consent thereto; PROVIDED THAT no prior consent shall
be required if the only reference to the Custodian's name is in identifying the
Custodian as one of the Client's custodians.
(D) The Client agrees that the Custodian or its agents may, upon reasonable
request, review the Client's premises, and security controls and procedures,
where necessary for the performance of the Custodian's obligations regarding any
relevant Clearance System.
23. NOTICES
All notices and communications to be given by one party to the other under
this Agreement shall be in writing in the English language and (except for
notices, reports and information from the Custodian, and Instructions given by
electronic means) shall be made either by telex or facsimile, other electronic
means agreed to by the parties or by letter addressed to the party concerned at
the addresses set out above (or at such other addresses as may be notified in
writing by either party to the other from time to time). Any such notice or
communication hereunder shall be effective upon actual receipt.
24. GOVERNING LAW AND JURISDICTION
(A) This Agreement shall be governed by and construed in accordance with the
internal laws (and not the laws of conflict) of the state of New York. The
Client agrees for the benefit of the Custodian and, without prejudice to the
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right of the Custodian to take any proceedings in relation hereto before any
other court of competent jurisdiction, that the courts of the State of New York
shall have jurisdiction to hear and determine any suit, action or proceeding,
and to settle any disputes, which may arise out of or in connection with this
Agreement and, for such purposes, irrevocably submits to the non-exclusive
jurisdiction of such courts.
(B) Each party hereto waives any objection it may have at any time to the laying
of venue of any actions or proceedings brought in a court of the State of New
York, waives any claim that such actions or proceedings have been brought in an
inconvenient forum and further waives the right to object that such court does
not have jurisdiction over such party.
(C) The Client irrevocably waives, to the fullest extent permitted by applicable
law, with respect to itself and its revenues and assets (irrespective of their
use or intended use), all immunity on the grounds of sovereignty or similar
grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of
injunction, order for specific performance or for recovery of property, (iv)
attachment of its assets (whether before or after judgment), and (v) execution
or enforcement of any judgment to which it or its revenues or assets might
otherwise be entitled in any actions or proceedings in such courts, and
irrevocably agrees, to the fullest extent permitted by applicable law, that it
will not claim such immunity in any such actions or proceedings.
(D) The Client hereby understands and agrees that the opening of, the holding of
all or any part of the Property in, and the delivery of any Securities and other
Property to or from, the Custody Account and Custody Cash Account and the
performance of any activities contemplated in this Agreement by the Custodian,
including acting on any Instructions, are subject to the relevant local laws,
regulations, decrees, orders, government acts, customs, procedures and practices
(i) to which the Custodian, or any Subcustodian or Clearance System, is subject
and (ii) as exist in the country in which the Property is held.
25. MISCELLANEOUS
(A) This Agreement shall not be amended except by a written agreement and any
purported amendment made in contravention of this Section shall be null and void
and of no effect whatsoever.
(B) This Agreement shall constitute the entire agreement between the Client and
the Custodian and, unless otherwise expressly agreed in writing, shall supersede
all prior agreements relating to global custodial services, written or oral,
between the parties hereto.
(C) The parties hereto agree that (i) the rights, powers, privileges and
remedies stated in this Agreement are cumulative and not exclusive of any
rights, powers, privileges and remedies provided by law, unless specifically
waived, and (ii) any failure or delay in exercising any right power, privilege
or remedy will not be deemed to constitute a waiver thereof and a single or
partial exercise of any right, power, privilege or remedy will not preclude any
subsequent or further exercise of that or any other right, power, privilege or
remedy.
(D) In the event that any provision of this Agreement, or the application
thereof to any person or circumstances, shall be determined by a court of proper
jurisdiction to be invalid or unenforceable to any extent, the remaining
provisions of this Agreement, and the application of such provisions to persons
or circumstances other than those as to which it is held invalid or
unenforceable, shall be unaffected thereby and such provisions shall be valid
and enforced to the fullest extent permitted by law in such jurisdiction.
(E) Titles to Sections of this Agreement are included for convenience of
reference only and shall be disregarded in construing the language contained in
this Agreement.
(F) This Agreement may be executed in several counterparts, each of which shall
be an original, but all of which together shall constitute one and the same
agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized.
CITIBANK, N.A., New York Office DLJ HIGH YIELD BOND FUND
By: /s/ Gene Fauquier By: /s/ Martin Jaffe
------------------------- ------------------------
Name: Gene Fauquier Name: Martin Jaffe
------------------------- ------------------------
Title: Vice President Title: Vice President
------------------------- ------------------------
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FOREIGN CUSTODY MANAGER ADDENDUM
TO
GLOBAL CUSTODIAL SERVICES AGREEMENT, dated as of June 30, 1998, by and between
DLJ HIGH YIELD BOND FUND (the "Client") and Citibank, N.A. (the "Custodian").
The Client desires to have the Custodian assume and discharge the responsibility
of the Client's board of directors (hereinafter the "Board") to select, contract
with and monitor certain custodians of non-U.S. assets of the Client held by the
Custodian pursuant to the Global Custodial Services Agreement (the "Agreement").
The Custodian agrees to accept the delegation and to perform the responsibility
as provided in this Addendum.
(A) Foreign Custody Manager:
(i) The Board hereby delegates to the Custodian, and the Custodian
hereby accepts the delegation to it, of the obligation to serve as the
Client's "Foreign Custody Manager" (as defined in Rule 17f-5(a)(2) under
the Investment Company Act of 1940, as amended from time to time), in
respect to the Client's foreign investments held from time to time by
the Custodian with any Subcustodian or Clearance System (each defined in
the Agreement) that is an Eligible Foreign Custodian (as defined in Rule
17f-5(a)(1)) and that is not a Compulsory Depository as defined below.
Foreign investments are any Property (as defined in the Agreement) for
which the primary market is outside the U.S.A.
(ii) As Foreign Custody Manager, the Custodian shall:
(1) select Eligible Foreign Custodians to serve as foreign
custodians and place and maintain the Client's foreign
investments with such foreign custodians;
(2) in selecting an Eligible Foreign Custodian, first determine
that foreign investments placed and maintained in the safekeeping
of each Eligible Foreign Custodian shall be subject to reasonable
care, based on the standards applicable to custodians in the
relevant market, after having considered all factors relevant to
the safekeeping of such investments including, without
limitation, those factors set forth in Rule 17f-5(c)(1)(i)- (iv);
(3) enter into written agreements with each Eligible Foreign
Custodian selected by the Custodian hereunder;
(4) determine that the written contract with each Eligible
Foreign Custodian (or, in the case of an Eligible Foreign
Custodian that is a Clearance System such contract (which may be
between the Custodian and the Clearance System or between an
Eligible Foreign Custodian selected by the Custodian and the
Clearance System), the rules or established practices or
procedures of the Clearance System, or any combination of the
foregoing) requires that the Eligible Foreign Custodian will
provide reasonable care for the foreign investments, based on the
standards applicable to custodians in the relevant market, and
that all such contracts, rules, practices and procedures satisfy
the requirements of Rule 17f-5(c)(2);
(5) provide written reports (x) notifying the Board of the
placement of foreign investments with each Eligible Foreign
Custodian, such reports to be provided at such time as the Board
deems reasonable and appropriate, but not less than quarterly,
and (y) promptly notifying the Board of the occurrence of any
material change in the arrangements with an Eligible Foreign
Custodian;
(6) monitor the continued appropriateness of (x) maintaining the
foreign investments with Eligible Foreign Custodians selected
hereunder and (y) the governing contractual arrangements; it
being understood, however, that in the event the Custodian shall
determine that any Eligible Foreign Custodian would no longer
afford the foreign investments reasonable care, the Custodian
shall promptly so advise the Client and shall then act in
accordance with Instructions (as defined in the Agreement) with
respect to the disposition of the foreign investments; and
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(7) exercise such reasonable care, prudence and diligence in
serving as the Foreign Custody Manager as the Custodian exercises
in performing its responsibility under the Agreement for the
safekeeping of the Client's Property (as defined in the
Agreement).
(iii) Nothing in this paragraph shall relieve the Custodian of any
responsibility otherwise provided in the Agreement or this Addendum for
loss or damage suffered by the Client from an act of negligence or
willful misconduct on the part of the Custodian.
(iv) Nothing in this Addendum shall require the Custodian to make any
selection on behalf of the Client that would entail consideration of any
factor reasonably related to the systemic risk of holding assets in a
particular country including, but not limited to, such country's
financial infrastructure and prevailing settlement practices. The
Custodian agrees to provide to the Client such information relating to
such risk as the Client shall reasonably request from time to time and
such other information as the Custodian generally makes available to
customers with regard to such countries and risk.
(B) Compulsory Depositories:
(i) Notwithstanding the provisions of Section A above, the Custodian
shall not serve as Foreign Custody Manager in respect of any Compulsory
Depository, as defined below. The Custodian, through its branches or any
Subcustodians, shall be entitled to deposit and maintain the foreign
investments in Compulsory Depositories as the Custodian deems prudent
and appropriate, unless otherwise instructed by the Client or its
delegate;
(ii) Prior to depositing the foreign investments in any Compulsory
Depository, the Custodian shall notify the Client that a Compulsory
Depository will be used and provide the Client, in respect of the
Compulsory Depository, with current information of the type the
Custodian provided to clients in the Custodian's informational binders
entitled "SEC Rule 17f-5 Package". The Custodian, shall make its
representatives available to consult, in good faith, with such of the
Client's delegates as the Client shall designate regarding the
advisability of depositing the Client's foreign investments with any
Compulsory Depository;
(iii) The Custodian shall provide the Client with reports regarding
Compulsory Depositories as provided in Section (A)(ii)(5), above and
shall provide the Client with such other information with regard to any
Compulsory Depository as the Client shall reasonably request; and
(iv) A "Compulsory Depository" shall mean a Clearance System that is a
non-U.S. securities depository or clearing agency the use of which is
mandatory (x) by law or regulation, (y) because securities cannot be
withdrawn from the depository or clearing agency or (z) because
maintaining securities outside the securities depository or clearing
agency is not consistent with prevailing local custodial practices. The
Custodian shall supply to the Client from time to time a schedule of the
Compulsory Depositories in which the Custodian holds the Client's
foreign investments.
(C) Termination:
(i) The Client may terminate this delegation upon written notice to the
Custodian.
(ii) The Custodian may terminate its acceptance of this delegation upon
ninety (90) days written notice to the Client.
IN WITNESS WHEREOF, the parties have caused this Addendum to be executed as of
the 30th day of June, 1998, by their respective officers thereunto duly
authorized.
CITIBANK, N.A., NEW YORK OFFICE DLJ HIGH YIELD BOND FUND
By: /s/ Gene Fauquier By: /s/ Martin Jaffe
------------------------ --------------------------
Name: Gene Fauquier Name: Martin Jaffe
------------------------ --------------------------
Title: Vice President Title: Vice President
------------------------ --------------------------
2
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 31st day of July, 1998 between DLJ HIGH
YIELD BOND FUND (the "Fund") a business trust organized under the laws of
Delaware and having its principal place of business at 277 Park Avenue, New
York, New York 10172 and FIRST DATA INVESTOR SERVICES GROUP, INC. ("Investor
Services Group"), a Massachusetts corporation with principal offices at 4400
Computer Drive, Westboro, Massachusetts 01581.
WITNESSETH
WHEREAS, the Fund desires to appoint Investor Services Group as its
transfer agent, registrar, dividend disbursing agent, dividend reinvestment
agent and agent in connection with certain other activities and Investor
Services Group desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and Investor Services Group agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended from
time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Fund; or (ii) any person, whether or not such
person is an officer or employee of the Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of the Fund as
indicated in writing to Investor Services Group from time to time.
(c) "Board Members" shall mean the Directors or Trustees of the
governing body of the Fund, as the case may be.
(d) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of the Fund, as the case may be.
(e) "Commission" shall mean the Securities and Exchange
Commission.
(f) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custodian Agreement.
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(g) "1934 Act" shall mean the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder, all as amended from
time to time.
(h) "1940 Act" shall mean the Investment Company Act of 1940 and
the rules and regulations promulgated thereunder, all as amended from
time to time.
(i) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by Investor Services Group from
a person reasonably believed by Investor Services Group to be an
Authorized Person;
(j) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which has become effective under the
Securities Act of 1933 and the 1940 Act.
(k) "Shares" refers collectively to such shares of capital stock
or beneficial interest, as the case may be, or class thereof, of the
Fund as may be issued from time to time.
(l) "Shareholder" shall mean a record owner of Shares.
(m) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by Investor Services Group to be
an Authorized Person and actually received by Investor Services Group.
Written Instructions shall include manually executed originals and
authorized electronic transmissions, including telefacsimile of a
manually executed original or other process.
Article 2 Appointment of Investor Services Group.
