<PAGE>
PRESIDENT'S LETTER
The Fund's return for the fiscal year based on NAV was 6.75%. This compared
favorably with the 4.73% total return on the Lipper Closed-End High Yield Bond
Fund Average (the Lipper Average). The Fund ranked tenth among the thirty-four
funds in its peer group for this period. However, the total return based on
market price for the DLJ High Yield Bond Fund (DHY) for the fiscal year ending
October 31, 1999, was -5.71%. This was a result of the fact that the Fund's
shares were trading down at a discount from the NAV value. For the quarter
ending October 31,1999 the Fund under-performed the Lipper Average as a result
of some credit risk losses in the healthcare and consumer products sectors. For
the quarter, the Fund ranked twenty-ninth out of thirty-five funds with a total
return of -4.73% on an NAV basis compared to a -3.55% return for the Lipper
Average. In April of 1999, the dividend was raised from 8 cents per share per
month to 8.25 cents per share per month where it remains today.
For the fiscal year, the basis of the Fund's performance were advantageous
sector weightings and securities selection, and a measured approach to raising
the Fund's leverage. The Fund remained over-weighted in the media, telecom and
information technology sectors which continue to benefit from the convergence of
the telecom/cable/ internet businesses, supportive capital markets activities
and strong underlying equities markets. In particular, our Telecom investments
have been focused on both "Next Wave" (data/internet-centric as opposed to
voice-centric) and European broadband service providers. During the first six
months of the fiscal year, the Fund's leverage was gradually raised to 30% where
it has remained. Given the difficult market environment, maintaining the quality
of the portfolio's assets is important and we will continue to emphasize
companies with greater market capitalization. During fiscal 1999, we continued
to avoid investing in the hard-hit shipping sector and stayed underweighted in
both the energy and cyclical sectors. In the future, the Fund will continue to
be over-weighted in the media and telecom sectors and underweighted in the
energy sector. We believe that oil prices are likely to drop to the low $20s per
barrel in the near future which will have a very negative effect on oil-related
bonds. Therefore, our focus is on natural gas-related investments. We plan to be
market-weighted in cyclicals during fiscal year 2000. However, we will raise our
industry concentrations carefully. Although industrial demand is on the upswing
in almost every part of the world, sharp competition and abundant supply could
hold down commodity price increases to a greater degree than past experience
would dictate.
Fund leverage has stayed around 30% and we have been focused on bond swaps that
would help increase the yield on the portfolio. We also continue to harvest
some gains in order to open up the total return prospects of the portfolio.
While being an important objective, maintaining the dividend, has been
challenging given the rising interest rates which have boosted the interest
borrowing costs on the leveraged portion of the porfolio.
The high-yield market is currently being pressured by the uncertainty
surrounding the Federal Reserve Bank's interest policy, the direction of the
stock market and abundant new-issue supply. We believe once the Fed is finished
raising interest rates, both the stock market and the high-yield market will
settle down and the tone will firm up as supply and demand come into balance.
We do not expect the interest rate behavior to negatively affect high-yield
bond values or the health of the economy in any significant way. However, we do
believe that the rising default rate within the high-yield universe, from 1% in
1998 to almost 3.5% is a permanent situation that will continue into the
foreseeable future. The cause for this deterioration in credit quality is
subject to debate. However, a combination of intense micro-economic
competition, looser underwriting standards at commercial and investment banks
and the proliferation of "first-time" small-sized issuers are all somewhat to
blame. Accordingly, the Fund continues to be managed defensively through
ongoing fundamental research and constant monitoring of each holding's
credit-worthiness with the intention of identifying bonds poised to benefit
from upgrades or other positive events and identifying negative signals which
indicate deterioration. The brighter side of the equation is that we believe
the strong fundamentals of the U.S. economy still underpin a healthy future and
we encourage investors to take a long-term investment approach in our high
yield bond fund.
Thank you for your interest in the DLJ High Yield Bond Fund. The Officers and
Trustees would like to wish you a happy and prosperous new year.
Sincerely,
/s/ G. Moffett Cochran
- ----------------------
G. Moffett Cochran
President December, 1999
<PAGE>
FUND HIGHLIGHTS (unaudited)
DLJ High Yield Bond Fund
Top Ten Holdings as of October 31, 1999
---------------------------------------
% of % of
Security Description Net Assets Security Description Net Assets
Kaiser Aluminum & Chemical Corp. Bell Sports, Inc.
