<PAGE>
PRESIDENT'S LETTER
The total return based on market price for the DLJ High Yield Bond Fund from
the date of the Fund's initial public offering on July 31, 1998 through October
31, 1998, the Fund's fiscal year end, was --1.74%. The Fund's total return
based on NAV for this period was --13.75% compared with the Lipper Closed End
High Yield Bond Fund Average return of --12.76%.
We have taken advantage of the recent market turmoil. As we invested the
proceeds from the Fund's IPO in July 1998, market conditions worsened. We
limited the damage by buying bonds with a lower risk profile than originally
intended, focusing on non-commodity industry sectors (Media & Value-added
Technology) and using less financial leverage than anticipated. This gave us
the resources to selectively buy lower-risk bonds at higher yields as the
market spiraled downwards during the summer and early fall of 1998. We upgraded
the quality of Fund assets during the sharp rally in the fall, in particular
lightening-up on cyclical and commodity industrial bonds, as we think that both
the U.S. and the world economies may be somewhat weaker than the consensus
forecasts for 1999. To counter-balance the lower return on Fund assets, we
increased the financial leverage of the Fund from $50 million at fiscal
year-end to $109 million in late December 1998. In our opinion, the higher
quality of Fund assets should cushion the NAV in the event of another downturn
in high yield markets in 1999. On that account, we are guardedly optimistic.
Although the equity markets may face pressure in 1999 due to high valuations,
the very low U.S. government bond yields and consequent high spreads available
in the high yield bond market should limit the downward price movement of high
yield bonds.
The steep decline in financial markets during the late summer and fall of 1998
triggered a "flight to quality and liquidity" that hammered down the value of
high yield bonds along with virtually all risk assets. However, it was our
belief that the fundamentals underpinning the U.S. high yield bond market were
essentially sound and that the market would rebound once more normal conditions
prevailed in financial markets. We note that most high yield bond issuers have
benefited greatly from several years of economic expansion and strong equity
markets in the U.S. Generally, most of these companies are not over-leveraged,
have adequate liquidity given their own cash resources, are not nearly fully
drawn on their bank lines, and generate cash flows that comfortably cover fixed
charges. We believe that as long as the U.S. stays out of a deep recession,
these factors should prevail.
Our belief that the high yield market would rebound was proven correct. Once
the Federal Reserve Board started to cut interest rates and various
international bodies began to address the well-known worldwide economic
problems, liquidity flowed back into risk assets and the value of high yield
bonds rebounded sharply. During the month of November 1998, the NAV of the Fund
rose over 7.4% and the total return to shareholders was 0.9% as the premium to
NAV on the shares compressed from 15.0% to 6.5%.
Over the next 12 months, we believe high yield bonds should be among the best
performing securities. The prevailing historically wide spread between high
yield bonds over U.S. Treasury bonds should provide substantial current income,
and lower interest rates could provide a few percentage points of capital
appreciation. Lastly, because high yield bonds have lagged equities in
recovering from the downdraft in the financial markets in the summer of 1998,
we expect that considerable amounts of new money will flow into the high yield
market in 1999 from mutual funds, pension funds and insurance companies. This
flow should support higher valuation for high yield bonds.
We would like to thank you for your investment in the DLJ High Yield Bond Fund
and for the opportunity to serve your investment needs. The Officers and
Trustees wish you a happy and prosperous New Year.
Sincerely,
/s/ G. Moffett Cochran
- ----------------------
G. Moffett Cochran
President December, 1998
<PAGE>
Fund Highlights (unaudited)
DLJ High Yield Bond Fund
<TABLE>
<CAPTION>
Top Ten Holdings as of October 31, 1998
---------------------------------------
% of Total % of Total
Security Description Net Assets Security Description Net Assets
<S> <C> <C> <C>
Unisys Corp. Hollinger International Publishing, Inc.
12.000%, 04/15/03 2.48% 9.250%, 02/01/06 1.73%
Kaiser Aluminum & Chemical Corp. UCAR Global Enterprises, Inc.
12.750%, 02/01/03 2.33% 12.000%, 01/15/05 1.69%
Echostar Communications Corp. Time Warner Telecom, Inc.
0.000%, 06/01/04 2.15% 9.750%, 07/15/08 1.67%
Young Broadcasting Corp. American Lawyer Media, Inc.
11.750%, 11/15/04 1.94% 9.750%, 12/15/07 1.66%
Paging Network, Inc. Regal Cinemas, Inc.
10.000%, 10/15/08 1.89% 9.500%, 06/01/08 1.65%
Portfolio and Fund Information October 31, 1998
-----------------------------------------------
Current Yield(1): 10.04% Ticker Symbol: DHY
Distribution Rate(2): 9.65% Primary Exchange: NYSE
Average Rating: B
Average Years to Maturity*: 7.46 years
Average Duration*: 4.74 years
*weighted average
Investment Results July 31, 1998* through October 31, 1998
----------------------------------------------------------
DLJ High Yield Bond Fund Total Return(3)
------------------------ --------------
Market Price ............................................... -1.74%
NAV(4) ..................................................... -13.75%
Fund Index
----------
Lipper Closed-End High Yield Bond Fund Average(5) .......... -12.76%
*Date of closing of the Fund's Initial Public Offering
</TABLE>
- ------------
(1) Current yield is based on October's dividend per share of $.08 (annualized)
divided by the October 31 market price ($9.5625).