The Fund hereby appoints and constitutes Investor Services Group as
transfer agent and registrar for Shares of the Fund, dividend disbursing agent,
dividend reinvestment agent and agent in connection with the Fund's dividend
reinvestment plan as more fully described in the Prospectus and Investor
Services Group hereby accepts such appointments and agrees to perform the duties
hereinafter set forth.
Article 3 Duties of Investor Services Group.
3.1 Investor Services Group shall be responsible for:
(a) Administering and/or performing the customary services of a
transfer agent; service agent in connection with dividend and
distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance and
transfer of Shares, as more fully described in the written Schedule of
Duties of Investor Services Group annexed hereto as Schedule A and
incorporated herein, and in
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accordance with the terms of the Prospectus, applicable law and the
procedures established from time to time between Investor Services Group
and the Fund;
(b) Recording the issuance of Shares and maintaining pursuant to
SEC Rule 17Ad-10(e) a record of the total number of Shares which are
authorized, based upon data provided to it by the Fund, and issued and
outstanding and provide the Fund on a regular basis with the total
number of Shares which are authorized and issued and outstanding.
Investor Services Group shall provide the Fund on a regular basis with
the total number of Shares which are authorized and issued and
outstanding and shall have no obligation, when recording the issuance of
Shares, to monitor the issuance of such Shares or to take cognizance of
any laws relating to the issue or sale of such Shares, which functions
shall be the sole responsibility of the Fund.
(c) Notwithstanding any of the foregoing provisions of this
Agreement, Investor Services Group shall be under no duty or obligation
to inquire into, and shall not be liable for: (i) the legality of the
issuance or sale of any Shares or the sufficiency of the amount to be
received therefor; (ii) the legality of the declaration of any dividend
by the Board of Directors, or the legality of the issuance of any Shares
in payment of any dividend; or (iii) the legality of any
recapitalization or readjustment of the Shares.
3.2 Investor Services Group shall serve as agent for Shareholders
pursuant to the Fund's dividend reinvestment and cash purchase plan as amended
from time to time in accordance with the terms of the agreement to be entered
into between the Shareholders and Investor Services Group.
3.3 In addition to the duties set forth herein, Investor Services Group
shall perform such other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in writing between the Fund
and Investor Services Group.
Article 4 Recordkeeping and Other Information.
4.1 Investor Services Group shall create and maintain all records
required of it pursuant to its duties hereunder and as set forth in Schedule B
in accordance with all applicable laws, rules and regulations, including records
required by Section 31(a) of the 1940 Act. Where applicable, such records shall
be maintained by Investor Services Group for the periods and in the places
required by Rule 31a-2 under the 1940 Act.
4.2 To the extent required by Section 31 of the 1940 Act, Investor
Services Group agrees that all such records prepared or maintained by Investor
Services Group relating to the services to be performed by Investor Services
Group hereunder are the property of the Fund and will be preserved, maintained
and made available in accordance with such section, and will be surrendered
promptly to the Fund on and in accordance with the Fund's request.
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4.3 In case of any requests or demands for the inspection of Shareholder
records of the Fund, Investor Services Group will endeavor to notify the Fund of
such request and secure Written Instructions as to the handling of such request.
Investor Services Group reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to comply with such request.
Article 5 Fund Instructions.
5.1 Investor Services Group will not be held to have any notice of any
change of authority of any Authorized Person until receipt of a Written
Instruction thereof from the Fund. Investor Services Group will also have no
liability when processing Share certificates which it reasonably believes to
bear the proper manual or facsimile signatures of the officers of the Fund and
the proper countersignature of Investor Services Group, or any prior transfer
agent.
5.2 At any time, Investor Services Group may request Written
Instructions from the Fund and may seek advice from legal counsel for the Fund,
or its own legal counsel, with respect to any matter arising in connection with
this Agreement, and it shall not be liable for any action taken or not taken or
suffered by it in good faith in accordance with such Written Instructions or in
accordance with the opinion of counsel for the Fund or for Investor Services
Group. Written Instructions requested by Investor Services Group will be
provided by the Fund within a reasonable period of time.
5.3 Investor Services Group, its officers, agents or employees, shall
accept Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Fund only if said representative is an
Authorized Person. The Fund agrees that all Oral Instructions shall be followed
within one business day by confirming Written Instructions, and that the Fund's
failure to so confirm shall not impair in any respect Investor Services Group's
right to rely on Oral Instructions.
Article 6 Compensation.
6.1 The Fund will compensate Investor Services Group for the performance
of its obligations hereunder in accordance with the fees set forth in the
written Fee Schedule annexed hereto as Schedule B and incorporated herein.
6.2 In addition to those fees set forth in Section 6.1 above, the Fund
agrees to pay, and will be billed separately for, all out-of-pocket expenses
incurred by Investor Services Group in the performance of its duties hereunder.
Out-of-pocket expenses shall include, but shall not be limited to, the items
specified in the written schedule of out-of-pocket charges annexed hereto as
Schedule C and incorporated herein. Unspecified out-of-pocket expenses shall be
limited to those out-of-pocket expenses reasonably incurred by Investor Services
Group in the performance of its obligations hereunder.
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6.3 The Fund agrees to pay all fees and out-of-pocket expenses by
Federal Funds Wire within fifteen (15) business days following the receipt of
the respective invoice. In addition, with respect to all fees, out-of-pocket
expenses and other charges under this Agreement, Investor Services Group may
charge a service fee equal to the lesser of (i) one and one half percent
(1-1/2%) per month or (ii) the highest interest rate legally permitted on any
past due invoiced amounts.
6.4 Any compensation agreed to hereunder may be adjusted from time to
time by written agreement executed by the parties hereto.
6.5 The Fund acknowledges that the fees that Investor Services Group
charges the Fund under this Agreement reflect the allocation of risk between the
parties, including the disclaimer of warranties in Section 9.3 and the
limitations on liability and exclusion of remedies in Section 11.2 and Article
12. Modifying the allocation of risk from what is stated here would affect the
fees that Investor Services Group charges, and in consideration of those fees,
the Fund agrees to the stated allocation of risk.
Article 7 Documents
In connection with the appointment of Investor Services Group, the Fund
shall, on or before the date this Agreement goes into effect, but in any case
within a reasonable period of time for Investor Services Group to prepare to
perform its duties hereunder, deliver or caused to be delivered to Investor
Services Group the documents set forth in the written schedule of Fund Documents
annexed hereto as Schedule D.
Article 8 Transfer Agent System
8.1 Investor Services Group shall retain title to and ownership of any
and all data bases, computer programs, screen formats, report formats,
interactive design techniques, derivative works, inventions, discoveries,
patentable or copyrightable matters, concepts, expertise, patents, copyrights,
trade secrets, and other related legal rights utilized by Investor Services
Group in connection with the services provided by Investor Services Group to the
Fund herein (the "Investor Services Group System").
8.2 Investor Services Group hereby grants to the Fund a limited license
to the Investor Services Group System for the sole and limited purpose of having
Investor Services Group provide the services contemplated hereunder and nothing
contained in this Agreement shall be construed or interpreted otherwise and such
license shall immediately terminate with the termination of this Agreement.
8.3 In the event that the Fund, including any affiliate or agent of the
Fund or any third party acting on behalf of the Fund is provided with direct
access to the Investor Services Group System for either account inquiry or to
transmit transaction information, including but not limited
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to maintenance, exchanges, purchases and redemptions, such direct access
capability shall be limited to direct entry to the Investor Services Group
System by means of on-line mainframe terminal entry or PC emulation of such
mainframe terminal entry and any other non-conforming method of transmission of
information to the Investor Services Group System is strictly prohibited without
the prior written consent of Investor Services Group.
Article 9 Representations and Warranties.
9.1 Investor Services Group represents and warrants to the Fund that:
(a) it is a corporation duly organize, existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorize it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory agency
as a transfer agent and such registration will remain in effect for the
duration of this Agreement; and
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
9.2 The Fund represents and warrants to Investor Services Group that:
(a) it is duly organized, existing and in good standing under the
laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Article of
Incorporation and By-Laws to enter into this Agreement;
(c) all corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable laws have been taken to authorize
it to enter into this Agreement;
(d) a registration statement under the Securities Act of 1933, as
amended is currently effective and will make all reasonable efforts to
remain effective, and all appropriate state securities law filings have
been made and will continue to be made, with respect to all Shares of
the Fund being offered for sale; and
(e) all outstanding Shares are validly issued, fully paid and
non-assessable and when Shares are hereafter issued in accordance with
the terms of the Fund's Articles of
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Incorporation and its Prospectus, such Shares shall be validly issued,
fully paid and non-assessable.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, INVESTOR SERVICES GROUP DISCLAIMS ALL OTHER REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTIES REGARDING QUALITY, SUITABILITY,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF
ANY COURSE OF DEALING, CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS
PROVIDED INCIDENTAL TO SERVICES PROVIDED UNDER THIS AGREEMENT. INVESTOR SERVICES
GROUP DISCLAIMS ANY WARRANTY OF TITLE OR NON-INFRINGEMENT EXCEPT AS OTHERWISE
SET FORTH IN THIS AGREEMENT.
Article 10 Indemnification.
10.1 Investor Services Group shall not be responsible for and the Fund
shall indemnify and hold Investor Services Group harmless from and against any
and all claims, costs, expenses (including reasonable attorneys' fees), losses,
damages, charges, payments and liabilities of any sort or kind which may be
asserted against Investor Services Group or for which Investor Services Group
may be held to be liable ("Claim") arising out of or attributable to any of the
following:
(a) any actions of Investor Services Group required to be taken
pursuant to this Agreement unless such Claim resulted from a grossly
negligent act or omission to act or bad faith by Investor Services Group
in the performance of its duties hereunder;
(b) Investor Services Group's reasonable reliance on, or
reasonable use of information, data, records and documents (including
but not limited to magnetic tapes, computer printouts, hard copies and
microfilm copies) received by Investor Services Group from the Fund, or
any authorized third party acting on behalf of the Fund, including but
not limited to the prior transfer agent for the Fund, in the performance
of Investor Services Group's duties and obligations hereunder;
(c) the reliance on, or the implementation of, any Written or
Oral Instructions or any other instructions or requests of the Fund;
(d) the offer or sale of Shares in violation of any requirement
under the securities laws or regulations of any state that such Shares
be registered in such state or in violation of any stop order or other
determination or ruling by any state with respect to the offer or sale
of such Shares in such state; and
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(e) the Fund's refusal or failure to comply with the terms of
this Agreement, or any Claim which arises out of the Fund's negligence
or misconduct or the breach of any representation or warranty of the
Fund made herein.
10.2 In any case in which the Fund may be asked to indemnify or hold
Investor Services Group harmless, Investor Services Group will notify the Fund
promptly after identifying any situation which it believes presents or appears
likely to present a claim for indemnification against the Fund; although the
failure to do so shall not prevent recovery by Investor Services Group and shall
keep the Fund advised with respect to all developments concerning such
situation. The Fund shall have the option to defend Investor Services Group
against any Claim which may be the subject of this indemnification, and, in the
event that the Fund so elects, such defense shall be conducted by counsel chosen
by the Fund and satisfactory to Investor Services Group, and thereupon the Fund
shall take over complete defense of the Claim and Investor Services Group shall
sustain no further legal or other expenses in respect of such Claim. Investor
Services Group will not confess any Claim or make any compromise in any case in
which the Fund will be asked to provide indemnification, except with the Fund's
prior written consent. The obligations of the parties hereto under this Section
10 shall survive the termination of this Agreement.
10.3 Any claim for indemnification under this Agreement must be made
prior to the earlier of:
(a) one year after the Fund becomes aware of the event for which
indemnification is claimed; or
(b) one year after the earlier of the termination of this
Agreement or the expiration of the term of this Agreement.
10.4 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
Investor Services Group's sole and exclusive remedy for claims or other actions
or proceedings to which the Fund's indemnification obligations pursuant to this
Article 10 may apply.
Article 11 Standard of Care.
11.1 Investor Services Group shall at all times act in good faith and
agrees to use its best efforts within commercially reasonable limits to ensure
the accuracy of all services performed under this Agreement, but assume no
responsibility for loss or damage to the Fund unless said errors are caused by
Investor Services Group's own gross negligence, bad faith or willful misconduct
or that of its employees.
11.2 Neither party may assert any cause of action against the other
party under this Agreement that accrued more than two (2) years prior to the
filing of the suit (or commencement of arbitration proceedings) alleging such
cause of action.
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11.3 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
Article 12 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL INVESTOR SERVICES GROUP, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF
TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST
PROFITS, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS
OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination
13.1 This Agreement shall be effective on the date first written above
and shall continue for a period of two (2) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of one (1) year ("Renewal Terms") each,
unless the Fund or Investor Services Group provides written notice to the other
of its intent not to renew. Such notice must be received not less than ninety
(90) days and not more than one-hundred eighty (180) days prior to the
expiration of the Initial Term or the then current Renewal Term.