12.75%, 02/01/03 2.50% 11.00%, 08/15/08 1.68%
Esat Telecom Group plc ICN Pharmaceuticals, Inc.
11.88%, 12/01/08 1.78% 8.75%, 11/15/08 1.68%
@Entertainment, Inc. Fairchild Semiconductor Corp.
14.50%, 02/01/09 1.76% 10.75%, 04/15/09 1.68%
RCN Corp. Regional Independent Media
11.13%, 10/15/07 1.74% 10.50%, 07/01/08 1.67%
Pathmark Stores, Inc. Rent-A-Center, Inc.
12.63%, 06/15/02 1.69% 11.00%, 08/15/08 1.67%
Portfolio and Fund Information October 31, 1999
-----------------------------------------------
Current Yield(1): 12.28% Ticker Symbol: DHY
Distribution Rate(2): 12.12% Primary Exchange: NYSE
Average Rating: B
Average Years to Maturity*: 8.10 years
Average Duration*: 5.74 years
*weighted average
Investment Results
------------------
<TABLE>
<CAPTION>
Average Annual Total Return
-------------------------------
DLJ High Yield Bond Fund(3) 1 Year Since Inception*
- --------------------------- ------ ----------------
<S> <C> <C>
Market Price .............................................. -5.71% -7.35%
NAV(4) .................................................... 6.75% -7.93%
Fund Index
----------
Lipper Closed-End High Yield Bond Fund Average(5) ......... 4.73% -8.47%
*July 31, 1998 through October 31, 1999
</TABLE>
------------
(1) Current yield is based on October's dividend per share of $.0825
(annualized) divided by the October 31, 1999 market price ($8.0625).
(2) Distribution rate is based on dividends per share paid from net
investment income during the period November 1, 1998 through October 31,
1999 divided by the October 31, 1999 market price.
(3) The performance data quoted represents past performance, which is no
indication of future performance. Investment return and principal value
will fluctuate so that an investor's shares, when sold, may be worth more
or less than their original cost. No adjustment has been made for any
income taxes payable by shareholders on dividends.
(4) The average annual total return referenced reflects the change in the
Fund's net asset value over the period and assumes that dividends were
reinvested. The percentage is not an indication of the performance of a
shareholder's investment in the Fund which is based on market price.
(5) The Lipper Closed-End High Yield Bond Fund Average is an equally
weighted performance average of 34 funds in the Lipper Analytical grouping
of closed-end high yield bond funds, adjusted for capital gains and income
dividends.
<PAGE>
DLJ High Yield Bond Fund--Statement of Investments October 31, 1999
- --------------------------------------------------------------------------------
BONDS--142.06%
<TABLE>
<CAPTION>
Principal
Amount Value
---------- ----------
<S> <C> <C>
AEROSPACE--5.09%
Compass Aerospace Corp.
10.13%, 04/15/05 *, ** ........... $5,150,000 $4,834,563
Fairchild Semiconductor Corp.
10.75%, 04/15/09 ** .............. 7,000,000 6,002,500
Hexcel Corp.
9.75%, 01/15/09 ** ............... 4,000,000 3,340,000
Transdigm, Inc.
10.38%, 12/01/08 ** .............. 4,500,000 4,072,500
----------
18,249,563
----------
CHEMICALS--4.52%
Huntsman ICI Chemicals LLC
0.00%, 12/31/09 *, ** ............ 11,230,000 2,919,800
Lyondell Chemical Co.
10.88%, 05/01/09 ** .............. 5,000,000 5,012,500
Trans-Resources, Inc.
12.00%, 03/15/08 **, *** ......... 10,000,000 5,012,500
ZSC Specialty Chemicals plc
11.00%, 07/01/09 *, ** ........... 3,250,000 3,274,375
----------
16,219,175
----------
CONSUMER NON-DURABLES--4.23%
Albecca, Inc.
10.75%, 08/15/08 ** .............. 6,000,000 4,725,000
Consoltex Group
11.00%, 10/01/03 ** .............. 4,000,000 4,035,000
Galey & Lord, Inc.
