As filed with the Securities and Exchange Commission on June 25, 1998.
File Nos. 33-52373
811-8777
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 1 to FORM N-2
(Check appropriate box or boxes)
|_| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
|X| Pre-Effective Amendment No. 1
|_| Post-Effective Amendment No. ___
and/or
|_| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
|X| Amendment No. 1
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:
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<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>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Title of Securities Amount Being Proposed Maximum Offering Proposed Aggregate Maxi- Amount of
Being Registered Registered (1) Price Per Share(2) mum Offering Price(2) Registration Fee(2)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest $10.00
- --------------------------------------------------------------------------------------------------------------------------------
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(1) Includes Shares of Beneficial Interest subject to the Underwriters'
over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.
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
- ------------ ----------------------
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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 Prac-
tices; 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 Transac-
tions
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; Independent
Auditors' Report
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>
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.
PROSPECTUS
, 1998 SUBJECT TO COMPLETION, DATED JUNE , 1998
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 and Special Considerations."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS . ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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- -----------------------------------------------------------------------------------------------------------------------
Price to the Sales Proceeds to the
Public (1) Load(1)(2) Fund (3)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................................. $10.00 None $10.00
Total (4)................................................. $ None $
- -----------------------------------------------------------------------------------------------------------------------
(footnotes on the following page)
</TABLE>
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 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.
<PAGE>
Donaldson, Lufkin & Jenrette
Securities Corporation
ii
<PAGE>
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<S> <C> <C>
Advest, Inc. Sutro & Co. Incorporated Janney Montgomery Scott Inc.
Fahnestock & Co., Inc. Gruntal & Co., L.L.C. FAC/Equities
First of Michigan Corporation Johnston, Lemon & Co. Incorporated Interstate/Johnson Lane Corporation
Sands Brothers & Co., Ltd. Tucker Anthony Incorporated Cowen & Company
</TABLE>
iii
<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 telephone number is 1- 877-805-9793.
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 and
Special Considerations -- Leverage."
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 expenses 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 $ and $ , respectively. Offering expenses will
be deducted from net proceeds, and organizational expenses will be
capitalized and amortized against income from the inception of the Fund
through October 31, 1999.
(4) The Fund has granted to the Underwriters a -day option exercisable
from time to time to purchase up to an aggregate of 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
$ and $ , respectively. See "Underwriting."
iv
<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 and Special
Considerations."
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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 __-day option exercisable
from time to time to purchase
up to an aggregate of ______
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."
The aggregate number of Shares
offered in the offering may
increase prior to the
consummation of the offering.
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
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
to 20% of its total assets in
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 Securi
ties"). 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 331/3% 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
and Special Considerations
--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 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
</TABLE>
2
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<S> <C>
issues are defined as those of
companies whose total
outstanding high yield debt is
less than $100 million. 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
also provides investment
management services primarily
to other investment companies
and institutional and
corporate clients. As of May
31, 1998, aggregate assets
under the management of DLJIM
exceeded $5 billion. As of May
31, 1998, Donaldson, Lufkin &
Jenrette Asset Management
Group ("DLJAM"), which
includes DLJIM, managed assets
of approximately $16 billion.
DLJIM is a wholly-owned
subsidiary of DLJ.
</TABLE>
3
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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."
</TABLE>
4
<PAGE>
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<S> <C>
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 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 and Special
Considerations.............................. 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
</TABLE>
5
<PAGE>
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<S> <C>
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 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 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
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
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
less than $100 million. 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 volume 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. 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
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
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 Policies --
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 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. 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
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
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 Policies."
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
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 to 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
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
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 Special Considerations"
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 Special
Considerations" and
"Description of Shares."
</TABLE>
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>
<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)(1)
Investment Management Fee ............................................ 1.00%
Administration Fee.................................................... .02
Interest Payments on Borrowed Funds .................................. None
Other Expenses ....................................................... .17
------
Total Annual Expenses ................................................ 1.19%
======
</TABLE>
(1) See "Management of the Fund" for additional information. In the event
the Fund utilizes leverage by borrowing an amount equal to
approximately 20% of the Fund's total assets (including the amount
obtained from the leverage), it is estimated that, as a percentage of
net assets attributable to the Shares, the Management Fee would be
1.25%. The Administration Fee would remain .02%. Interest Payments on
Borrowed Funds (assuming an interest rate of 6%) would be 1.50%. Other
Expenses would remain .17% and Total Annual Expenses would be 2.94%.