13.3 In the event a termination notice is given by the Fund, all
expenses associated with movement of records and materials and conversion
thereof to a successor transfer agent will be borne by the Fund.
13.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. If Investor Services Group is the Non-Defaulting Party,
its termination of this Agreement shall not constitute a waiver of any other
rights or remedies of Investor Services Group with respect to services performed
prior to such termination of rights of Investor Services Group to be reimbursed
for out-of-pocket expenses. In all cases, termination by the Non-Defaulting
Party shall not constitute a waiver by the Non-Defaulting Party of any other
rights it might have under this Agreement or otherwise against the Defaulting
Party.
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13.5 Notwithstanding anything contained in this Agreement to the
contrary, should the Fund desire to move any of the services provided by
Investor Services Group hereunder to a successor service provider prior to the
expiration of the then current Initial or Renewal Term, or without the required
notice period, Investor Services Group shall make a good faith effort to
facilitate the conversion on such prior date, however, there can be no guarantee
that Investor Services Group will be able to facilitate a conversion of services
on such prior date. In connection with the foregoing, should services be
converted to a successor service provider, or if the Fund is liquidated or its
assets merged or purchased or the like with another entity which does not
utilize the services of Investor Services Group, the payment of fees to Investor
Services Group as set forth herein shall be accelerated to a date prior to the
conversion or termination of services and calculated as if the services had
remained with Investor Services Group until the expiration of the then current
Initial or Renewal Term and calculated at the asset and/or Shareholder account
levels, as the case may be, on the date notice of termination was given to
Investor Services Group.
Article 14 Confidentiality.
14.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The Fund
and Investor Services Group shall exercise at least the same degree of care, but
not less than reasonable care, to safeguard the confidentiality of the
Confidential Information of the other as it would exercise to protect its own
confidential information of a similar nature. The Fund and Investor Services
Group shall not duplicate, sell or disclose to others the Confidential
Information of the other, in whole or in part, without the prior written
permission of the other party. The Fund and Investor Services Group may,
however, disclose Confidential Information to their respective parent
corporation, their respective affiliates, their subsidiaries and affiliated
companies and employees, provided that each shall use reasonable efforts to
ensure that the Confidential Information is not duplicated or disclosed in
breach of this Agreement. The Fund and Investor Services Group may also disclose
the Confidential Information to independent contractors, auditors, and
professional advisors, provided they first agree in writing to be bound by the
confidentiality obligations substantially similar to this Section 14.1.
Notwithstanding the previous sentence, in no event shall either the Fund or
Investor Services Group disclose the Confidential Information to any competitor
of the other without specific, prior written consent.
14.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships, customer profiles, sales
estimates, business plans, and internal performance results relating to
the past, present or future business activities of the Fund or Investor
Services Group, their
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respective subsidiaries and affiliated companies and the customers,
clients and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Fund or
Investor Services Group a competitive advantage over its competitors;
and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
14.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
14.4 The obligations of confidentiality and restriction on use herein
shall not apply to any Confidential Information that a party proves:
(a) Was in the public domain prior to the date of this Agreement
or subsequently came into the public domain through no fault of such
party; or
(b) Was lawfully received by the party from a third party free of
any obligation of confidence to such third party; or
(c) Was already in the possession of the party prior to receipt
thereof, directly or indirectly, from the other party; or
(d) Is required to be disclosed in a judicial or administrative
proceeding after all reasonable legal remedies for maintaining such
information in confidence have been exhausted including, but not limited
to, giving the other party as much advance notice of the possibility of
such disclosure as practical so the other party may attempt to stop such
disclosure or obtain a protective order concerning such disclosure; or
(f) Is subsequently and independently developed by employees,
consultants or agents of the party without reference to the Confidential
Information disclosed under this Agreement.
Article 15 Force Majeure.
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No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by (i) fire, flood, elements of nature or
other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or
civil disorders in any country, (iii) any act or omission of the other party or
any governmental authority; (iv) any labor disputes (whether or not the
employees' demands are reasonable or within the party's power to satisfy); or
(v) nonperformance by a third party or any similar cause beyond the reasonable
control of such party, including without limitation, failures or fluctuations in
telecommunications or other equipment. In any such event, the non-performing
party shall be excused from any further performance and observance of the
obligations so affected only for as long as such circumstances prevail and such
party continues to use commercially reasonable efforts to recommence performance
or observance as soon as practicable.
Article 16 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that
Investor Services Group may, in its sole discretion, assign all its right, title
and interest in this Agreement to an affiliate, parent or subsidiary, or to the
purchaser of substantially all of its business. Investor Services Group may, in
its sole discretion, engage subcontractors to perform any of the obligations
contained in this Agreement to be performed by Investor Services Group.
Article 17 Arbitration.
17.1 Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered by the
American Arbitration Association in Boston, Massachusetts in accordance with its
applicable rules, except that the Federal Rules of Evidence and the Federal
Rules of Civil Procedure with respect to the discovery process shall apply.
17.2 The parties hereby agree that judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction.
17.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Article 17.
Article 18 Notice.
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Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or Investor Services Group, shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To the Fund:
DLJ High Yield Bond Fund
277 Park Avenue
New York, New York 10172
Attention: President
To Investor Services Group:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to Investor Services Group's General Counsel
Article 19 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this agreement. All actions arising from or related to this Agreement shall be
brought in the state and federal courts sitting in the City of Boston, and
Investor Services Group and the Fund hereby submit themselves to the exclusive
jurisdiction of those courts.
Article 20 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 21 Captions.
The captions of this Agreement are included for convenience of reference
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
Article 22 Publicity.
Neither Investor Services Group nor the Fund shall release or publish
news releases, public announcements, advertising or other publicity relating to
this Agreement or to the
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transactions contemplated by it without the prior review and written approval of
the other party; provided, however, that either party may make such disclosures
as are required by legal, accounting or regulatory requirements after making
reasonable efforts in the circumstances to consult in advance with the other
party.
Article 23 Relationship of Parties/Non-Solicitation.
23.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
23.2 During the term of this Agreement and for one (1) year afterward,
the Fund shall not recruit, solicit, employ or engage, for the Fund or others,
Investor Services Group's employees.
Article 24 Entire Agreement; Severability.
24.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. No such writing shall be
effective as against Investor Services Group unless said writing is executed by
a Senior Vice President, Executive Vice President, or President of Investor
Services Group. A party's waiver of a breach of any term or condition in the
Agreement shall not be deemed a waiver of any subsequent breach of the same or
another term or condition.
24.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
DLJ HIGH YIELD BOND FUND
By:
-------------------------------------
Title:
----------------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:
--------------------------------------
Title:
----------------------------------
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SCHEDULE A
DUTIES OF INVESTOR SERVICES GROUP
1. Shareholder Information. Investor Services Group shall maintain a
record of the number of Shares held by each Shareholder of record which shall
include name, address, taxpayer identification and which shall indicate whether
such Shares are held in certificates or uncertificated form.
2. Shareholder Services. Investor Services Group shall respond as
appropriate to all inquiries and communications from Shareholders relating to
Shareholder accounts with respect to its duties hereunder and as may be from
time to time mutually agreed upon between Investor Services Group and the Fund.
3. Share Certificates.
(a) At the expense of the Fund, the Fund shall supply Investor
Services Group with an adequate supply of blank share certificates to meet
Investor Services Group requirements therefor. Such Share certificates shall be
properly signed by facsimile. The Fund agrees that, notwithstanding the death,
resignation, or removal of any officer of the Fund whose signature appears on
such certificates, Investor Services Group or its agent may continue to
countersign certificates which bear such signatures until otherwise directed by
Written Instructions.
(b) Investor Services Group shall issue replacement Share
certificates in lieu of certificates which have been lost, stolen or destroyed,
upon receipt by Investor Services Group of properly executed affidavits and lost
certificate bonds, in form satisfactory to Investor Services Group, with the
Fund and Investor Services Group as obligees under the bond.
(c) Investor Services Group shall also maintain a record of each
certificate issued, the number of Shares represented thereby and the Shareholder
of record. With respect to Shares held in open accounts or uncertificated form
(i.e., no certificate being issued with respect thereto) Investor Services Group
shall maintain comparable records of the Shareholders thereof, including their
names, addresses and taxpayer identification. Investor Services Group shall
further maintain a stop transfer record on lost and/or replaced certificates.
4. Mailing Communications to Shareholders; Proxy Materials. Investor
Services Group will address and mail to Shareholders of the Fund, all reports to
Shareholders, dividend and distribution notices and proxy material for the
Fund's meetings of Shareholders. In connection with meetings of Shareholders,
Investor Services Group will prepare Shareholder lists, mail and certify as to
the mailing of proxy materials, process and tabulate returned proxy cards,
report on proxies voted prior to meetings, act as inspector of election at
meetings and certify Shares voted at meetings.
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5. Transfer of Shares.
(a) Investor Services Group shall process all requests to
transfer Shares in accordance with the transfer procedures set forth in the
Fund's Prospectus.
(b) Investor Services Group will transfer Shares upon receipt of
Written Instructions or otherwise pursuant to the Prospectus and Share
certificates, if any, properly endorsed for transfer, accompanied by such
documents as Investor Services Group reasonably may deem necessary.
(c) Investor Services Group reserves the right to refuse to
transfer Shares until it is satisfied that the endorsement on the instructions
is valid and genuine. Investor Services Group also reserves the right to refuse
to transfer Shares until it is satisfied that the requested transfer is legally
authorized, and it shall incur no liability for the refusal, in good faith, to
make transfers which Investor Services Group in its good judgment, deems
improper or unauthorized, or until it is reasonably satisfied that there is no
basis to any claims adverse to such transfer.
7. Dividends.
(a) Upon the declaration of each dividend and each capital gains
distribution by the Board of Directors of the Fund with respect to Shares of the
Fund, the Fund shall furnish or cause to be furnished to Investor Services Group
Written Instructions setting forth the date of the declaration of such dividend
or distribution, the ex-dividend date, the date of payment thereof, the record
date as of which Shareholders entitled to payment shall be determined, the
amount payable per Share to the Shareholders of record as of that date, the
total amount payable on the payment date and whether such dividend or
distribution is to be paid in Shares at net asset value.
(b) On or before the payment date specified in such resolution of
the Board of Directors, the Fund will provide Investor Services Group with
sufficient cash to make payment to the Shareholders of record as of such payment
date.
(c) If Investor Services Group does not receive sufficient cash
from the Fund to make total dividend and/or distribution payments to all
Shareholders of the Fund as of the record date, Investor Services Group will,
upon notifying the Fund, withhold payment to all Shareholders of record as of
the record date until sufficient cash is provided to Investor Services Group.
8. Miscellaneous
In addition to and neither in lieu nor in contravention of the services
set forth above, Investor Services Group shall: (i) perform all the customary
services of a transfer agent registrar dividend disbursing agent and agent of
the dividend reinvestment and cash purchase plan as described herein consistent
with those requirements in effect as at the date of this Agreement.
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The detailed definition, frequency, limitations and associated costs (if any)
set out in the attached fee schedule, include but are not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting lists,
mailing proxies, tabulating proxies, mailing Shareholder reports to current
Shareholders, withholding taxes on U.S. resident and non-resident alien accounts
where applicable, preparing and filing U.S. Treasury Department Forms 1099 and
other appropriate forms required with respect to dividends and distributions by
federal authorities for all registered Shareholders.
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SCHEDULE B
FEE SCHEDULE
1. Standard Fees.
Annual Per Account Fee: $10.50
Monthly Minimum Fee: $2,500.00
After the one year anniversary of the effective date of this Agreement, Investor
Services Group may adjust the above fees once per calendar year, upon thirty
(30) days prior written notice in an amount not to exceed the cumulative
percentage increase in the Consumer Price Index for All Urban Consumers (CPI-U)
U.S. City Average, All items (unadjusted) - (1982-84=100), published by the U.S.
Department of Labor since the last such adjustment in the Fund's monthly fees
(or the Effective Date absent a prior such adjustment).
2. IPO Fees.
IPO Project Administration Fee: $10,000.00
IPO Project Administration Fee covers:
o Issuance of up to 1000 certificates - Issuance of certificates
in excess of 1000 to be billed at $2.50 per certificate
o Administration coordination with IPO client, underwriter and
legal representatives
o Attendance at closing (out of pocket expenses associated with
such attendance will be billed as incurred)
o Electronic delivery of shares to underwriters at closing
o Overallotment coordination
Overallotment Fee: $5,000.00
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SCHEDULE C
OUT-OF-POCKET EXPENSES
The Fund shall reimburse Investor Services Group monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes,
checks and stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first class)
direct pass through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including all
lease, maintenance and line costs
- Ad hoc reports
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other
equipment and any expenses incurred in connection with
such terminals and lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Overtime, as approved by the Fund
- Temporary staff, as approved by the Fund
- Travel and entertainment, as approved by the Fund
- Record retention, retrieval and destruction costs,
including, but not limited to exit fees charged by third
party record keeping vendors
- Third party audit reviews
- Ad hoc SQL time Insurance
- Such other miscellaneous expenses reasonably incurred by
Investor Services Group in performing its duties and
responsibilities under this Agreement.