9.13%, 03/01/08 ** ............... 2,000,000 480,000
Polaroid Corp.
11.50%, 02/15/06 ** .............. 4,000,000 3,960,000
Styling Technology Corp.
10.88%, 07/01/08 ** .............. 3,000,000 1,965,000
----------
15,165,000
----------
ENERGY--6.18%
Belden & Blake Corp.
9.88%, 06/15/07 ** ............... 5,000,000 2,993,750
Grey Wolf, Inc.
8.88%, 07/01/07 ** ............... 1,000,000 900,000
8.88%, 07/01/07 ** ............... 2,300,000 2,064,250
Mariner Energy, Inc.
10.50%, 08/01/06 ** .............. 4,000,000 3,640,000
R&B Falcon Corp.
9.50%, 12/15/08 .................. 5,000,000 4,800,000
Swift Energy Co.
10.25%, 08/01/09 ** .............. 2,000,000 2,005,000
Tokheim Corp.
11.38%, 08/01/08 ** .............. 6,000,000 3,000,000
Trico Marine Services, Inc.
8.50%, 08/01/05 ** ............... 3,000,000 2,760,000
----------
22,163,000
----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
---------- ----------
<S> <C> <C>
FINANCIAL SERVICES--3.21%
AmeriCredit Corp.
9.88%, 04/15/06 ** ............... $4,500,000 $4,511,250
Metris Companies, Inc.
10.13%, 07/15/06 *, ** ........... 4,750,000 4,548,125
Ocwen Financial Corp.
11.88%, 10/01/03 ** .............. 2,625,000 2,454,375
----------
11,513,750
----------
FOOD & TOBACCO--5.39%
Advantica Restaurant Group, Inc.
11.25%, 01/15/08 ** 6,000,000 4,635,000
Luigino's, Inc.
10.00%, 02/01/06 ** .............. 4,000,000 3,810,000
National Wine & Spirits Holding Corp.
10.13%, 01/15/09 ** .............. 4,000,000 3,970,000
New World Pasta Co.
9.25%, 02/15/09 ** ............... 3,750,000 3,440,625
Volume Services America, Inc.
11.25%, 03/01/09 *, ** ........... 3,000,000 3,483,750
----------
19,339,375
----------
FOREST PRODUCTS/CONTAINERS--3.42%
Packaging Corp. of America
9.63%, 04/01/09 ** ............... 4,750,000 4,773,750
Repap New Brunswick
10.63%, 04/15/05 ** .............. 2,700,000 2,396,250
Riverwood International Corp.
10.63%, 08/01/07 ** .............. 5,000,000 5,112,500
----------
12,282,500
----------
GAMING/LEISURE--7.43%
Argosy Gaming Co.
10.75%, 06/01/09 *, ** ........... 4,000,000 4,110,000
Bell Sports, Inc.
11.00%, 08/15/08 ** .............. 6,000,000 6,022,500
Extended Stay America, Inc.
9.15%, 03/15/08 ** ............... 5,000,000 4,818,750
Hilton Hotels Corp.
7.50%, 12/15/17 .................. 3,500,000 3,036,250
Hollywood Casino Shreveport
13.00%, 08/01/06 *, ** ........... 2,000,000 2,060,000
Stations Casinos, Inc.
10.13%, 03/15/06 ** .............. 5,000,000 5,137,500
8.88%, 12/01/08 ** ............... 1,500,000 1,451,250
----------
26,636,250
----------
HEALTHCARE--6.40%
Alaris Medical, Inc.
11.13%, 08/01/08 **, *** ......... 10,000,000 4,400,000
ICN Pharmaceuticals, Inc.
8.75%, 11/15/08 * ................ 6,500,000 6,012,500
Kinetic Concepts, Inc.
9.63%, 11/01/07 ** ............... 4,500,000 3,279,375
</TABLE>
See notes to financial statements.
<PAGE>
DLJ High Yield Bond Fund--Statement of Investments October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
---------- ----------
<S> <C> <C>
King Pharmaceutical, Inc.
10.75%, 02/15/09 ** .............. $5,000,000 $ 5,100,000
Total Renal Care Holdings, Inc.
7.00%, 05/15/09 *, ** ............ 6,500,000 4,176,250
-----------
22,968,125
-----------
HOUSING--2.92%
Nortek, Inc.