(2) Distribution rate is based on dividends per share paid from net investment
income during the period from the Fund's inception through October 31
(annualized) divided by the October 31 market price.
(3) The performance data quoted represents past performance, which is no
indication of future performance. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. No adjustment has been made for any income
taxes payable by shareholders on dividends.
(4) The total return referenced reflects the change in the Fund's net asset
value over the period and assumes that dividends were reinvested. The
percentage is not an indication of the performance of a shareholder's
investment in the Fund which is based on market price.
(5) The Lipper Closed-End High Yield Bond Fund Average is an equally weighted
performance average of 34 funds in the Lipper Analytical grouping of
closed-end high yield bond funds, adjusted for capital gains and income
dividends.
<PAGE>
DLJ High Yield Bond Fund--Statement of Investments October 31, 1998
- --------------------------------------------------------------------------------
BONDS--112.97%
<TABLE>
<CAPTION>
Principal
Amount Value
------------ ------------
<S> <C> <C>
AEROSPACE--2.55%
BE Aerospace
9.50%, 11/01/08 .................... $4,000,000 $4,120,000
Compass Aerospace Corp.
10.13%, 04/15/05 *, ** ............. 5,150,000 5,047,000
----------
9,167,000
----------
CHEMICALS--4.20%
Acetex Corp.
9.75%, 10/01/03 ** ................. 1,000,000 945,000
Pioneer Americas Acquisition Corp.
9.25%, 06/15/07 ** ................. 5,000,000 3,750,000
Sterling Chemicals, Inc.
11.75%, 08/15/06 ** ................ 4,000,000 3,080,000
Sterling Chemicals, Inc.
11.25%, 04/01/07 ** ................ 2,425,000 1,855,125
Trans-Resources, Inc.
0.00%, 03/15/08 **, *** ............ 10,000,000 5,500,000
----------
15,130,125
----------
CONSUMER NON-DURABLES--3.57%
Boyds Collection
9.00%, 05/15/08 * .................. 2,750,000 2,547,187
Galey & Lord, Inc.
9.13%, 03/01/08 ** ................. 6,000,000 5,370,000
Nine West Group, Inc.
9.00%, 08/15/07 *, ** .............. 6,000,000 4,927,500
----------
12,844,687
----------
ENERGY--2.78%
Belden & Blake Corp.
9.88%, 06/15/07 ** ................. 6,000,000 4,560,000
Mariner Energy, Inc.
10.50%, 08/01/06 ** ................ 6,000,000 5,437,500
----------
9,997,500
----------
FOOD & DRUGS--4.70%
Jitney-Jungle Stores of America, Inc.
12.00%, 03/01/06 ** ................ 5,000,000 5,412,500
Pathmark Stores, Inc.
12.63%, 06/15/02 ** ................ 6,000,000 5,730,000
Pueblo Xtra International, Inc.
9.50%, 08/01/03 .................... 6,000,000 5,790,000
----------
16,932,500
----------
FOOD & TOBACCO--1.53%
Advantica Restaurant Group, Inc.
11.25%, 01/15/08 ** ................ 6,000,000 5,490,000
----------
FOREST PRODUCTS/CONTAINERS--4.37%
Gaylord Container Corp.
9.38%, 06/15/07 ** ................. 6,000,000 4,575,000
Pt Indah Kiat Pulp & Paper Corp.
10.00%, 07/01/07 ** ................ 5,000,000 2,675,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
------------ ------------
<S> <C> <C>
Repap New Brunswick
10.63%, 04/15/05 ** ................ $5,700,000 $3,762,000
Riverwood International Corp.
10.63%, 08/01/07 ** ................ 5,000,000 4,712,500
----------
15,724,500
----------
GAMING/LEISURE--6.72%
Bell Sports, Inc.
11.00%, 08/15/08 *, ** ............. 6,000,000 5,940,000
Casino America, Inc.
12.50%, 08/01/03 ** ................ 5,000,000 5,400,000
Extended Stay America, Inc.
9.15%, 03/15/08 *, ** .............. 5,000,000 4,287,500
Stations Casinos
10.13%, 03/15/06 ................... 5,000,000 4,975,000
Venetian Casino/LV Sands
12.25%, 11/15/04 ** ................ 4,000,000 3,570,000
----------
24,172,500
----------
HEALTH CARE--5.72%
Alaris Medical, Inc.
0.00%, 08/01/08 *, **, *** ......... 10,000,000 4,550,000
ICN Pharmaceuticals, Inc.
8.75%, 11/15/08 * .................. 6,000,000 5,857,500
Integrated Health Services
9.25%, 01/15/08 ** ................. 6,000,000 5,460,000
Medaphis Corp.