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with Investor Services Group. In addition,
the Fund will promptly reimburse Investor Services Group for any other
unscheduled expenses incurred by Investor Services Group whenever the Fund and
Investor Services Group mutually agree that such expenses are not otherwise
properly borne by Investor Services Group as part of its duties and obligations
under the Agreement.
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SCHEDULE D
FUND DOCUMENTS
- Certified copy of the Articles of Incorporation of the Fund, as
amended
- Certified copy of the By-laws of the Fund, as amended,
- Copy of the resolution of the Board of Directors authorizing the
execution and delivery of this Agreement
- Specimens of the certificates for Shares of the Fund, if
applicable, in the form approved by the Board of Directors of
the Fund, with a certificate of the Secretary of the Fund as to
such approval
- All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered
by the Fund
- Certified list of Shareholders of the Fund with the name,
address and taxpayer identification number of each Shareholder,
and the number of Shares of the Fund held by each, certificate
numbers and denominations (if any certificates have been
issued), lists of any accounts against which stop transfer
orders have been placed, together with the reasons therefore,
and the number of Shares redeemed by the Fund
- All notices issued by the Fund with respect to the Shares in
accordance with and pursuant to the Articles of Incorporation or
By-laws of the Fund or as required by law and shall perform such
other specific duties as are set forth in the Articles of
Incorporation including the giving of notice of any special or
annual meetings of shareholders and any other notices required
thereby.
-21-
SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 28th day of July, 1998 between DLJ HIGH YIELD
BOND FUND (the "Fund"), a Delaware business trust having its principal place of
business at 277 Park Avenue, New York, New York 10172 and FIRST DATA INVESTOR
SERVICES GROUP, INC. ("Investor Services Group"), a Massachusetts corporation
with principal offices at 4400 Computer Drive, Westboro, Massachusetts 01581.
WITNESSETH
WHEREAS, the Fund desires to appoint Investor Services Group as its fund
accounting agent, fund administrator, custody administrator and agent in
connection with certain other activities and Investor Services Group desires to
accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and Investor Services Group agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and phrases, unless the
context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of Incorporation,
Declaration of Trust, or other similar organizational document as the case may
be, of the Fund as the same may be amended from time to time.
(b) "Authorized Person" shall be deemed to include (i) any authorized officer of
the Fund; or (ii) any person, whether or not such person is an officer or
employee of the Fund, duly authorized to give Oral Instructions or Written
Instructions on behalf of the Fund as indicated in writing to Investor Services
Group from time to time.
(c) "Board Members" shall mean the Directors or Trustees of the governing body
of the Fund, as the case may be.
(d) "Board of Directors" shall mean the Board of Directors or Board of Trustees
of the Fund, as the case may be.
(e) "Commission" shall mean the Securities and Exchange Commission.
(f) "Custodian" refers to any custodian or subcustodian of securities and other
property which the Fund may from time to time deposit, or cause to be deposited
or held under the name or account of such a custodian pursuant to a Custodian
Agreement.
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(g) "1934 Act" shall mean the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder, all as amended from time to time.
(h) "1940 Act" shall mean the Investment Company Act of 1940 and the rules and
regulations promulgated thereunder, all as amended from time to time.
(i) "Oral Instructions" shall mean instructions, other than Written
Instructions, actually received by Investor Services Group from a person
reasonably believed by Investor Services Group to be an Authorized Person;
(j) "Prospectus" shall mean the most recently dated Fund Prospectus and
Statement of Additional Information, including any supplements thereto if any,
which has become effective under the Securities Act of 1933 and the 1940 Act.
(k) "Shares" refers collectively to such shares of capital stock or beneficial
interest, as the case may be, or class thereof, of the Fund as may be issued
from time to time.
(l) "Shareholder" shall mean a record owner of Shares of the Fund.
(m) "Written Instructions" shall mean a written communication signed by a person
reasonably believed by Investor Services Group to be an Authorized Person and
actually received by Investor Services Group. Written Instructions shall include
manually executed originals and authorized electronic transmissions, including
telefacsimile of a manually executed original or other process.
Article 2 Appointment of Investor Services Group.
The Fund hereby appoints and constitutes Investor Services Group as custody
administrator, fund administrator and fund accounting agent for the Fund and
Investor Services Group hereby accepts such appointments and agrees to perform
the duties hereinafter set forth.
Article 3 Duties of Investor Services Group.
3.1 Investor Services Group shall be responsible for:
(a) Investor Services Group shall be responsible for the following: performing
the customary services of a fund accounting agent for the Fund, as more fully
described in the written schedule of Duties of Investor Services Group annexed
hereto as Schedule B and incorporated herein, and subject to the supervision and
direction of the Board of Directors of the Fund.
(b) In addition to providing the foregoing services, the Fund hereby engages
Investor Services Group as its agent for the limited purpose of (i) accepting
invoices charged to the Fund for custody services performed by the Custodian on
the Fund's behalf, (ii) remitting payment to the
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Custodian for such services, and (iii) as more fully described in the written
schedule of Duties of Investor Services Group annexed hereto as Schedule B and
incorporated herein.
(c) Investor Services Group shall be responsible for the following: performing
the customary services of a fund administrator agent for the Fund, as more fully
described in the written schedule of Duties of Investor Services Group annexed
hereto as Schedule B and incorporated herein, and subject to the supervision and
direction of the Board of Directors of the Fund.
3.2 In performing its duties under this Agreement, Investor Services Group: (a)
will act in accordance with the Articles of Incorporation, By-Laws, Prospectuses
and with the Oral Instructions and Written Instructions of the Fund and will
conform to and comply with the requirements of the 1940 Act and all other
applicable federal or state laws and regulations; and (b) will consult with
legal counsel to the Fund, as necessary and appropriate. Furthermore, Investor
Services Group shall not have or be required to have any authority to supervise
the investment or reinvestment of the securities or other properties which
comprise the assets of the Fund and shall not provide any investment advisory
services to the Fund.
3.3 In addition to the duties set forth herein, Investor Services Group shall
perform such other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in writing between the Fund
and Investor Services Group.
Article 4 Recordkeeping and Other Information.
4.1 Investor Services Group shall create and maintain all records required of it
pursuant to its duties hereunder and as set forth in Schedule B in accordance
with all applicable laws, rules and regulations, including records required by
Section 31(a) of the 1940 Act. Where applicable, such records shall be
maintained by Investor Services Group for the periods and in the places required
by Rule 31a-2 under the 1940 Act.
4.2 To the extent required by Section 31 of the 1940 Act, Investor Services
Group agrees that all such records prepared or maintained by Investor Services
Group relating to the services to be performed by Investor Services Group
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such section, and will be surrendered promptly
to the Fund on and in accordance with the Fund's request.
Article 5 Fund Instructions.
5.1 Investor Services Group will have no liability when acting upon Written or
Oral Instructions believed to have been executed or orally communicated by an
Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from the
Fund. Investor Services Group will also have no liability when processing Share
certificates which it reasonably believes to bear the proper manual or
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facsimile signatures of the officers of the Fund and the proper countersignature
of Investor Services Group.
5.2 At any time, Investor Services Group may request Written Instructions from
the Fund and may seek advice from legal counsel for the Fund, or its own legal
counsel, with respect to any matter arising in connection with this Agreement,
and it shall not be liable for any action taken or not taken or suffered by it
in good faith in accordance with such Written Instructions or in accordance with
the opinion of counsel for the Fund or for Investor Services Group. Written
Instructions requested by Investor Services Group will be provided by the Fund
within a reasonable period of time.
5.3 Investor Services Group, its officers, agents or employees, shall accept
Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Fund only if said representative is an
Authorized Person. The Fund agrees that all Oral Instructions shall be followed
within one business day by confirming Written Instructions, and that the Fund's
failure to so confirm shall not impair in any respect Investor Services Group's
right to rely on Oral Instructions.
Article 6 Compensation.
6.1 The Fund will compensate Investor Services Group for the performance of its
obligations hereunder in accordance with the fees set forth in the written Fee
Schedule annexed hereto as Schedule C and incorporated herein.
6.2 In addition to those fees set forth in Section 6.1 above, the Fund agrees to
pay, and will be billed separately for, out-of-pocket expenses incurred by
Investor Services Group in the performance of its duties hereunder.
Out-of-pocket expenses shall include, but shall not be limited to, the items
specified in the written schedule of out-of-pocket charges annexed hereto as
Schedule D and incorporated herein. Schedule D may be modified by written
agreement between the parties. Unspecified out-of-pocket expenses shall be
limited to those out-of-pocket expenses reasonably incurred by Investor Services
Group in the performance of its obligations hereunder.
6.3 The Fund hereby authorizes Investor Services Group to collect its fees and
related out-of-pocket expenses by debiting the Fund's custody account for
invoices which are rendered for the services performed for the applicable
function. Invoices for the services performed will be sent to the Fund after
such debiting with an indication that payment has been made.
6.4 Any compensation agreed to hereunder may be adjusted from time to time by
attaching to Schedule C, a revised Fee Schedule executed and dated by the
parties hereto.
6.5 The Fund acknowledges that the fees that Investor Services Group charges the
Fund under this Agreement reflect the allocation of risk between the parties,
including the disclaimer of warranties in Section 9.3 and the limitations on
liability and exclusion of remedies in Section 11.2 and Article 12. Modifying
the allocation of risk from what is stated here would affect the fees
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that Investor Services Group charges, and in consideration of those fees, the
Fund agrees to the stated allocation of risk.
6.6 Investor Services Group will from time to time employ or associate with
itself such person or persons as Investor Services Group may believe to be
particularly suited to assist it in performing services under this Agreement.
Such person or persons may be officers and employees who are employed by both
Investor Services Group and the Fund. The compensation of such person or persons
shall be paid by Investor Services Group and no obligation shall be incurred on
behalf of the Fund in such respect.
6.7 Investor Services Group shall not be required to pay any of the following
expenses incurred by the Fund: membership dues in the Investment Company
Institute or any similar organization; investment advisory expenses; costs of
printing and mailing stock certificates, prospectuses, reports and notices;
interest on borrowed money; brokerage commissions; stock exchange listing fees;
taxes and fees payable to Federal, state and other governmental agencies; fees
of Board Members of the Fund who are not affiliated with Investor Services
Group; outside auditing expenses; outside legal expenses; Blue Sky registration
or filing fees; or other expenses not specified in this Section 6.7 which may be
properly payable by the Fund.
Article 7 Documents.
In connection with the appointment of Investor Services Group, the Fund shall,
on or before the date this Agreement goes into effect, but in any case within a
reasonable period of time for Investor Services Group to prepare to perform its
duties hereunder, deliver or caused to be delivered to Investor Services Group
the documents set forth in the written schedule of Fund Documents annexed hereto
as Schedule E.
Article 8 Investor Services Group System.
8.1 Investor Services Group shall retain title to and ownership of any and all
data bases, computer programs, screen formats, report formats, interactive
design techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade secrets,
and other related legal rights utilized by Investor Services Group in connection
with the services provided by Investor Services Group to the Fund herein (the
"Investor Services Group System").
8.2 Investor Services Group hereby grants to the Fund a limited license to the
Investor Services Group System for the sole and limited purpose of having
Investor Services Group provide the services contemplated hereunder and nothing
contained in this Agreement shall be construed or interpreted otherwise and such
license shall immediately terminate with the termination of this Agreement.
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8.3 In the event that the Fund, including any affiliate or agent of the Fund or
any third party acting on behalf of the Fund is provided with direct access to
the Investor Services Group System for either account inquiry or to transmit
transaction information, including but not limited to maintenance, exchanges,
purchases and redemptions, such direct access capability shall be limited to
direct entry to the Investor Services Group System by means of on-line mainframe
terminal entry or PC emulation of such mainframe terminal entry and any other
non-conforming method of transmission of information to the Investor Services
Group System is strictly prohibited without the prior written consent of
Investor Services Group.
Article 9 Representations and Warranties.