9.88%, 03/01/04 ** ............... 3,000,000 2,947,500
9.25%, 03/15/07 ** ............... 3,000,000 2,917,500
Webb (Del E.) Corp.
10.25%, 02/15/10 ** .............. 5,000,000 4,600,000
-----------
10,465,000
-----------
INFORMATION TECHNOLOGY--5.58%
Asat Finance LLC
12.50%, 11/01/06 *, ** ........... 5,000,000 4,975,000
Details, Inc.
10.00%, 11/15/05 ** .............. 6,000,000 5,595,000
Integrated Circuit Systems
11.50%, 05/15/09 *, ** ........... 4,000,000 3,840,000
SCG Holding & Semiconductor Co.
12.00%, 08/01/09 *, ** ........... 3,500,000 3,600,625
Viasystems Group, Inc. Series (B)
9.75%, 06/01/07 ** ............... 2,500,000 2,025,000
-----------
20,035,625
-----------
MANUFACTURING--6.41%
BGF Industries, Inc.
10.25%, 01/15/09 ** .............. 4,000,000 3,260,000
Continental Global Group, Inc.
11.00%, 04/01/07 ** .............. 2,000,000 1,357,500
Filtronic plc
10.00%, 12/01/05 *, ** ........... 4,000,000 3,975,000
Gentek, Inc.
11.00%, 08/01/09 *, ** ........... 3,500,000 3,561,250
Grove Worldwide LLC
9.25%, 05/01/08 ** ............... 5,000,000 1,950,000
Jordan Industries, Inc.
10.38%, 08/01/07 ** .............. 4,500,000 4,398,750
Roller Bearing Company of America
9.63%, 06/15/07 ** ............... 5,000,000 4,475,000
-----------
22,977,500
-----------
MEDIA/ENTERTAINMENT--28.58%
@Entertainment, Inc.
14.50%, 02/01/09 **, *** ......... 10,200,000 6,298,500
Adelphia Communications Corp.
8.38%, 02/01/08 .................. 4,500,000 4,230,000
AMC Entertainment, Inc.
9.50%, 03/15/09 ** ............... 6,000,000 5,250,000
American Media Operations
10.25%, 05/01/09 ** .............. 3,750,000 3,656,250
Carmike Cinemas, Inc. Series (B)
9.38%, 02/01/09 ** ............... 4,500,000 4,230,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
---------- ----------
<S> <C> <C>
Chancellor Media Corp.
9.00%, 10/01/08 ** ............... $4,000,000 $ 4,100,000
Charter Communications Holdings LLC
8.63%, 04/01/09 ** ............... 3,000,000 2,842,500
9.92%, 04/01/11 *, **, *** ....... 6,500,000 3,883,750
Citadel Broadcasting Company
10.25%, 07/01/07 ** .............. 3,000,000 3,105,000
Cumulus Media, Inc.
10.38%, 07/01/08 ** .............. 5,000,000 5,162,500
Echostar DBS Corp.
9.38%, 02/01/09 ** ............... 5,000,000 4,950,000
Globo Communicacoes e Participacoes
S.A.
10.63%, 12/05/08 *, ** ........... 6,000,000 4,500,000
Liberty Group Operating
9.38%, 02/01/08 ** ............... 3,500,000 3,333,750
11.63%, 02/01/09 **, *** ......... 3,000,000 1,706,250
Ono Finance plc
13.00%, 05/01/09 *, ** ........... 5,980,000 5,890,300
Paxson Communications Corp.
11.63%, 10/01/02 ** .............. 3,000,000 3,116,250
Pegasus Communications Corp.
9.63%, 10/15/05 ** ............... 4,000,000 3,900,000
9.75%, 12/01/06 ** ............... 2,000,000 1,995,000
Premier Parks, Inc.
9.25%, 04/01/06 ** ............... 4,000,000 3,825,000
Regal Cinemas, Inc.
9.50%, 06/01/08 ** ............... 6,000,000 4,500,000
Regional Independent Media
10.50%, 07/01/08 ** .............. 6,000,000 5,985,000
SFX Entertainment, Inc.
9.13%, 02/01/08 ** ............... 6,000,000 5,550,000
Six Flags Entertainment Corp.