9.50%, 02/15/05 ** ................. 5,000,000 4,706,250
----------
20,573,750
----------
HOUSING--1.65%
Nortek, Inc.
9.88%, 03/01/04 ** ................. 3,000,000 2,955,000
Nortek, Inc.
9.25%, 03/15/07 ** ................. 3,000,000 2,992,500
----------
5,947,500
----------
INFORMATION TECHNOLOGY--4.09%
Details, Inc.
10.00%, 11/15/05 ** ................ 6,000,000 5,782,500
Unisys Corp.
12.00%, 04/15/03 ** ................ 7,984,000 8,942,080
----------
14,724,580
----------
MANUFACTURING--5.06%
Albecca, Inc.
10.75%, 08/15/08 *, ** ............. 6,000,000 5,692,500
Anchor Lamina, Inc.
9.88%, 02/01/08 ** ................. 4,500,000 3,555,000
Grove Worldwide LLC
9.25%, 05/01/08 *, ** .............. 5,000,000 4,400,000
Roller Bearing Company
9.63%, 06/15/07 .................... 5,000,000 4,550,000
----------
18,197,500
----------
See notes to financial statements.
</TABLE>
<PAGE>
DLJ High Yield Bond Fund--Statement of Investments October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
------------ ------------
<S> <C> <C>
MEDIA-BROADCASTING--1.37%
Cumulus Media, Inc.
10.38%, 07/01/08 .................... $5,000,000 $4,937,500
----------
MEDIA/ENTERTAINMENT--24.27%
AMC Entertainment, Inc.
9.50%, 03/15/09 ** .................. 6,000,000 5,700,000
American Lawyer Media, Inc.
9.75%, 12/15/07 ** .................. 6,000,000 5,970,000
Citadel Broadcasting Company
10.25%, 07/01/07 .................... 3,000,000 3,150,000
Echostar Communications Corp.
0.00%, 06/01/04 **, *** ............. 8,000,000 7,740,000
Globo Communicacoes e Participacoes S.A.
10.63%, 12/05/08 *, ** ................ 6,000,000 3,262,500
Hollinger International Publishing, Inc.
9.25%, 02/01/06 ** .................. 6,000,000 6,240,000
Hollinger International Publishing Inc.
9.25%, 03/15/07 ..................... 1,450,000 1,511,625
Premier Parks, Inc.
9.25%, 04/01/06 ** .................. 4,000,000 3,900,000
PSINet, Inc.
10.00%, 02/15/05 ** ................. 6,000,000 5,880,000
RCN Corp.
0.00%, 10/15/07 **, *** ............. 9,000,000 4,680,000
Regal Cinemas, Inc.
9.50%, 06/01/08 *, ** ............... 6,000,000 5,955,000
Regional Independent Media
10.50%, 07/01/08 *, ** .............. 6,000,000 5,812,500
Rogers Cablesystems, Ltd.
10.00%, 12/01/07 ** ................. 5,105,000 5,564,450
SFX Entertainment, Inc.
9.13%, 02/01/08 ** .................. 6,000,000 5,595,000
Six Flags Entertainment Corp.
8.88%, 04/01/06 ** .................. 2,000,000 2,040,000
TV Azteca SA DE CV
10.50%, 02/15/07 ** ................. 5,000,000 3,625,000
United International Holdings, Inc.
0.00%, 02/15/08 **, *** ............. 8,000,000 3,760,000
Young Broadcasting Corp.
11.75%, 11/15/04 ** ................. 6,589,000 6,984,340
----------
87,370,415
----------
METALS & MINERALS--11.25%
CSN Iron SA
9.13%, 06/01/07 * ................... 6,000,000 3,435,000
Doe Run Resources Corp.
11.25%, 03/15/05 *, ** .............. 5,000,000 4,662,500
Great Lakes Carbon Corp.
10.25%, 05/15/08 *, ** .............. 6,000,000 5,827,500
Kaiser Aluminum & Chemical Corp.
12.75%, 02/01/03 ** ................. 9,000,000 8,403,750
Lodestar Holdings, Inc.
11.50%, 05/15/05 *, ** .............. 5,000,000 4,825,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
------------ ------------
<S> <C> <C>
Renco Steel Holdings
10.88%, 02/01/05 ** ................. $3,000,000 $2,745,000
UCAR Global Enterprises, Inc.
12.00%, 01/15/05 ** ................. 6,000,000 6,067,500
WHX Corp.
10.50%, 04/15/05 ** ................. 5,000,000 4,537,500
----------
40,503,750
----------
RETAIL--3.40%
Big 5 Corp.
10.88%, 11/15/07 ** ................. 4,000,000 3,950,000
Hollywood Entertainment
10.63%, 08/15/04 .................... 3,500,000 3,290,000
Musicland Group Inc.
9.88%, 03/15/08 ** .................. 5,500,000 5,011,875
----------
12,251,875
----------
SERVICE--2.93%
CEX Holdings, Inc.