9.1 Investor Services Group represents and warrants to the Fund that:
(a) it is a corporation duly organized, existing and in good standing under the
laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles of Incorporation
and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to authorize it to enter
into this Agreement; and
(d) it has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
9.2 The Fund represents and warrants to Investor Services Group that:
(a) it is duly organized, existing and in good standing under the laws of the
jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Articles of Incorporation
and By-Laws to enter into this Agreement; and
(c) all corporate proceedings required by said Articles of Incorporation,
By-Laws and applicable laws have been taken to authorize it to enter into this
Agreement.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT,
INVESTOR SERVICES GROUP DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES REGARDING QUALITY, SUITABILITY, MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF ANY COURSE OF
DEALING, CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS
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PROVIDED INCIDENTAL TO SERVICES PROVIDED UNDER THIS AGREEMENT. INVESTOR SERVICES
GROUP DISCLAIMS ANY WARRANTY OF TITLE OR NON-INFRINGEMENT EXCEPT AS OTHERWISE
SET FORTH IN THIS AGREEMENT.
Article 10 Indemnification.
10.1 Investor Services Group shall not be responsible for and the Fund shall
indemnify and hold Investor Services Group harmless from and against any and all
claims, costs, expenses (including reasonable attorneys' fees), losses, damages,
charges, payments and liabilities of any sort or kind which may be asserted
against Investor Services Group or for which Investor Services Group may be held
to be liable (a "Claim") arising out of or attributable to any of the following:
(a) any actions of Investor Services Group required to be taken pursuant to this
Agreement unless such Claim resulted from a grossly negligent act or omission to
act or bad faith by Investor Services Group in the performance of its duties
hereunder;
(b) Investor Services Group's reasonable reliance on, or reasonable use of
information, data, records and documents (including but not limited to magnetic
tapes, computer printouts, hard copies and microfilm copies) received by
Investor Services Group from the Fund, or any authorized third party acting on
behalf of the Fund, in the performance of Investor Services Group's duties and
obligations hereunder;
(c) the reliance on, or the implementation of, any Written or Oral Instructions
or any other instructions or requests of the Funds, and
(d) the Fund's refusal or failure to comply with the terms of this Agreement, or
any Claim which arises out of the Fund's negligence or misconduct or the breach
of any representation or warranty of the Fund made herein.
10.2 The Fund agrees and acknowledges that Investor Services Group has not prior
to the date hereof assumed, and will not assume, any obligations or liabilities
arising out of the conduct by the Company prior to the date hereof of those
duties which Investor Services Group has agreed to perform pursuant to this
Agreement. The Fund further agrees to indemnify Investor Services Group against
any losses, claims, damages or liabilities to which Investor Services Group may
become subject in connection with the conduct by the Fund or its agent of such
duties prior to the date hereof.
10.3 In any case in which the Fund may be asked to indemnify or hold Investor
Services Group harmless, Investor Services Group will notify the Fund promptly
after identifying any situation which it believes presents or appears likely to
present a claim for indemnification against the Fund although the failure to do
so shall not prevent recovery by Investor Services Group and shall keep the Fund
advised with respect to all developments concerning such situation. The Fund
shall have the option to defend Investor Services Group against any Claim which
may be the subject of this
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indemnification, and, in the event that the Fund so elects, such defense shall
be conducted by counsel chosen by the Fund and satisfactory to Investor Services
Group, and thereupon the Fund shall take over complete defense of the Claim and
Investor Services Group shall sustain no further legal or other expenses in
respect of such Claim. Investor Services Group will not confess any Claim or
make any compromise in any case in which the Fund will be asked to provide
indemnification, except with the Fund's prior written consent. The obligations
of the parties hereto under this Article 10 shall survive the termination of
this Agreement.
10.4 Any claim for indemnification under this Agreement must be made prior to
the earlier of:
(a) one year after the Fund becomes aware of the event for which indemnification
is claimed; or
(b) one year after the earlier of the termination of this Agreement or the
expiration of the term of this Agreement.
10.5 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
Investor Services Group's sole and exclusive remedy for claims or other actions
or proceedings to which the Fund's indemnification obligations pursuant to this
Article 10 may apply.
Article 11 Standard of Care.
11.1 Investor Services Group shall at all times act in good faith and agrees to
use its best efforts within commercially reasonable limits to ensure the
accuracy of all services performed under this Agreement, but assumes no
responsibility for loss or damage to the Fund unless said errors are caused by
Investor Services Group's own gross negligence, bad faith or willful misconduct
or that of its employees.
11.3 Neither party may assert any cause of action against the other party under
this Agreement that occurred more than two (2) years prior to the filing of the
suit (or commencement of arbitration proceedings) alleging such cause of action.
11.4 Each party shall have the duty to mitigate damages for which the other
party may become responsible.
Article 12 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL
INVESTOR SERVICES GROUP, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF
TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST
PROFITS, EXEMPLARY, PUNITIVE,
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SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, EACH OF WHICH IS HEREBY
EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS OF WHETHER SUCH DAMAGES WERE
FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination.
13.1 This Agreement shall be effective on the date first written above and shall
continue for a period of two (2) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall automatically
renew for successive terms of one (1) year ("Renewal Terms") each, unless the
Fund or Investor Services Group provides written notice to the other of its
intent not to renew. Such notice must be received not less than ninety (90) days
and not more than one-hundred eighty (180) days prior to the expiration of the
Initial Term or the then current Renewal Term.
13.3 In the event a termination notice is given by the Fund, all expenses
associated with movement of records and materials and conversion thereof to a
successor service provider will be borne by the Fund.
13.4 If a party hereto is guilty of a material failure to perform its duties and
obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. If Investor Services Group is the Non-Defaulting Party,
its termination of this Agreement shall not constitute a waiver of any other
rights or remedies of Investor Services Group with respect to services performed
prior to such termination of rights of Investor Services Group to be reimbursed
for out-of-pocket expenses. In all cases, termination by the Non-Defaulting
Party shall not constitute a waiver by the Non-Defaulting Party of any other
rights it might have under this Agreement or otherwise against the Defaulting
Party.
13.5 Should the Fund desire to move any of the services outlined in this
Agreement to a successor service provider prior to the expiration of the Initial
Term or any Renewal Term, or without the required notice period, Investor
Services Group shall make a good faith effort to facilitate the conversion on
such prior date, however, there can be no guarantee that Investor Services Group
will be able to facilitate a conversion of services on such prior date. Should
services be converted to a successor service provider, or if the Fund is
liquidated or its assets merged or purchased or the like with another entity,
prior to the end of the required notice period, payment of fees to Investor
Services Group shall be accelerated to a date prior to the conversion or
termination of services and calculated as if the services had remained at
Investor Services Group until the expiration of the required notice period and
calculated at the asset levels on the date notice of termination was given to
Investor Services Group.
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Article 14 [Reserved]
Article 15 Confidentiality.
15.1 The parties agree that the Proprietary Information (defined below) and the
contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The Fund
and Investor Services Group shall exercise at least the same degree of care, but
not less than reasonable care, to safeguard the confidentiality of the
Confidential Information of the other as it would exercise to protect its own
confidential information of a similar nature. The Fund and Investor Services
Group shall not duplicate, sell or disclose to others the Confidential
Information of the other, in whole or in part, without the prior written
permission of the other party. The Fund and Investor Services Group may,
however, disclose Confidential Information to their respective parent
corporation, their respective affiliates, their subsidiaries and affiliated
companies and employees, provided that each shall use reasonable efforts to
ensure that the Confidential Information is not duplicated or disclosed in
breach of this Agreement. The Fund and Investor Services Group may also disclose
the Confidential Information to independent contractors, auditors, and
professional advisors, provided they first agree in writing to be bound by the
confidentiality obligations substantially similar to this Section 15.1.
Notwithstanding the previous sentence, in no event shall either the Fund or
Investor Services Group disclose the Confidential Information to any competitor
of the other without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive material, and not
generally known to the public, including, but not limited to, information about
product plans, marketing strategies, finance, operations, customer
relationships, customer profiles, sales estimates, business plans, and internal
performance results relating to the past, present or future business activities
of the Fund or Investor Services Group, their respective subsidiaries and
affiliated companies and the customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process, procedure,
formula, or improvement that is commercially valuable and secret in the sense
that its confidentiality affords the Fund or Investor Services Group a
competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation, reports, data,
specifications, computer software, source code, object code, flow charts,
databases, inventions, know-how, show-how and trade secrets, whether or not
patentable or copyrightable.
15.3 Confidential Information includes, without limitation, all documents,
inventions, substances, engineering and laboratory notebooks, drawings,
diagrams, specifications, bills of
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material, equipment, prototypes and models, and any other tangible manifestation
of the foregoing of either party which now exist or come into the control or
possession of the other.
15.4 The obligations of confidentiality and restriction on use herein shall not
apply to any Confidential Information that a party proves:
(a) Was in the public domain prior to the date of this Agreement or subsequently
came into the public domain through no fault of such party; or
(b) Was lawfully received by the party from a third party free of any obligation
of confidence to such third party; or
(c) Was already in the possession of the party prior to receipt thereof,
directly or indirectly, from the other party; or
(d) Is required to be disclosed in a judicial or administrative proceeding after
all reasonable legal remedies for maintaining such information in confidence
have been exhausted including, but not limited to, giving the other party as
much advance notice of the possibility of such disclosure as practical so the
other party may attempt to stop such disclosure or obtain a protective order
concerning such disclosure; or
(f) Is subsequently and independently developed by employees, consultants or
agents of the party without reference to the Confidential Information disclosed
under this Agreement.
Article 16 Force Majeure.
No party shall be liable for any default or delay in the performance of its
obligations under this Agreement if and to the extent such default or delay is
caused, directly or indirectly, by (i) fire, flood, elements of nature or other
acts of God; (ii) any outbreak or escalation of hostilities, war, riots or civil
disorders in any country, (iii) any act or omission of the other party or any
governmental authority; (iv) any labor disputes (whether or not the employees'
demands are reasonable or within the party's power to satisfy); or (v)
nonperformance by a third party or any similar cause beyond the reasonable
control of such party, including without limitation, failures or fluctuations in
telecommunications or other equipment. In any such event, the non-performing
party shall be excused from any further performance and observance of the
obligations so affected only for as long as such circumstances prevail and such
party continues to use commercially reasonable efforts to recommence performance
or observance as soon as practicable.
Article 17 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned or otherwise transferred by either
party hereto, without the prior written consent of the
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other party, which consent shall not be unreasonably withheld; provided,
however, that Investor Services Group may, in its sole discretion, assign all
its right, title and interest in this Agreement to an affiliate, parent or
subsidiary, or to the purchaser of substantially all of its business. Investor
Services Group may, in its sole discretion, engage subcontractors to perform any
of the obligations contained in this Agreement to be performed by Investor
Services Group.
Article 18 Arbitration.
18.1 Any claim or controversy arising out of or relating to this Agreement, or
breach hereof, shall be settled by arbitration administered by the American
Arbitration Association in Boston, Massachusetts in accordance with its
applicable rules, except that the Federal Rules of Evidence and the Federal
Rules of Civil Procedure with respect to the discovery process shall apply.
18.2 The parties hereby agree that judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction.
18.3 The parties acknowledge and agree that the performance of the obligations
under this Agreement necessitates the use of instrumentalities of interstate
commerce and, notwithstanding other general choice of law provisions in this
Agreement, the parties agree that the Federal Arbitration Act shall govern and
control with respect to the provisions of this Article 18.
Article 19 Notice.
Any notice or other instrument authorized or required by this Agreement to be
given in writing to the Fund or Investor Services Group, shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
DLJ High Yield Bond Fund
277 Park Avenue
New York, New York 10172
Attention: President
To Investor Services Group:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to Investor Services Group's General Counsel
Page 12
<PAGE>
Article 20 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on conflicts
of laws, shall govern the interpretation, validity, and enforcement of this
agreement. All actions arising from or related to this Agreement shall be
brought in the state and federal courts sitting in the City of Boston, and
Investor Services Group and the Fund hereby submit themselves to the exclusive
jurisdiction of those courts.
Article 21 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 22 Captions.
The captions of this Agreement are included for convenience of reference only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
Article 23 Publicity.
Neither Investor Services Group nor the Fund shall release or publish news
releases, public announcements, advertising or other publicity relating to this
Agreement or to the transactions contemplated by it without the prior review and
written approval of the other party; provided, however, that either party may
make such disclosures as are required by legal, accounting or regulatory
requirements after making reasonable efforts in the circumstances to consult in
advance with the other party.
Article 24 Relationship of Parties/Non-Solicitation.
24.1 The parties agree that they are independent contractors and not partners or
co-venturers and nothing contained herein shall be interpreted or construed
otherwise.
24.2 During the term of this Agreement and for one (1) year afterward, the Fund
shall not recruit, solicit, employ or engage, for the Fund or others, Investor
Services Group's employees.
Article 25 Entire Agreement; Severability.