8.88%, 04/01/06 ** ............... 2,000,000 1,920,000
TV Azteca S.A. de CV
10.50%, 02/15/07 ** .............. 5,000,000 4,000,000
United International Holdings, Inc.
10.75%, 02/15/08 **, *** ......... 8,000,000 4,590,000
-----------
102,520,050
-----------
METALS & MINERALS--4.55%
Great Lakes Carbon Corp.
10.25%, 05/15/08 ** .............. 5,000,000 4,637,500
Kaiser Aluminum & Chemical Corp.
12.75%, 02/01/03 ** .............. 9,000,000 8,955,000
Renco Steel Holdings
10.88%, 02/01/05 ** .............. 3,000,000 2,715,000
-----------
16,307,500
-----------
RETAIL--4.91%
Big 5 Corp.
10.88%, 11/15/07 ** .............. 4,000,000 3,920,000
Hollywood Entertainment Corp.
10.63%, 08/15/04 ** .............. 3,500,000 2,992,500
</TABLE>
See notes to financial statements.
<PAGE>
DLJ High Yield Bond Fund--Statement of Investments October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
---------- ----------
<S> <C> <C>
MusicLand Group, Inc.
9.88%, 03/15/08 ** .................. $5,500,000 $ 4,647,500
Pathmark Stores, Inc.
12.63%, 06/15/02 ** ................. 6,000,000 6,052,500
-----------
17,612,500
-----------
SERVICE--5.02%
Allied Waste North America, Inc.
10.00%, 08/01/09 *, ** .............. 5,750,000 4,916,250
Neff Corp.
10.25%, 06/01/08 ** ................. 3,000,000 2,925,000
Phoenix Color Corp.
10.38%, 02/01/09 ** ................. 4,500,000 4,173,750
Rent-A-Center, Inc.
11.00%, 08/15/08 ** ................. 6,000,000 5,985,000
-----------
18,000,000
-----------
TELECOMMUNICATIONS--30.10%
CapRock Communications Corp.
11.50%, 05/01/09 ** ................. 6,000,000 5,805,000
Crown Castle International Corp.
10.38%, 05/15/11 **, *** ............ 7,750,000 4,611,250
9.50%, 08/01/11 *, ** ............... 1,500,000 1,455,000
Dobson/Sygnet Communications Corp.
12.25%, 12/15/08 ** ................. 4,000,000 4,265,000
Dolphin Telecommunications plc
11.50%, 06/01/08 **, *** ............ 2,250,000 1,004,062
14.00%, 05/15/09 *, **, *** ......... 6,000,000 2,467,500
Esat Telecom Group plc Series (B)
11.88%, 12/01/08 ** ................. 6,250,000 6,375,000
ICG Holdings, Inc.
13.50%, 09/15/05 **, *** ............ 5,500,000 4,730,000
Impsat Corp.
12.38%, 06/15/08 ** ................. 5,000,000 3,875,000
Intermedia Communications, Inc.
12.25%, 03/01/09 **, *** ............ 3,600,000 1,962,000
McLeodusa, Inc.
9.25%, 07/15/07 ** .................. 5,000,000 4,987,500
NEXTLINK Communications, Inc.
10.75%, 11/15/08 ** ................. 4,000,000 4,050,000
Netia Holdings II B.V.
13.13%, 06/15/09 *, ** .............. 4,000,000 4,025,000
Netia Holdings B.V.
10.25%, 11/01/07 ** ................. 2,000,000 1,690,000
NTL, Inc.
12.38%, 10/01/08 **, *** ............ 2,000,000 1,350,000
11.50%, 10/01/08 ** ................. 5,000,000 5,325,000
Primus Telecommunications Group, Inc.
11.25%, 01/15/09 ** ................. 5,000,000 4,612,500
12.75%, 10/15/09 ** ................. 1,000,000 987,500
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
---------- ----------
<S> <C> <C>
PSINet, Inc.
10.00%, 02/15/05 ** ................. $2,000,000 $ 1,970,000
11.50%, 11/01/08 ** ................. 4,000,000 4,200,000
RCN Corp.
11.13%, 10/15/07 **, *** ............ 9,000,000 6,243,750
TeleCorp PCS, Inc.