9.63%, 06/01/08 *, ** ............... 5,000,000 4,725,000
Renters Choice, Inc.
11.00%, 08/15/08 *, ** .............. 6,000,000 5,820,000
----------
10,545,000
----------
TELECOMMUNICATIONS--19.66%
E.Spire Communications, Inc.
0.00%, 07/01/08 *, **, *** .......... 9,750,000 4,826,250
Econophone, Inc.
0.00%, 02/15/08 **, *** ............. 10,000,000 5,587,500
Impsat Corp.
12.38%, 06/15/08 *, ** .............. 5,000,000 3,937,500
ITC Deltacom
9.75%, 11/15/08 ..................... 3,500,000 3,535,000
McCaw International, Ltd
0.00%, 04/15/07 **, *** ............. 10,000,000 4,750,000
Millicom International Cellular S.A.
0.00%, 06/01/06 **, *** ............. 7,500,000 3,900,000
Nextel Communications
0.00%, 08/15/04 *** ................. 4,000,000 3,750,000
NTL Incorporated
0.00%, 10/01/08 *** ................. 2,000,000 1,110,000
NTL Incorporated
11.50%, 10/01/08 * .................. 5,000,000 5,162,500
Paging Network, Inc.
10.00%, 10/15/08 ** ................. 7,000,000 6,807,500
RSL Communications, Ltd.
0.00%, 03/01/08 **, *** ............. 9,250,000 4,255,000
Telesystem International Wireless, Inc.
0.00%, 06/30/07 **, *** ............. 9,000,000 3,420,000
Telewest Communication
11.25%, 11/01/08 .................... 1,000,000 1,050,000
Teligent, Inc.
0.00%, 03/01/08 *, **, *** .......... 10,000,000 4,400,000
See notes to financial statements.
</TABLE>
<PAGE>
DLJ High Yield Bond Fund--Statement of Investments October 31, 1998
- --------------------------------------------------------------------------------
Principal
Amount Value
------------ ------------
Time Warner Telecom, Inc.
9.75%, 07/15/08 ** ................. $ 6,000,000 $ 6,015,000
Triton Communications
0.00%, 05/01/08 *, **, *** ......... 10,000,000 3,700,000
Winstar Communications, Inc.
0.00%, 03/15/08 *, ** .............. 6,000,000 4,560,000
-------------
70,766,250
-------------
TRANSPORTATION--2.39%
Great Lakes Dredge & Dock
11.25%, 08/15/08 *, ** .......... 4,500,000 4,106,250
United Auto Group, Inc.
11.00%, 07/15/07 ** ............. 6,000,000 4,507,500
-------------
8,613,750
-------------
UTILITIES--0.76%
Espirito Santo-Escelsa
10.00%, 07/15/07 ................ 5,000,000 2,750,000
-------------
Total Bonds
(Cost -- $461,665,788).............. 406,640,682
-------------
Principal
Amount Value
----------- -------------
COMMERCIAL PAPER--1.72%
GE Corp
4.95%, 11/02/98 ................ $ 2,400,000 $ 2,399,670
GE Corp
5.25%, 11/02/98 ................. 3,800,000 3,799,446
-------------
Total Commercial Paper
(Cost -- $6,199,116)................ 6,199,116
-------------
TOTAL INVESTMENTS
(Cost -- $467,864,904)............. 412,839,798
-------------
Cash and Other Assets Net of
Liabilities--(14.69%) .............. (52,883,722)
-------------
NET ASSETS--100.00% $ 359,956,076
=============
Notes to Statement of Investments:
* Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At October 31,
1998, the value of these securities amounted to $118,266,687 or 32.86% of
net assets.
** Security has an effective maturity date less than the stated maturity date
due to a call feature.
*** Security is a step-bond. Interest rate reflected is in effect at 10/31/98.
Interest rate is subject to increase in the future.
See notes to financial statements.
<PAGE>
DLJ High Yield Bond Fund--Statement of Assets and Liabilities October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities at value (cost $467,864,904) ......... $ 412,839,798
Cash ........................................................... 5,550
Receivable for securities sold ................................. 15,900,854
Interest receivable ............................................ 9,962,101
Deferred organization costs (Note 1) ........................... 47,817
Other assets ................................................... 128,892
-------------
Total assets ................................................ 438,885,012
-------------
LIABILITIES:
Loan payable ................................................... 52,300,000
Payable for securities purchased ............................... 24,932,614
Payable to advisor ............................................. 1,317,053
Interest payable ............................................... 277,154
Accrued expenses ............................................... 102,115
-------------
Total liabilities ........................................... 78,928,936
-------------
NET ASSETS:
Applicable to 43,045,288 shares outstanding .................... $ 359,956,076
=============
NET ASSETS CONSIST OF:
Capital paid-in ................................................ $ 428,798,435
Accumulated undistributed net investment income ................ 37,897
Accumulated net realized loss on investments ................... (13,855,150)
Net unrealized depreciation on investments ..................... (55,025,106)
-------------
$ 359,956,076
=============
Net asset value per share ....................................... $ 8.36
=============
</TABLE>
See notes to financial statements.