25.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be
Page 13
<PAGE>
valid unless in writing signed by each party. No such writing shall be
effective as against Investor Services Group unless said writing is executed by
a Senior Vice President, Executive Vice President, or President of Investor
Services Group. A party's waiver of a breach of any term or condition in the
Agreement shall not be deemed a waiver of any subsequent breach of the same or
another term or condition.
25.2 The parties intend every provision of this Agreement to be severable. If a
court of competent jurisdiction determines that any term or provision is illegal
or invalid for any reason, the illegality or invalidity shall not affect the
validity of the remainder of this Agreement. In such case, the parties shall in
good faith modify or substitute such provision consistent with the original
intent of the parties. Without limiting the generality of this paragraph, if a
court determines that any remedy stated in this Agreement has failed of its
essential purpose, then all other provisions of this Agreement, including the
limitations on liability and exclusion of damages, shall remain fully effective.
Page 14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized officers, as of the day and year first above written.
DLJ HIGH YIELD BOND FUND
By:
-------------------------------------
Title:
----------------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:
-------------------------------------
Title:
----------------------------------
Page 15
<PAGE>
SCHEDULE A
IDENTIFICATION OF PORTFOLIOS
Below are listed the separate Portfolios to which services under this Agreement
are to be performed as of the Execution Date of this Agreement.
DLJ High Yield Bond Fund
This Schedule A may be amended from time to time by agreement of the Parties.
Page 16
<PAGE>
SCHEDULE B
SERVICES TO BE PROVIDED BY INVESTOR SERVICES GROUP
TO DLJ HIGH YIELD BOND FUND (THE "FUND")
Investor Services Group will (i) provide its own office space, facilities,
equipment and personnel for the performance of its duties under this Agreement;
and (ii) take all actions it deems necessary to properly execute its
responsibilities hereunder.
1. SERVICES RELATED TO ADMINISTRATIVE SERVICES
I. Regulatory Compliance
A. Compliance - Federal Investment Company Act of 1940
1. Review, report and renew
a. investment advisory contracts
b. fidelity bond
c administration contracts
d. accounting contracts
e. custody administration contracts
f. transfer agent and shareholder services
2. Filings
a. N-SAR (semi-annual report)
b. filing fidelity bond under 17g-1
c. filing shareholder reports under Rule 30b2-1
3. Annual up-dates of biographical information and questionnaires
for Directors/Trustees and Officers
II. Corporate Business and Shareholder/Public Information
A. Directors/Trustees/Management
1. Preparation of meetings
a. agendas - all necessary items of compliance
b. arrange and conduct meetings
c. prepare minutes of meetings
d. keep attendance records
e. maintain corporate records/minute book
B. Coordinate Proposals
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<PAGE>
1. Printers
2. Auditors
3. Literature fulfillment
4. Insurance
C. Maintain Corporate Calendars and Files
D. Release Corporate Information
1. To shareholders
2. To financial and general press
3. To industry publications
a. distributions (dividends and capital gains)
b. tax information
c. letters from management
d. Fund performance
4. Respond to:
a. financial press
b. miscellaneous shareholders inquiries
c. industry questionnaires
E. Communications to Shareholders
1. Coordinate printing and distribution of annual, semi-annual
reports, proxy solicitation materials and prospectuses
III. Financial and Management Reporting
A. Income and Expenses
1. Monitoring of expense accruals, budgets, expense payments and
expense caps
2. Approve and coordinate payment of expenses
3. Establish Fund's operating expense checking account and perform
monthly reconciliation of checking account
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<PAGE>
4. Calculation of advisory fee
5. Authorize the recording and amortization of organizational costs
and pre-paid expenses (supplied by Advisor), for start-up funds
and reorganizations
6. Calculation of average net assets
7. Expense ratios calculated
B. Distributions to Shareholders
1. Calculations of dividends and capital gain distributions
(in conjunction with the Fund and their auditors)
a. compliance with income tax provisions
b. compliance with excise tax provisions
c. compliance with Investment Company Act of 1940
2. Book/Tax identification and adjustments at required distribution
periods (in conjunction with the Fund's auditors)
C. Financial Reporting
1. Liaison between Fund management, independent auditors and
printers for semi-annual and annual shareholder reports
2. Preparation of semi-annual and annual reports to shareholders
3. Preparation of semi-annual and annual NSAR's (Financial Data)
4. Preparation of Financial Statements for required SEC Post
Effective filings (if applicable)
D. Subchapter M Compliance (monthly)
1. Asset diversification and gross income tests
E. Other Financial Analyses
1. Upon request from Fund management, other budgeting and analyses
can be constructed to meet a Fund's specific needs (additional
fees may apply)
2. Sales information, portfolio turnover (monthly)
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<PAGE>
3. Work closely with independent auditors on tax reporting schedules
prepared by Investor Services Group on return of capital
presentation, excise tax calculation
4. Performance (total return) calculation (monthly)
5. 1099 Miscellaneous - prepared and filed for Directors/Trustees
(annual)
6. Analysis of interest derived from various Government obligations
(annual) (if interest income was distributed in a calendar year)
7. Analysis of interest derived, by state, for Municipal Bond Funds
8. Review and characterize 1099-Dividend Forms
9. Prepare and coordinate with printer the printing and mailing of
1099-Dividend Insert Cards
F. Review and Monitoring Functions (monthly)
1. Review expense and reclassification entries to ensure proper
update
2. Perform various reviews to ensure accuracy of Accounting (the
monthly expense analysis) and Custody (review of daily bank
statements to ensure accurate expense money movement for expense
payments)
3. Review accruals, budgets and expenditures (where applicable)
G. Preparation and distribution of monthly operational reports to
management by 10th business day
1. Management Statistics (Recap)
a. portfolio summary
b. book gains/losses/per share
c. net income, book income/per share
d. capital stock activity
e. distributions
2. Performance Analysis (faxed to Fund 1st workday of month) a.
total return b. monthly, quarterly, year to date, average annual
3. Expense Analysis
a. schedule
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<PAGE>
b. summary of due to/from advisor
c. expenses paid
d. expense cap
e. accrual monitoring
f. advisory fee
4. Portfolio Turnover
a. market value
b. cost of purchases
c. net proceeds of sales
d. average market value
5. Asset Diversification and Gross Income Tests
a. gross assets
b. non-qualifying assets
c. gross income test
6. Activity Summary
a. shares sold, redeemed and reinvested
b. change in investment
H. Provide rating agencies statistical data as requested
(monthly/quarterly)
I. Standard schedules for Board Package (Quarterly)
1. Activity Summary (III-G-7 from above)
2. Expense analysis
3. Other schedules can be provided (additional fees may apply)
2. SERVICES RELATED TO PORTFOLIO VALUATION AND FUND ACCOUNTING
All financial data provided to, processed and reported by Investor Services
Group under this Agreement shall be in United States dollars. Investor Services
Group's obligation to convert, equate or deal in foreign currencies or values
extends only to the accurate transposition of information received from the
various pricing and information services.
A. Daily Accounting Services
1. Determine and Report Cash Availability to the Fund by approximately
9:30 a.m. Eastern Time:
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<PAGE>
o Receive daily cash and transaction statements from the agent
responsible for the safekeeping of the Fund's assets (the
"Custodian") by 8:30 a.m. Eastern time.
o Receive previous day shareholder activity reports from the Transfer
Agent by 8:30 a.m. Eastern time.
o Fax hard copy Cash Availability calculations with all details to the
Fund.
o Supply the Fund with 3-day cash projection report. Prepare
daily bank cash reconciliations. Notify the Custodian and the Fund
of any reconciling items.
2. Reconcile and Record All Expense Accruals:
o Accrue expenses based on budget supplied by the Fund either as
percentage of net assets or specific dollar amounts.
o If applicable, monitor expense limitations established by the Fund.
o If applicable, accrue daily amortization of organizational expense.
3. Verify and Record All Daily Income Accruals for Debt Issues:
o Review and verify all system generated Interest and Amortization
reports.
o Establish unique security codes for bond issues to permit segregated
trial balance income reporting.
4. Monitor Securities Held for Cash Dividends, Corporate Actions and
Capital Changes such as splits, mergers, spin-offs, etc. and process
appropriately.
o Monitor electronically received information from pricing vendors for
securities held in the Fund.
o Review current daily security trades for dividend activity. Monitor
collection and postings of corporate actions, dividends and
interest.
5. Enter All Security Trades on Accounting System based on written
instructions from the Fund's Advisor.
o Review system verification of trade and interest calculations.
o Verify settlement through statements supplied by the Custodian.
o Maintain security ledger transaction reporting.
o Maintain tax lot holdings.
o Determine realized gains or losses on security trades. Provide
broker commission reporting.
6. Prepare and Reconcile/Prove Accuracy of the Trial Balance (listing all
asset, liability, equity, income and expense accounts).
o Post manual entries to the general ledger.
o Post Custodian activity.
o Post security transactions.
o Post and verify system generated activity, i.e. income and expense
accruals.
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<PAGE>
7. Review and Reconcile with Custodian Statements:
o Verify all posted interest, dividends, expenses and shareholder and
security payments/receipts, etc. (Discrepancies will be reported to
the Custodian).
o Post all cash settlement activity to the trial balance. Reconcile to
ending cash balance accounts.
o Clear subsidiary reports with settled amounts.
o Track status of past due items and failed trades as reported by the
Custodian.
8. Submission of Accounting Reports to the Fund: (Additional reports
readily available)
o Trial Balance.
o Cash Availability
o 3-Day Cash Projection Report.
9. As appropriate, enter all Fund Share Transactions on Accounting
System:
o Process activity identified on reports supplied by the
o Transfer Agent.
Verify settlement through statements supplied by the Custodian.
o Reconcile to Transfer Agent report balances.
B. Weekly Accounting Services
1. Calculate Net Asset Value ("NAV"):
o Update the daily market value of securities held by the Fund using
Investor Services Group's standard agents for pricing equity and bond
securities. Pricing Services utilized by Investor Services Group are
Reuters, Inc., Muller Data Corporation, J.J. Kenny Co., Inc.,
Interactive Data Corporation (IDC), Dow Jones Markets (formerly
Telerate Systems, Inc.), Municipal Market Data and Merrill Lynch
Pricing Service for equity, bond and money market prices/yields.
Bloomberg is available and used for price research.
o Enter limited number of manual prices supplied by the Fund and/or
broker.
o Prepare NAV proof sheet. Review components of change in NAV
for reasonableness.
o Review variance reporting on-line and in hard copy for price changes
in individual securities using variance levels established by the
Fund. Verify U.S. dollar security prices exceeding variance levels by
notifying the Fund and pricing sources of noted variances.
o Review for ex-dividend items indicated by pricing sources; trace to
Fund's general ledger for agreement.
o Communicate pricing information (NAV) to the Fund, the Fund's
Transfer Agent and, electronically, to NASDAQ.
o Submission of Weekly Accounting Reports to the Fund: (Additional
reports readily available)
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<PAGE>
o Portfolio Valuation (listing inclusive of holdings, costs, market
values, unrealized appreciation/depreciation and percentage of
portfolio comprised of each security).
o NAV Calculation Report.
o Trial Balance.
C. Monthly Accounting Services
1. Full Financial Statement Preparation (automated Statements of Assets and
Liabilities, of Operations and of Changes in Net Assets) and submission
to the Fund by 10th business day.
2. Submission of Monthly Automated Accounting Reports to the Fund:
o Security Purchase/Sales Journal.
o Interest and Maturity Report.
o Brokers Ledger (Commission Report).
o Security Ledger Transaction Report with Realized Gains/Losses.
o Security Ledger Tax Lot Holdings Report.
o Additional reports available upon request.
3. Submit Reconciliation of Accounting Asset Listing to Custodian Asset
Listing:
o Report any security balance discrepancies to the Custodian/the Fund.
4. Provide Monthly Analysis and Reconciliation of Additional Trial Balance
Accounts, such as:
o Security cost and realized gains/losses.
o Interest/dividend receivable and income.
o Payable/receivable for securities purchased and sold.
o Payable/receivable for fund shares; issued and redeemed.
o Expense payments and accruals analysis.
5. Calculate Month-End NAV
D. Annual (and Semi-Annual) Accounting Services
1. Annually assist and supply Fund's auditors with schedules supporting
securities and shareholder transactions, income and expense accruals,
etc. during the year in accordance with standard audit assistance
requirements.