11.63%, 04/15/09 *, **, *** ......... 6,500,000 3,997,500
Triton PCS, Inc.
11.00%, 05/01/08 **, *** ............ 5,500,000 3,795,000
Versatel Telecom International N.V.
13.25%, 05/15/08 ** ................. 3,000,000 3,007,500
11.88%, 07/15/09 ** ................. 3,500,000 3,325,000
Viatel, Inc.
11.50%, 03/15/09 ** ................. 6,000,000 5,820,000
Williams Communications Group, Inc.
10.88%, 10/01/09 ** ................. 4,750,000 4,880,625
WinStar Communications, Inc.
14.50%, 10/15/05 ** ................. 4,000,000 5,370,000
11.00%, 03/15/08 **, *** ............ 2,000,000 1,790,000
-----------
107,976,687
-----------
TRANSPORTATION/AUTOMOTIVE--8.12%
American Axle & Manufacturing
Holdings, Inc.
9.75%, 03/01/09 ** .................. 5,000,000 4,962,500
Amtran, Inc.
9.63%, 12/15/05 ** .................. 4,000,000 3,820,000
Atlas Air, Inc.
9.38%, 11/15/06 ** .................. 3,000,000 2,850,000
Great Lakes Dredge & Dock
11.25%, 08/15/08 ** ................. 4,500,000 4,663,125
JPS Automotive Products Corp.
11.13%, 06/15/01 .................... 3,000,000 2,940,000
JL French Automotive Casting
11.50%, 06/01/09 *, ** .............. 4,000,000 3,960,000
Venture Holdings Trust
11.00%, 06/01/07 *, ** .............. 2,000,000 1,960,000
Worldwide Flight Service
12.25%, 08/15/07 *, ** .............. 4,000,000 3,960,000
-----------
29,115,625
-----------
Total Bonds
(Cost -- $548,740,816).................. 509,547,225
-----------
COMMERCIAL PAPER--0.65%
Merrill Lynch & Company, Inc.
5.30%, 11/01/99**** ................ 2,340,000 2,340,000
-----------
Total Commercial Paper
(Cost -- $2,340,000).................... 2,340,000
-----------
</TABLE>
See notes to financial statements.
<PAGE>
DLJ High Yield Bond Fund--Statement of Investments October 31, 1999
- --------------------------------------------------------------------------------
PREFERRED STOCKS -- 1.96%
Shares Value
----------- -------------
INFORMATION TECHNOLOGY--0.65%
Viasystems Group, Inc. ................ 212,242 $2,334,658
----------
MEDIA/ENTERTAINMENT--1.30%
Paxson Communications Corp. ........... 4,625 4,682,812
----------
RETAIL-- 0.01%
Jitney-Jungle Stores of America, Inc.+ 24,000 24,000
----------
Total Preferred Stocks
(Cost -- $10,767,988) ................. 7,041,470
----------
WARRANTS--0.21%
Shares Value
--------- -----------------
FINANCE-- 0.09%
Ono Finance plc++
(expires 05/31/09) ............... 5,980 $ 301,990
--------------
TELECOMMUNICATIONS--0.12%
Versatel Telecom International N.V.++
(expires 05/15/08) ............... 3,000 439,875
--------------
Total Warrants
(Cost -- $165,000) .................. 741,865
--------------
TOTAL INVESTMENTS--144.88%
(Cost -- $562,013,804) ............. 519,670,560
Liabilities Net of Cash and Other
Assets--(44.88%) .................... (160,991,228)
--------------
NET ASSETS--100.00% $ 358,679,332
==============
NOTES:
* Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At October 31,
1999, the value of these securities amounted to $96,386,538 or 26.87% of
net assets.
** Security has an effective maturity date less than the stated maturity date
due to a call feature.
*** Zero coupon until a specified date at which time the stated coupon rate
becomes effective until maturity.
**** Commercial paper is traded on a discount basis; the interest rate shown
reflects the discount rate paid at the time of purchase by the Fund.
+ Non-income producing -- issuer filed for protection under the Federal
Bankruptcy Code.
++ Non-income producing.
See notes to financial statements.