<PAGE>
DLJ High Yield Bond Fund--Statement of Operations for the Period Ended
October 31, 1998*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest ................................................ $ 11,994,983
--------------
Total investment income .............................. 11,994,983
--------------
EXPENSES:
Investment advisory fees (Note 2) ....................... 1,081,384
Leveraging fees (Note 5) ................................ 700,130
Administration fees ..................................... 12,500
Transfer agent fees ..................................... 15,000
Legal fees .............................................. 15,000
Fund accounting fees .................................... 18,000
Registration expenses ................................... 8,750
Custodian fees .......................................... 12,000
Printing fees ........................................... 21,000
Auditing fees ........................................... 12,000
Trustees fees ........................................... 7,500
Postage expense ......................................... 16,473
Amortization of organization costs (Note 1) ............. 12,183
Miscellaneous expenses .................................. 5,500
--------------
Total expenses ....................................... 1,937,420
--------------
NET INVESTMENT INCOME .................................... 10,057,563
--------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments ........................ (13,855,150)
Net unrealized depreciation on investments .............. (55,025,106)
--------------
Net realized and unrealized loss on investments ......... (68,880,256)
--------------
NET DECREASE IN NET ASSETS FROM OPERATIONS .............. $ (58,822,693)
==============
</TABLE>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period Ended
10/31/1998 *
----------------
<S> <C>
OPERATIONS:
Net investment income ................................................. $ 10,057,563
Net realized loss on investments ...................................... (13,855,150)
Net unrealized depreciation on investments ............................ (55,025,106)
-------------
Net decrease in net assets from operations ............................ (58,822,693)
-------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ............................................ (10,019,666)
-------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold (net of offering costs of $899,200) ......... 424,100,800
Reinvestment of dividends ............................................. 4,597,635
-------------
Net increase in net assets from capital share transactions ............ 428,698,435
-------------
Total increase in net assets .......................................... 359,856,076
NET ASSETS:
Beginning of period ................................................... 100,000
-------------
End of period ......................................................... $ 359,956,076
=============
Accumulated undistributed net investment income ....................... $ 37,897
=============
</TABLE>
*The DLJ High Yield Bond Fund commenced operations on July 28, 1998.
See notes to financial statements.
<PAGE>
DLJ High Yield Bond Fund--Statement of Cash Flows for the Period Ended
October 31, 1998*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Interest received ............................................................ $ 86,426
Operating expenses paid ...................................................... (894,031)
--------------
Net cash used for operating activities ........................................ $ (807,605)
Cash flows from investing activities:
Purchases of short-term securities, net ...................................... (6,177,365)
Purchases of long-term securities ............................................ (510,211,119)
Proceeds from sales of long-term securities .................................. 45,646,646
--------------
Net cash used for investing activities ........................................ (470,741,838)
Cash flows from financing activities:
Interest paid on notes payable ............................................... (422,976)
Cash dividends paid .......................................................... (5,422,031)
Net proceeds from issuance of capital shares ................................. 425,000,000
Proceeds from borrowings ..................................................... 74,900,000
Repayments of borrowings ..................................................... (22,600,000)
--------------
Net cash provided by financing activities ..................................... 471,454,993
--------------
Net decrease in cash .......................................................... (94,450)
Cash -- beginning of period ................................................... 100,000
--------------
Cash -- end of period ......................................................... $ 5,550
==============
RECONCILIATION OF NET DECREASE IN NET ASSETS FROM
OPERATIONS TO NET CASH USED FOR OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations .......................... $ (58,822,693)
Adjustments to reconcile net decrease in net assets from operations to net cash
used for operating activities:
Interest expense ............................................................. $ 700,130
Increase in interest receivable .............................................. (9,962,101)
Increase in accrued expenses ................................................. 102,115
Increase in other assets ..................................................... (128,892)
Increase in advisory fees payable ............................................ 357,853
Net realized loss on investments ............................................. 13,855,150
Net unrealized depreciation on investments ................................... 55,025,106
Amortization of organization costs ........................................... 12,183
Amortization of discount ..................................................... (1,946,456)
--------------
Total adjustments ......................................................... 58,015,088
--------------
Net cash used for operating activities ........................................ $ (807,605)
==============
</TABLE>
* The DLJ High Yield Bond Fund commenced operations on July 28, 1998.
See notes to financial statements.
<PAGE>
DLJ High Yield Bond Fund--Notes to Financial Statements October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
DLJ High Yield Bond Fund is a newly organized business trust under the
laws of the State of Delaware organized on April 30, 1998. The Fund is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a non-diversified,
closed-end management investment company. Prior to the commencement of
operations on July 28, 1998, the Fund had no operations other than those
relating to organizational matters and the sale of 10,000 shares of beneficial
interest on July 2, 1998 to DLJ Investment Management Corp. ("DLJIM") for
$100,000. The Fund's primary objective is to seek high current income. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements.