2. Provide N-SAR Reporting (Accounting Questions) on a Semi-Annual Basis:
If applicable, answer the following items:
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<PAGE>
2, 12B, 20, 21, 22, 23, 28, 30A, 31, 32, 35, 36, 37, 43, 53, 55, 62, 63,
64B, 71, 72, 73, 74, 75 and 76
E. Accounts and Records
On each day the New York Stock Exchange is open for regular trading and
subject to the proper receipt (via Oral or Written Instructions) by Investor
Services Group of all information required to fulfill its duties under this
Agreement, Investor Services Group will maintain and keep current the
following Accounts and Records and any other records required to be kept
pursuant to Rule 31a-1 of the Act relating to the business of the Fund in
such form as may be mutually agreed upon between the Fund and Investor
Services Group:
(1)Net Asset Value Calculation Reports (weekly, unless the Fund directs
daily valuations (additional fees apply));
(2)Cash Receipts Report;
(3)Cash Disbursements Report;
(4)Dividends Paid and Payable Schedule;
(5)Purchase and Sales Journals - Portfolio Securities;
(6)Subscription and Redemption Reports;
(7)Security Ledgers - Transaction Report and Tax Lot Holdings Report;
(8)Broker Ledger - Commission Report;
(9)Expense Accruals;
(10) Interest Accruals;
(11) Trial Balance;
(12) Portfolio Interest Receivable and Income Reports;
(13) Portfolio Dividend Receivable and Income Reports;
(14) Listing of Portfolio Holdings - showing cost, market value and
percentage of portfolio comprised of each security; and
(15) Average Net assets provided on monthly basis.
F. Protocol concerning accuracy of Pricing Portfolio Securities
Investor Services Group shall perform the ministerial calculations necessary
to calculate the net asset value each Friday and the last day of each month
(or daily if the Fund directs) that the New York Stock Exchange is open for
business, in accordance with; (i) the current Prospectus and Statement of
Additional Information for the Fund, and (ii) procedures with respect
thereto approved by the Board of Directors and supplied in writing to
Investor Services Group. Fund items for which market quotations are
available by Investor Services Group's use of an automated financial
information service (the "Service") shall be based on the closing prices of
such Service except where the Fund has given or caused to be given specific
Written or Oral Instructions to utilize a different value subject to the
appropriate provisions in the Fund's Prospectus and Statement of Additional
Information then in effect. All of the portfolio securities shall be given
such values as the Fund provides by Written or
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<PAGE>
Oral Instructions including all restricted securities and other securities
requiring valuation not readily ascertainable solely by such Service subject
to the appropriate provisions in the Fund's Prospectus and Statement of
Additional Information then in effect.
Investor Services Group will have no responsibility or liability for (i) the
accuracy of prices quoted by such Service; (ii) the accuracy of the
information supplied by the Fund; or (iii) any loss, liability, damage, or
cost arising out of any inaccuracy of such data. Investor Services Group
will have no responsibility or duty to include information or valuations to
be provided by the Fund in any computation unless and until it is timely
supplied to Investor Services Group in usable form. Investor Services Group
will record corporate action information as received from the Custodians,
the Service or the Fund. Investor Services Group will not have any duty to
gather or record corporate action information not supplied by these sources.
Investor Services Group will assume no liability for price changes caused by
the Advisor or any subadvisor, Custodian, suppliers of security prices,
corporate action and dividend information, or any party other than Investor
Services Group itself.
G. Basic Assumptions:
The Fund Accounting Fees as set forth in Schedule B are based on the
following assumptions. To the extent these assumptions are inaccurate or
requirements change, fee revisions may be necessary.
1. The Fund's portfolio asset composition will be primarily high yield debt
(100 positions), zero coupon issues and other high yield securities.
Ninety percent of the Fund's securities will have cash payments for
income. Trading activity is expected to be moderately high, with an
annual turnover rate of 75%. The Fund's total asset levels are projected
to be $250 - $750 million.
2. The Fund has a tax year-end which coincides with its fiscal year-end. No
additional accounting requirements are necessary to identify or maintain
book-tax differences. Investor Services Group does not provide security
tax accounting which differs from its book accounting under this fee
schedule.
3. The Fund agrees to the use of Investor Services Group's standard current
pricing services for domestic equity, debt, ADR and foreign securities.
It is assumed that Investor Services Group will work closely with the
Fund to ensure the accuracy of the Fund's NAV and to obtain the most
satisfactory pricing sources and specific methodologies prior to the
actual start-up date. The Fund will establish security variance
procedures to minimize NAV miscalculations.
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<PAGE>
4. To the extent the Fund requires a limited number of security prices from
specific brokers (as opposed to pricing information received
electronically), these manual prices will be obtained by the Fund's
Advisor and faxed to Investor Services Group by 4:00 p.m. Eastern time
for inclusion in the NAV calculations. The Advisor will supply Investor
Services Group with the appropriate pricing contacts for these manual
quotes. Additional fees may apply should a high-level of manual prices
be necessary.
5. Investor Services Group will supply Portfolio Valuation Reports to the
Fund's Advisor identifying current security positions,
original/amortized cost, security market values and changes in
unrealized appreciation/depreciation. It will be the responsibility of
the Advisor to review these reports and to promptly notify Investor
Services Group of any possible problems, trade discrepancies, incorrect
security prices or corporate action/capital change information that
could result in a misstated NAV.
6. The Fund does not currently expect to invest in Open-end Regulated
Investment Company's (RIC's), REIT's, Swaps, Futures, Hedges,
Derivatives or foreign (non-U.S. dollar denominated) securities and
currency. To the extent these investment strategies should change,
additional fees may apply after the appropriate procedural discussions
have taken place between Investor Services Group and Fund management.
(Two weeks advance notice is required should the Fund commence trading
in these investments.)
7. The Fund will supply Investor Services Group with income information
such as accrual methods, interest payment frequency details, coupon
payment dates, floating rate reset dates, and complete security
descriptions with issue types and CUSIP/Sedol numbers for all debt
issues. The Fund's Advisor shall supply the yield to maturity, related
cash flow schedules and principal repayment factors for any
mortgage/asset-backed securities held in the Fund not available on
Bloomberg.
8. The Fund is responsible for the establishment and monitoring of any
segregated accounts pertaining to any line of credit for temporary
administrative purposes, and/or leveraging/hedging the portfolio.
Investor Services Group will reflect appropriate trial balance account
entries for interest expense accrual charges on the daily trial balance
adjusting as necessary at month-end.
9. If the Fund commences participation in security lending or short sales
within its portfolio securities, additional fees may apply. Should the
Fund require these additional services, procedural discussions must take
place between Investor Services Group and the Fund's Advisor to clarify
responsibilities. (Two weeks advance notice to Investor Services Group
is required should the Fund desire to participate in the above.)
10. The Fund will supply Investor Services Group with portfolio specific
expense accrual procedures and monitor the expense accrual balances for
adequacy based on outstanding liabilities monthly.
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<PAGE>
11. The following specific deadlines will be met and complete information
will be supplied by the Fund in order to minimize any settlement
problems, NAV miscalculations or income accrual adjustments.
The Fund will direct its Advisor to provide Trade Authorization Forms to
Investor Services Group with the appropriate officer's signature on all
security trades placed by the Fund no later than 12:30 p.m. Eastern time
on settlement/value date for short term money market securities issues
(assuming that trade date equals settlement date); and by 11:00 a.m.
Eastern time on trade date plus one for non-money market securities.
Receipt by Investor Services Group of trade information within these
identified deadlines may be made via telex, fax or on-line system
access. The Advisor will supply Investor Services Group with the trade
details in accordance with the above stated deadlines.
The Advisor will provide all information required by Investor Services
Group, including CUSIP/Sedol numbers and/or ticker symbols for all
trades on the Trade Authorization, telex or on-line support. Investor
Services Group will supply the Advisor with recommended trade ticket
documents to minimize receipt of incomplete information. Investor
Services Group will not be responsible for NAV changes or distribution
rate adjustments that result from incomplete trade information.
12. To the extent the Fund utilizes purchases in-kind (U.S. dollar
denominated securities only) as a method for shareholder subscriptions,
Investor Services Group will provide the Fund with procedures to
properly handle and process such transactions. Should the Fund prefer
procedures other than those provided by Investor Services Group,
additional fees may apply. Discussions shall take place at least two
weeks in advance between Investor Services Group and the Fund to clarify
the appropriate in-kind operational procedures to be followed.
13. The Parties will establish mutually agreed upon amortization procedures
and accretion requirements for debt issues held by the Fund prior to
commencement of operations.
14. The Fund Accounting fees assume Custody Administration will be provided
by Investor Services Group.
3. SERVICES RELATED TO CUSTODY ADMINISTRATION
o Assign a custody administrator to accept, control and process the Fund's
daily portfolio transactions through direct computer link with the
Custodian.
o Match and review DTC eligible ID's and trade information with the Fund's
instructions for accuracy and coordinating with the Custodian and the
Fund's accounting agent for recording and affirmation processing with
the depository.
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<PAGE>
o Systematically settle all depository eligible issues. Transactions
requiring physical delivery will be settled through the Custodian's New
York office.
o Assist the Fund in placing cash management trades through Custodian,
such as commercial paper, CD's and repurchase agreements.
o Provide Investor Services Group the Advisor with daily custodian
statements reflecting all prior day cash activity on behalf of each
portfolio by 8:30 a.m. Eastern time. Complete descriptions of any
posting, inclusive of Sedol/CUSIP numbers, interest/dividend payment
date, capital stock details, expense authorizations, beginning/ending
cash balances, etc., will be provided by the Custodian's reports or
system.
o Provide monthly activity statements combining both cash changes and
security trades, and a full portfolio listing.
o Communicate to the Fund Investor Services Group on any corporate
actions, capital changes and interest rate changes supported by
appropriate supplemental reports received from the Custodian. Follow-up
will be made with the Custodian to ensure all necessary actions and/or
paperwork is completed.
o Work with Investor Services Group and the Custodian on monthly asset
reconciliations.
o Coordinate and resolve unsettled dividends, interest, paydowns and
capital changes. Assist in resolution of failed transactions and any
settlement problems.
o Arrange for securities lending, lines of credit and/or letters of credit
through the Custodian.
o Provide automated mortgage-backed processing through the Custodian.
o Provide broker interface ensuring trade settlement with fail trade
follow-up.
o Provide the Fund's auditors with trade documentation to help expedite
the Fund's audit.
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SCHEDULE C
After the one year anniversary of the effective date of this Agreement, Investor
Services Group may adjust the above fees once per calendar year, upon thirty
(30) days prior written notice in an amount not to exceed the cumulative
percentage increase in the Consumer Price Index for All Urban Consumers (CPI-U)
U.S. City Average, All items (unadjusted) - (1982-84=100), published by the U.S.
Department of Labor since the last such adjustment in the Fund's monthly fees
(or the Effective Date absent a prior such adjustment).
I. Fees Related to Fund Administration (1/12th payable monthly)
$50,000 per year
II. Fees Related to Fund Accounting and Portfolio Valuation
A. Annual Fee Schedule: U.S. Dollar Denominated Securities only (1/12th
payable monthly)
1) Annual Fee Schedule - Weekly NAV Calculations
$27,000 Annual minimum, plus
.0001 on Average Net Assets to $1 Billion
.000075 on Average Net Assets over $1 Billion
2) Annual Fee Schedule - Daily NAV Calculations
$33,000 Annual minimum, plus
.0001 on Average Net Assets to $1 Billion
.000075 on Average Net Assets over $1 Billion
3) Rights Offering
If such an offering occurs, then there would be an associated
one-time fee not to exceed $5,000, depending on the services required
for each Rights Offering.
B. Pricing Services Quotation Fee
Specific costs will be identified based upon options selected by the
Fund and will be billed monthly.
Investor Services Group does not currently pass along the charges for
the U.S. equity prices supplied by Muller Data. Should the Fund invest
in security types other than domestic equities supplied by Muller, the
following fees would apply.
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<PAGE>
<TABLE>
<CAPTION>
Muller Data Interactive J.J. Kenny
Security Types Corp.* Data Corp.* Co., Inc.*
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Government Bonds $ $ $
- --------------------------------------------------------------------------------
Mortgage-Backed (evaluated, seasoned,
closing)
- --------------------------------------------------------------------------------
Corporate Bonds (short and long term)
- --------------------------------------------------------------------------------
U.S. Municipal Bonds (short and long
term)
- --------------------------------------------------------------------------------
CMO's/ARM's/ABS
- --------------------------------------------------------------------------------
Convertible Bonds
- --------------------------------------------------------------------------------
High Yield Bonds
- --------------------------------------------------------------------------------
Mortgage-Backed Factors (per Issue per
Month)
- --------------------------------------------------------------------------------
U.S. Equities (d) .15 n/a
- --------------------------------------------------------------------------------
U.S. Options
- --------------------------------------------------------------------------------
Domestic Dividends & Capital Changes
(per Issue per Month)
- --------------------------------------------------------------------------------
Foreign Securities
- --------------------------------------------------------------------------------
Foreign Securities Dividends & Capital
Changes
(per Issue per Month)
- --------------------------------------------------------------------------------
Set-up Fees
- --------------------------------------------------------------------------------
All Added Items .25 (c)
- --------------------------------------------------------------------------------
</TABLE>
* Based on current Vendor costs, subject to change. Costs are quoted
based on individual security CUSIP/identifiers and are per issue
per day.