"Other Expenses" have been estimated. The Fund may utilize leverage up
to 331/3 of the Fund's total assets (including the amount obtained from
leverage) depending on economic conditions. (See "Risk Factors and
Special Considerations -- Leverage" and "Other Investment Policies --
Leverage.")
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
11
<PAGE>
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.
12
<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
telephone number is 1- 877-805-9793. 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
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 $ ($ if
the Underwriters' overallotment option is exercised in full) before payment of
organizational and offering expenses (estimated at $ and $ , 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 its affiliates (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."
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.
13
<PAGE>
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 and
Special Considerations -- 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 less than $100
million.
14
<PAGE>
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.
Total annual returns for the market for (i) lower-grade income
securities, as measured by the DLJ High-Yield 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 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 DLJ High Yield Index is an unmanaged composite
of U.S. dollar-denominated securities rated below BBB by S&P. The ML Corporate
Index is an unmanaged index which includes fixed coupon domestic corporate bonds
that are rated BBB- or above by S&P or Baa3 or above by Moody's. 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 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.
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 low correlation with other asset classes.
The table 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 CLASSES OF FIXED INCOME SECURITIES
<TABLE>
<CAPTION>
SB U.S.
DLJ High Yield ML Corporate 3-month
Year Index Return 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>
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
15
<PAGE>
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.
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
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<PAGE>
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 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
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<PAGE>
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 and Special Considerations."
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 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
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<PAGE>
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 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.
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<PAGE>
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.
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 331/3% 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.
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 331/3% 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
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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 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.
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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.
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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 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 Special Considerations" 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
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<PAGE>
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
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
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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 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.
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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.
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.
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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 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.
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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
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
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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.
RISK FACTORS AND SPECIAL CONSIDERATIONS
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
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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.
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 less than $100 million.
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
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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 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 to 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
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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.
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
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<PAGE>
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.
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 May 31, 1998, aggregate assets
under the management of DLJIM exceeded $5 billion. As of May 31, 1998, DLJAM,
which includes DLJIM, managed or administered assets of approximately $16
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 an overall Morningstar rating
of 5 stars. 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.
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<PAGE>
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 , 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 , 1998. The
Management Agreement was approved by the Fund's initial shareholder on July ,
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 ,
1998 with the Fund. As 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
34
<PAGE>
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), 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.
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.
The address of each officer of the Fund is 277 Park Avenue, New York,
New York 10172.
*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 Member at the law
firm of Wolf, Block, Schorr and Soliss-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 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 , 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.
35
<PAGE>
Compensation Table
<TABLE>
<CAPTION>
Total Compensation
Pension or Retire- Estimated from the Fund
Aggregate ment Benefits Annual Bene- Complex
Compensation Accrued as Part of fits upon Paid to
Name of Board Member from Fund(1) Fund Expenses Retirement Board 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.
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
36
<PAGE>
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 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.
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
37
<PAGE>
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.
38
<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 of the date of this Prospectus.
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
39
<PAGE>
("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."
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.
40
<PAGE>
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.
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.
41
<PAGE>
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.
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 its
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. Proposed Treasury Regulations and 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
42
<PAGE>
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 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.
43
<PAGE>
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 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.
44
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
July , 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........................................................................
Fahnestock & Co., Inc..............................................................
First of Michigan Corporation......................................................
Sands Brothers & Co., Ltd..........................................................
Sutro & Co. Incorporated...........................................................
Gruntal & Co., L.L.C...............................................................
Johnston, Lemon & Co. Incorporated.................................................
Tucker Anthony Incorporated........................................................
Janney Montgomery Scott Inc........................................................
First Albany Corporation...........................................................
Interstate/Johnson Lane Corporation................................................
Cowen & Company
---------------------
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
days after the date of this Prospectus, to purchase, from time to time, in whole
or in part, up to an aggregate of 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 Underwriting
Agreement without the prior written consent of DLJ.
45
<PAGE>
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 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."
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.
46
<PAGE>
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.
47
<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.
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
48
<PAGE>
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 OPINIONS
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.