Portfolio valuation: Fixed-income securities (other than short-term
obligations, but including listed issues) are valued based on prices obtained
by one or more independent pricing services approved by the Board of Trustees.
Securities (other than fixed-income securities) for which the principal
market is one or more securities exchanges are valued at the last reported sale
price (or if there has been no current sale, at the closing bid price) on the
primary exchange on which such securities are traded. If a securities exchange
is not the principal market for a security, such security will, if market
quotations are readily available, be valued at the closing bid price in the
over-the-counter market (or the last sale price in the case of securities
reported on the NASDAQ national market system for which any sales occurred
during the day). Portfolio securities for which there are no such valuations
are valued at fair value as determined in good faith by or at the direction of
the Board of Trustees. Short-term obligations with maturities of less than 60
days are valued at amortized cost which approximates market value.
Securities transactions and investment income: Securities transactions are
recorded as of the trade date. Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income is
recorded on the ex-dividend date. Interest income, including, where applicable,
accretion of discount on investments is recorded on the accrual basis.
Dividends and distributions to shareholders: The Fund distributes monthly
to shareholders substantially all of its net investment income. Capital gains,
if any, net of capital losses, are distributed annually. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund.
Federal income taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Service applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no provisions for federal income or excise taxes
have been made in the accompanying financial statements.
Offering and organization costs: Direct expenses of $899,200 relating to
the public offering of the Fund's shares were charged to capital at the time of
issuance. Organization costs of $60,000 are being amortized from the
commencement of operations through October 31, 1999.
Cash flow information: Cash, as used in the Statement of Cash Flows, is
the amount reported in the Statement of Assets and Liabilities. The Fund
invests in securities and distributes dividends from net investment income and
net realized gains (which are either paid in cash or reinvested at the
discretion of shareholders). These activities are reported in the Statement of
Changes in Net Assets. Information on cash payments is presented in the
Statement of Cash Flows. Accounting practices that do not affect reporting
activities on a cash basis include unrealized gain or loss on investment
securities and accretion income recognized on investment securities.
<PAGE>
DLJ High Yield Bond Fund--Notes to Financial Statements October 31, 1998
- --------------------------------------------------------------------------------
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reported period. Actual results could differ from those estimates.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER RELATED PARTY
TRANSACTIONS
The Fund has entered into an investment management agreement (the
"Management Agreement") with DLJIM. The Agreement provides that the Fund will
pay DLJIM a fee, computed and payable monthly, at the annual rate of 1% of the
average weekly value of the Fund's total assets minus the sum of accrued
liabilities (other than the aggregate indebtedness constituting leverage) (the
"Managed Assets").
The Fund has also entered into an Administration and Support Agreement
with First Data Investor Services Group, Inc. ("Investor Services Group"), a
wholly-owned subsidiary of First Data Corporation, to provide all
administrative services to the Fund other than those related to the investment
decisions. For these administration services, the Fund will pay Investor
Services Group a fee at the annual rate of $50,000 per year.
The Fund pays each Trustee not affiliated with DLJIM $2,000 per board
meeting attended, $1,000 per audit committee meeting attended and reimburses
each such Trustee for travel and out-of-pocket expenses relating to their
attendance at such meetings. The Fund pays the actual out-of-pocket expenses of
the Trustees affiliated with DLJIM relating to their attendance at such
meetings.
Citibank, N.A. serves as the Fund's custodian. Investor Services Group
serves as the Fund's shareholder servicing agent (transfer agent).
3. INVESTMENTS
For federal income tax purposes, the cost of securities owned at October
31, 1998, was substantially the same as the cost of securities for financial
statement purposes. At October 31, 1998, the aggregate gross unrealized
appreciation amounted to $774,714, and the aggregate gross unrealized
depreciation amounted to $55,799,820, resulting in net unrealized depreciation
of $55,025,106.
Cost of purchases and proceeds from sales of investment securities,
excluding short-term investments, during the period ended October 31, 1998,
amounted to $534,776,208 and $61,547,500, respectively.
4. FUND SHARES
The Fund has one class of shares of beneficial interest, par value $.001
per share. 200,000,000 shares are authorized. Transactions in shares of
beneficial interest were as follows:
Shares sold ............................................. 42,500,000
Shares issued through reinvestment of dividends ......... 535,288
----------
Net increase ............................................ 43,035,288
==========
5. NOTES PAYABLE
The Fund currently has a $200 million ("commitment amount") line of credit
provided by Citibank North America, Inc., under a Revolving Credit and Security
Agreement (the "Agreement") dated July 31, 1998, primarily to leverage its
investment portfolio. Under this Agreement, the Fund may borrow up to the
lesser of $200 million or 33 1/3% of its gross assets. Interest is payable at
the Bank's Base Rate plus a commission of 0.05%. The Fund is charged a
structuring fee of $19,000 per quarter, a program fee of 0.20% of the average
daily amount leveraged, an administration fee of 0.02% of the average daily
amount leveraged and a liquidity fee of 0.13% of the maximum borrowing limit
(currently $200 million). The Agreement requires, among other
<PAGE>
DLJ High Yield Bond Fund--Notes to Financial Statements October 31, 1998
- --------------------------------------------------------------------------------
provisions, that the percentage obtained by dividing total indebtedness for
money borrowed by total assets of the Fund shall not exceed 33 1/3%. The
average daily amount of borrowings during the period ended October 31, 1998 was
$43,203,226, with a related weighted average annualized interest rate of 6.36%.