(a) $35.00 per day minimum
(b) $25.00 per day minimum
Page 31
<PAGE>
(c) $ 1.00, if no CUSIP
(d) At no additional cost to Investor Services Group clients
(e) Interactive Data also charges monthly transmission costs and
disk storage charges.
C. Futures and Currency Forward Contracts $2.00 per Issue per Day
D. Dow Jones Markets (formerly Telerate Systems, Inc.)* (if applicable)
*Based on current vendor costs, subject to change.
Specific costs will be identified based upon options selected by DLJ and
will be billed monthly.
E. Reuters, Inc.*
*Based on current vendor costs, subject to change.
Investor Services Group does not currently pass along the charges for
the domestic security prices supplied by Reuters, Inc.
F. Municipal Market Data* (if applicable)
*Based on current vendor costs, subject to change.
Specific costs will be identified based upon options selected by DLJ and
will be billed monthly.
III. Fees Related to Custody Administration of Fund Assets Using Citibank,
N.A. 70% of the following fees will apply
A. Domestic Securities and ADRs: (1/12th payable monthly)
U.S. Dollar Denominated Securities only
.000168 On First $ 75 Million of Average Net Assets
.000120 On the Next $ 75 Million of Average Net Assets
.000100 Over $150 Million of Average Net Assets
Minimum monthly fee is $500 per Portfolio.
B. Custody Domestic Securities Transactions Charge: (billed monthly)
Book Entry DTC, Federal Book Entry, PTC $14.00
Physical/RIC's $24.00
Mortgage Backed Securities -- Principal paydown per pool $11.00
Options $45.00
Page 32
<PAGE>
A transaction includes buys, sells, maturities or free security movements.
C. When Issued, Securities Lending, Index Futures, etc.:
Should any investment vehicle require a separate segregated custody
account, a fee of $250 per account per month will apply to the long
term funds, $125 per account per month for the money funds.
D. Custody Miscellaneous Fees
Administrative fees incurred in certain local markets will be passed
onto the customer with a detailed description of the fees. Fees include
income collection, corporate action handling, overdraft charges, funds
transfer, special local taxes, stamp duties, registration fees,
messenger and courier services and other out-of-pocket expenses.
Additional Services
To the extent the Fund commences using investment techniquest such as Security
Lending, Swaps, Leveraging, Short Sales, Derivatives, Precious Metals, or
foreign (non-U.S.D.) securities and currency, additional fees will apply.
Activities of a non-recurring nature such as shareholder inkinds, rights
offerings, fund consolidations, mergers or reorganizations will be subject to
negotiation. Any additional/enhanced services, programming requests, or reports
will be quoted upon request.
Page 33
<PAGE>
SCHEDULE D
OUT-OF-POCKET EXPENSES
The Fund shall reimburse Investor Services Group monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
o Microfiche/microfilm production
o Magnetic media tapes and freight
o Printing costs, including certificates, envelopes, checks and stationery
o Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct pass
through to the Fund
o Due diligence mailings
o Telephone and telecommunication costs, including all lease, maintenance
and line costs
o Ad hoc reports
o Proxy solicitations, mailings and tabulations
o Daily & Distribution advice mailings
o Shipping, Certified and Overnight mail and insurance
o Year-end form production and mailings
o Terminals, communication lines, printers and other equipment and any
expenses incurred in connection with such terminals and lines
o Duplicating services
o Courier services
o Incoming and outgoing wire charges
o Federal Reserve charges for check clearance
o Overtime, as approved by the Fund
o Temporary staff, as approved by the Fund
o Travel to and from Board meetings
o Travel and entertainment, as approved by the Fund
o Record retention, retrieval and destruction costs, including, but not
limited to exit fees charged by third party record keeping vendors
o Third party audit reviews
o Ad hoc SQL time
o Insurance
o Pricing services (or services used to determine Fund NAV)
o Forms and supplies for the preparation of Board meetings and other
materials for the Fund
o Vendor set-up charges for Blue Sky services
o Customized programming requests
o SAS 70
o Cold Storage
o Document Retrieval
Page 34
<PAGE>
o Vendor pricing comparison
o Manual pricing
o Such other miscellaneous expenses reasonably incurred by Investor
Services Group in performing its duties and responsibilities under
this Agreement.
The Fund agrees that postage and mailing expenses will be paid on the day of or
prior to mailing as agreed with Investor Services Group. In addition, the Fund
will promptly reimburse Investor Services Group for any other unscheduled
expenses incurred by Investor Services Group whenever the Fund and Investor
Services Group mutually agree that such expenses are not otherwise properly
borne by Investor Services Group as part of its duties and obligations under the
Agreement.
<PAGE>
SCHEDULE E
FUND DOCUMENTS
Certified copy of the Articles of Incorporation of the Fund, as
amended
Certified copy of the By-laws of the Fund, as amended
Copy of the resolution of the Board of Directors authorizing the
execution and delivery of this Agreement
Copies of all agreements between the Fund and its service providers
Each Fund's most recent post-effective amendment to its Registration
Statement
Each Fund's most recent prospectus and statement of additional
information, if applicable, and all amendments and supplements
thereto
July __, 1998
DLJ High Yield Bond Fund
277 Park Avenue
New York, NY 10172
Re: DLJ High Yield Bond Fund
Registration on Form N-2
Ladies and Gentlemen:
We have acted as special counsel to DLJ High Yield Bond Fund, a
business trust formed under the Delaware Business Trust Act (Chapter 38, Title
12, of the Delaware Code, 12 Del. C. "3801 et seq.) (the "Trust"), in connection
with the initial public offering by the Trust of up to [_______] shares
(including [___] shares subject to an over-allotment option) (the "Shares") of
the Trust's Common Shares of Beneficial Interest, par value $.001 per share (the
"Common Interests").
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Notification of Registration of the Trust as an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), on Form N-8A, as
filed with the Securities and Exchange Commission (the "Commission") on May 11,
1998 under the 1940 Act (the "1940 Act Notification"); (ii) the Registration
Statement on Form N-2 (File Nos. 33-52373 and 811-8777), as filed with the
Commission on May 11, 1998 under the Securities Act of 1933, as amended (the
"1933 Act"), and the 1940 Act, Amendment No. 1 thereto, as filed with the
Commission on June 25, 1998
<PAGE>
and Amendment No. 2 thereto, as filed with the Commission on July 27, 1998 (such
Registration Statement, as so amended, being hereinafter referred to as the
"Registration Statement"); (iii) the form of the Underwriting Agreement (the
"Underwriting Agreement") proposed to be entered into between the Trust, as
issuer, and Donaldson, Lufkin & Jenrette Securities Corporation, as
representative of the several underwriters named therein (the "Underwriters"),
filed as an exhibit to the Registration Statement; (iv) a specimen certificate
representing the Common Interests; (v) the Agreement and Declaration of Trust of
the Trust, as currently in effect; (vi) the By-Laws of the Trust, as currently
in effect; and (vii) certain resolutions of the Board of Trustees of the Trust
and drafts of certain resolutions (the "Draft Resolutions") of the Executive
Committee of the Board of Trustees of the Trust (the "Executive Committee") in
each case relating to the issuance and sale of the Shares and related matters.
We have also examined originals or copies, certified or otherwise identified to
our satisfaction, of such records of the Trust and such agreements, certificates
of public officials, certificates of officers or other representatives of the
Trust and others, and such other documents, certificates and records as we have
deemed necessary or appropriate as a basis for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed, facsimile or photostatic
copies and the authenticity of the originals of such latter documents. In making
our examination of documents executed or to be executed by parties other than
the Trust, we have assumed that such parties had or will have the power,
corporate or other,
2
<PAGE>
to enter into and perform all obligations thereunder and have also assumed the
due authorization by all requisite action, corporate or other, and execution and
delivery by such parties of such documents and the validity and binding effect
thereof. As to any facts material to the opinions expressed herein which we have
not independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Trust and others.
Members of our firm are admitted to the bar in the States of New
York and Delaware, and we do not express any opinion as to any laws other than
the Delaware Business Trust Act.
Based upon and subject to the foregoing, we are of the opinion
that when (i) the Registration Statement becomes effective; (ii) the Draft
Resolutions have been adopted by the Executive Committee of the Board of
Trustees; (iii) the price at which the Shares are to be sold to the Underwriters
pursuant to the Underwriting Agreement and other matters relating to the
issuance and sale of the Shares have been approved by the Executive Committee of
the Board of Trustees in accordance with the Draft Resolutions; (iv) the
Underwriting Agreement has been duly executed and delivered; and (v)
certificates representing the Shares in the form of the specimen certificates
examined by us have been manually signed by an authorized officer of the
transfer agent and registrar for the Common Interests and registered by such
transfer agent and registrar, and delivered to and paid for by the Underwriters
as contemplated by the Underwriting Agreement, the issuance and sale of the
Shares will have been duly authorized, and the Shares will be validly issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration
3
<PAGE>
Statement. We also consent to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In giving this consent, we do not
thereby admit that we are included in the category of persons whose consent is
required under Section 7 of the 1933 Act or the rules and regulations of the
Commission.
Very truly yours,
4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the caption
"Experts" and to the use of our report dated July 24, 1998 in
this Registration Statement (Form N-2 No. 333-52373) of DLJ High
Yield Bond Fund.
ERNST & YOUNG LLP
New York, New York
July 24, 1998
July 2, 1998
DLJ High Yield Bond Fund
277 Park Avenue
New York, NY 10172
Ladies and Gentlemen:
DLJ Investment Management Corp. (the "Adviser") hereby offers and
agrees to purchase 10,000 shares (the "Shares") of DLJ High Yield Bond Fund's
common shares of beneficial interest, par value $.001 per share, at a price of
$10.00 per share for an aggregate purchase price of $100,000. The Adviser
acknowledges that the Shares are being purchased for the Adviser's own account
and for investment purposes only and will be sold only pursuant to a
registration statement declared effective under the Securities Act of 1933, as
amended, or an exemption therefrom.
Sincerely,
DLJ Investment Management Corp.
By: /s/ G. Moffett Cochran
----------------------------
Name: G. Moffett Cochran
Title: President
DLJ High Yield Bond Fund hereby accepts the Adviser's offer to
purchase the Shares at a price of $10.00 per Share for an aggregate purchase
price of $100,000.
DLJ High Yield Bond Fund
By: /s/ G. Moffett Cochran
-----------------------------
Name: G. Moffett Cochran
Title: Predient
POWER OF ATTORNEY
Know all men by these presents:
That each of the undersigned officers and trustees of DLJ High Yield
Bond Fund, an unincorporated business trust formed under the laws of the State
of Delaware (the "Trust"), do constitute and appoint G. Moffett Cochran and
Martin Jaffe, and each of them, his true and lawful attorneys and agents, each
with full power and authority (acting alone and without the other) to execute in
the name and on behalf of each of the undersigned as such officer or trustee, a
Registration Statement on Form N-2, including any pre-effective amendments
and/or any post-effective amendments thereto and any subsequent Registration
Statement filed by the Trust pursuant to Rule 462(b) of the Securities Act of
1933, as amended (the "1933 Act") or other filings in connection therewith,
under the 1933 Act or the Investment Company Act of 1940, as amended, with
respect to the issuance of up to 200,000,000 shares of the Trust's common shares
of beneficial interest, par value $.001 per share; granting to such attorneys
and agents and each of them, full power of substitution and revocation in the
premises; and ratifying and confirming all that such attorneys and agents, or
either of them, may do or cause to be done by virtue of these presents.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original, but which taken together shall constitute
one instrument.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney this 16th day of July, 1998.
/s/ G. Moffett Cochran
------------------------------------------------
G. Moffett Cochran
Trustee and President
/s/ Martin Jaffe
------------------------------------------------
Martin Jaffe
Trustee, Vice President, Treasurer and Secretary
<PAGE>
/s/ Robert E. Fischer
------------------------------------------------
Robert E. Fischer
Trustee
/s/ John W. Waller, III
------------------------------------------------
John W. Waller, III
Trustee
/s/ Wilmot H. Kidd, III
------------------------------------------------
Wilmot H. Kidd, III
Trustee
/s/ Lars M. Berkman
------------------------------------------------
Lars M. Berkman
Vice President
/s/ Brian A. Kammerer
------------------------------------------------
Brian A. Kammerer
Vice President
2
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-START> Oct-31-1997
<PERIOD-END> Jul-06-1998
<CASH> 100,000
<SECURITIES> 0
<RECEIVABLES> 985,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,085,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,085,000
<CURRENT-LIABILITIES> 985,000
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 99,990
<TOTAL-LIABILITY-AND-EQUITY> 1,085,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
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</TABLE>