49
<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 , 1998. This statement of assets,
liabilities and capital is the responsibility of the Fund's management. Our
responsibility 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 the DLJ High Yield Bond Fund as of , 1998, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
, 1998
50
<PAGE>
DLJ High Yield Bond Fund
Statement of Assets, Liabilities and Capital
, 1998
<TABLE>
<S> <C>
ASSETS
Cash.............................................................................................. $
Other Assets
Total Assets....................................................................................
LIABILITIES
Accrued expenses (Note 1).........................................................................
--------------
NET ASSETS.......................................................................................... $
==============
CAPITAL
Common Shares, par value $ .001 per share; shares authorized;
shares issued and outstanding (Note 1).......................................................... $
Paid in Capital in excess of par..................................................................
--------------
Total Capital--Equivalent of $ net asset value per
common share (Note 1)......................................................................... $
==============
</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
shares for $ on , 1998.
Offering costs of $ will be charged to capital upon completion of the
initial public offering. Organization costs of $ 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 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.
51
<PAGE>
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.
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
rninus (-) sign designation, which is used to show relative standing within the
major rating categories, except in the AAA (Prime Grade) category.
A-1
<PAGE>
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 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>
No 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 other information or representations must not be relied upon as
having been authorized by the Fund Shares or the Underwriters. Neither the
delivery of this Prospectus nor any sale made hereunder shall, in any
circumstances, create any implication that there has been no change in the
affairs of the Fund since the date hereof or that the information contained
herein is correct as of any time subsequent to its date. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the registered securities to which it relates. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy in any circumstances in which such offer or solicitation is unlawful.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................1
Fee Table................................................................10
The Fund.................................................................11
Use of Proceeds..........................................................11
Investment Objectives and Policies.......................................11
Other Investment Practices...............................................18
Risk Factors and Special Considerations..................................26
Investment Restrictions..................................................29
Management of the Fund...................................................30
Trustees and Officers of the Fund....................................... 32
Portfolio Transactions.................................................. 33
Determination of Net Asset Value........................................ 34
Dividends and Other Distributions....................................... 35
Automatic Dividend Reinvestment Plan.................................... 36
Taxes................................................................... 37
Underwriting............................................................ 41
Description of Shares................................................... 43
Conversion to Open- end Fund............................................ 44
Other Information....................................................... 45
Legal Opinions.......................................................... 45
Experts..................................................................45
Report of Independent Auditors..........................................46
Statement of Assets, Liabilities and Capital............................ 47
Appendix A..............................................................A-1
</TABLE>
---------------
Until , 1998 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.
Shares
DLJ HIGH YIELD
BOND FUND
---------------------------
PROSPECTUS
---------------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
July , 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> <C>
(a) Agreement and Declaration of Trust*
(b) Bylaws*
(c) Not Applicable
(d) Form of Specimen Certificate Representing Shares of Beneficial Interest*
(e) (1) Form of Terms and Conditions of Automatic Dividend Reinvestment Plan*
(2) Form of Dividend Reinvestment Plan Agency Agreement*
(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 Custodian and Transfer and Dividend Disbursing Agent Agreement*
(k) Form of Administration Agreement*
(l) 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 *
Form of Power of Attorney**
</TABLE>
- --------------
* To be filed by amendment
** Previously filed
4
<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 .............................. $29,500
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
[TO COME]
ITEM 29. INDEMNIFICATION
[Summary of provisions from Agreement and Declaration of Trust]
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant and the Advisor and any underwriter pursuant to the foregoing
provisions, or otherwise, the Registrant has 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 or the Registrant and the principal underwriter in connection
with the successful defense of any action, suit or proceeding) is asserted
against the Registrant by such trustee, officer or controlling person or any
distributor 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
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.
5
<PAGE>
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
6
<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. 1 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 25rd day of June, 1998.
DLJ HIGH YIELD BOND FUND
By:/s/ G. MOFFETT COCHRAN
--------------------------------
Name: G. Moffett Cochran
Title: Chief Executive Officer and Chief Financial Officer
Pursuant to the requirements of Rule 472 promulgated under the
Securities Act of 1933, this Pre-Effective Amendment No. 1 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 25th day of June, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ G. MOFFETT COCHRAN Trustee, Chief Executive Officer and Chief Financial Officer
</TABLE>
7