6. CAPITAL LOSS CARRYFORWARD
At October 31, 1998, the Fund had available for Federal tax purposes an
unused capital loss carryforward of $13,855,150, expiring in 2006. Capital loss
carryforwards are available to offset future realized capital gains. To the
extent that these carryforwards are used to offset future capital gains, it is
probable that the amount which is offset will not be distributed to
shareholders.
7. CONCENTRATION OF RISK
The Fund invests in securities offering high current income which
generally will be in the lower rating categories of recognized ratings agencies
(so-called "junk bonds"). These securities generally involve more credit risk
than securities in the higher rating categories. In addition, the trading
market for high yield securities may be relatively less liquid than the market
for higher-rated securities. The Fund's use of leverage also increases exposure
to capital risk.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout the period presented. This information has been derived
from the Fund's financial statements.
Period
Ended
10/31/1998 *
------------
Net asset value, beginning of period .......................... $ 10.00
--------
Income from Investment Operations:
Net investment income ........................................ 0.24
Net realized and unrealized loss on investments .............. ( 1.62)
--------
Total from investment operations ........................... ( 1.38)
--------
Less Distributions:
From net investment income ................................... ( 0.24)
--------
Offering costs charged to paid-in capital ..................... ( 0.02)
--------
Net asset value, end of period ................................ $ 8.36
========
Market value, end of period ................................... $ 9.56
========
Total return (market value) ................................... ( 1.74)%
Ratios/Supplemental Data:
Net assets, end of period (000 omitted) ...................... $ 359,956
Average debt per share ....................................... $ 1.02
Ratio of operating expenses to average net assets ............ 1.16%**
Ratio of leveraging expenses to average net assets ........... 0.65%**
Ratio of net investment income to average net assets ......... 10.48%**
Portfolio turnover ........................................... 15.26%
NOTES:
* The DLJ High Yield Bond Fund commenced operations on July 28, 1998.
** Annualized
See accompanying notes to financial statements.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
- --------------------------------------------------------------------------------
Shareholders and Board of Trustees
DLJ High Yield Bond Fund
We have audited the accompanying statement of assets and liabilities of DLJ
High Yield Bond Fund, including the statement of investments, as of October 31,
1998, and the related statements of operations, cash flows and changes in net
assets and financial highlights for the period from July 28, 1998 (commencement
of operations) to October 31, 1998. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
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 financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1998 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of DLJ
High Yield Bond Fund at October 31, 1998, and the results of its operations,
its cash flows, the changes in its net assets and the financial highlights for
the period from July 28, 1998 to October 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
December 10, 1998
<PAGE>
DLJ High Yield Bond Fund--Additional Information October 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan
Referred below are policies related to the Fund's Automatic Dividend
Reinvestment Plan ("The Plan"). The policies referenced apply to shareholders
whose shares are registered directly with the Fund in their own name.
Shareholders whose shares are purchased through a broker-dealer or nominee
should contact such broker-dealer or nominee regarding questions related to the
reinvestment of the Fund's dividends.
Pursuant to the Fund's Plan, unless a shareholder otherwise elects, all
dividends and capital gain distributions will be automatically reinvested by
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
Investor Services Group 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 Investor Services
Group, 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. 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
<PAGE>
DLJ High Yield Bond Fund--Additional Information October 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
Plan Agent will forward all proxy solicitation materials to participants and
vote proxies for shares held pursuant to the Plan in accordance with the
instructions of the participants.
In the case of shareholders such as banks, brokers or nominees that hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by
the record shareholder and held for the account of beneficial owners who
participate in the Plan.
There will be no brokerage charges with respect to shares issued directly
by the Fund as a result of dividends or capital gains distributions payable
either in shares or in cash. However, each participant will pay a pro rata
share of brokerage commissions incurred with respect to the Plan Agent's
open-market purchases in connection with the reinvestment of dividends.
The automatic reinvestment of dividends will not relieve participants of
any Federal, state or local income tax that may be payable (or required to be
withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not available
to shareholders not participating in the Plan. If the market price (plus
commissions) of the shares is above their net asset value, participants in the
Plan will receive shares of the Fund at less than they could otherwise 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.
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. Currently, management of
DLJIM expects that the required modifications for the majority of its
significant systems and applications that will be in use on January 1, 2000,
will be completed and tested by the end of 1998. Full integration testing of
these systems and testing of interfaces with third-party suppliers will
continue through 1999. At this time, management of DLJIM believes that the
costs associated with resolving this issue will not have a material adverse
effect on its operations or on its ability to provide the level of services it
currently provides to the Fund.
The Fund and DLJIM have been advised by the Fund's Transfer Agent and
Custodian that they are also in the process of reviewing their systems with the
same goals. As of the date of this report the Fund and DLJIM have no reason to
believe that the Transfer Agent and Custodian will be unable to achieve these
goals.
Managed Dividend Policy
The Fund's dividend policy is to distribute substantially all of its net
investment income to its shareholders on a monthly basis. However, in order to
provide shareholders with a more consistent yield to the current trading price
of shares of Common Stock of the Fund, the Fund may at times pay out less than
the entire amount of net investment income earned in any particular month and
may at times in any month pay out such accumulated but undistributed income in
addition to net investment income earned in that month. As a result, the
dividends paid by the Fund for any particular month may be more or less than
the amount of net investment income earned by the Fund during such month. The
Fund's current accumulated but undistributed net investment income, if any, is
disclosed in the Statement of Assets and Liabilities, which comprises part of
the Financial Information included in this report.
<PAGE>
DLJ High Yield Bond Fund--Additional Information October 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
Leverage--Benefits and Risks
The use of leverage by the Fund creates an opportunity for increased net
income and capital appreciation for the Fund, but, at the same time, creates
special risks, and there can be no assurance that a leveraging strategy will be
successful during any period in which it is employed. The Fund intends to
utilize leverage to provide the Shareholders with a potentially higher return.
Leverage creates risks for Shareholders including the likelihood of greater
volatility of net asset value and market price of the Fund's shares and the
risk that fluctuations in interest rates on borrowings and short-term debt may
affect the return to Shareholders. To the extent the income or capital
appreciation derived from securities purchased with funds received from
leverage exceeds the cost of leverage, the Fund's return will be greater than
if leverage had not been used. Conversely, if the income or capital
appreciation from the securities purchased with such funds is not sufficient to
cover the cost of leverage, the return to the Fund will be less than if
leverage had not been used, and therefore the amount available for distribution
to Shareholders as dividends and other distributions will be reduced. In the
latter case, 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's lenders may establish guidelines for
borrowing which may impose asset coverage or portfolio composition requirements
that are more stringent than those imposed by the Investment Company Act. It is
not anticipated that these covenants or guidelines will impede DLJIM in
managing the Fund's portfolio in accordance with the Fund's investment
objectives and policies.
Tax Information
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you as to the federal tax status of distributions received
by shareholders during the Fund's fiscal year ended October 31, 1998.
Accordingly, we are advising you that the distributions paid during the fiscal
year by the Fund of $.235 per share were derived from the Fund's net investment
income.
Because the Fund's fiscal year is not the calendar year, calendar year
taxpayers should use the dollar amounts and the nature of those amounts
referenced on Form 1099-DIV which will be mailed to you in January, 1999.
Shareholders are advised to consult their own tax advisors with respect to the
tax consequences of their investment in the Fund.
Supplemental Information
Since the initial filing of the Fund's registration statement with the
Securities and Exchange Commission, Michael A. Snyder, a Vice President of the
Fund, has been assigned as the person primarily responsible for the day-to-day
management of the Fund's portfolio. In addition, since the filing there have
been (i) no material changes in the Fund's investment objectives or policies,
(ii) no changes in the Fund's charter or by-laws that would delay or prevent a
change of control of the Fund, and (iii) no material changes in the principal
risk factors associated with investment in the Fund.
<PAGE>
DLJ HIGH YIELD BOND FUND
TRUSTEES
G. MOFFETT COCHRAN ROBERT E. FISCHER
WILMOT H. KIDD, III MARTIN JAFFE
JOHN W. WALLER, III
OFFICERS
G. MOFFETT COCHRAN, Chairman and President
MARTIN JAFFE, Vice President, Secretary and Treasurer
BRIAN A. KAMMERER, Vice President
JOHN L. LINDARS, Vice President
CATHERINE M. NOLAN, Vice President
VANCE P. SHAW, Vice President
MICHAEL A. SNYDER, Vice President
INVESTMENT ADVISER
DLJ INVESTMENT MANAGEMENT CORP.
277 Park Avenue, New York, NY 10172
CUSTODIAN
CITIBANK, N.A.
111 Wall Street, New York, NY 10043
TRANSFER AGENT
FIRST DATA INVESTOR SERVICES GROUP, INC.
P.O. Box 61503 (3200 Horizon Drive)
King of Prussia, PA 19406
DISTRIBUTOR
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
277 Park Avenue, New York, NY 10172
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
787 Seventh Avenue, New York, NY 10019
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 Third Avenue, New York, NY 10022
--------------------------------------
DLJ INVESTMENT MANAGEMENT CORP.
--------------------------------------
MEMBER OF DLJ ASSET MANAGEMENT GROUP,
A DIVISION OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
277 PARK AVENUE, NEW YORK, NEW YORK 10172
(888) 649-5711
<PAGE>
DLJ HIGH YIELD BOND FUND
ANNUAL REPORT
----------------------
OCTOBER 31, 1998
Donaldson, Lufkin & Jenrette