<PAGE>
DLJ High Yield Bond Fund--Statement of Assets and Liabilities October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities at value (cost $562,013,804)......... $ 519,670,560
Cash .......................................................... 4,594
Dividends and interest receivable ............................. 14,104,550
Other assets .................................................. 101,745
-------------
Total assets ................................................ 533,881,449
-------------
LIABILITIES:
Loan payable .................................................. 169,500,000
Payable for securities purchased .............................. 4,110,777
Interest payable .............................................. 848,823
Payable to advisor ............................................ 472,398
Accrued expenses .............................................. 270,119
-------------
Total liabilities ........................................... 175,202,117
-------------
NET ASSETS:
Applicable to 44,953,107 shares outstanding ................... $ 358,679,332
=============
NET ASSETS CONSIST OF:
Capital paid-in ............................................... $ 445,378,101
Accumulated undistributed net investment income ............... 106,176
Accumulated net realized loss on investments .................. (44,461,701)
Net unrealized depreciation on investments .................... (42,343,244)
-------------
$ 358,679,332
=============
Net asset value per share ..................................... $7.98
=====
</TABLE>
See notes to financial statements.
<PAGE>
DLJ High Yield Bond Fund--Statement of Operations For the Year Ended October
31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest ................................................ $ 56,655,057
Dividends ............................................... 276,398
-------------
Total investment income ............................ 56,931,455
-------------
EXPENSES:
Investment advisory fees (Note 2) ....................... 5,218,935
Interest and leveraging fees (Note 5) ................... 8,021,293
Administration fees ..................................... 51,029
Transfer agent fees ..................................... 51,709
Legal fees .............................................. 87,019
Fund accounting fees .................................... 64,679
Registration expenses ................................... 61,436
Custodian fees .......................................... 47,846
Printing fees ........................................... 72,144
Auditing fees ........................................... 48,137
Trustees fees (Note 2) .................................. 30,085
Postage expense ......................................... 64,744
Amortization of organization costs (Note 1) ............. 47,815
Miscellaneous expenses .................................. 6,205
-------------
Total expenses ..................................... 13,873,076
-------------
NET INVESTMENT INCOME .................................... 43,058,379
-------------
REALIZED AND UNREALIZED GAIN / (LOSS) ON INVESTMENTS:
Net realized loss on investments ........................ (30,606,551)
Net unrealized appreciation on investments .............. 12,681,862
-------------
Net realized and unrealized loss on investments ......... (17,924,689)
-------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............... $ 25,133,690
=============
</TABLE>
See notes to financial statements.
<PAGE>
DLJ High Yield Bond Fund--Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
10/31/1999 10/31/1998 *
----------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income .............................................. $ 43,058,379 $ 10,057,563
Net realized loss on investments ................................... (30,606,551) (13,855,150)
Net unrealized appreciation (depreciation) on investments .......... 12,681,862 (55,025,106)
------------- -------------
Net increase (decrease) in net assets .............................. 25,133,690 (58,822,693)
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ......................................... (42,990,100) (10,019,666)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold .......................................... 0 425,000,000
Reinvestment of dividends .......................................... 16,685,722 4,597,635
Offering costs charged to capital paid in .......................... (106,056) (899,200)
------------- -------------
Net increase in net assets from capital share transactions ......... 16,579,666 428,698,435
------------- -------------
Total increase (decrease) in net assets ............................ (1,276,744) 359,856,076
NET ASSETS:
Beginning of period ................................................ 359,956,076 100,000
------------- -------------
End of period ...................................................... $ 358,679,332 $ 359,956,076
============= =============
Accumulated undistributed net investment income .................... $ 106,176 $ 37,897
============= =============
</TABLE>
* The DLJ High Yield Bond Fund commenced operations on July 28, 1998.
See notes to financial statements.
<PAGE>
DLJ High Yield Bond Fund--Statement of Cash Flows For the year ended October
31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Cash flows from operating activities:
Interest and dividends received .................................. $ 44,371,959
Operating expenses paid .......................................... (6,586,675)
--------------
Net cash provided by operating activities ......................... $ 37,785,284
Cash flows from investing activities:
Decrease in short-term securities, net ........................... 4,013,181
Purchases of long-term securities ................................ (446,326,303)
Proceeds from sales of long-term securities ...................... 321,080,884
--------------
Net cash used by investing activities ............................. (121,232,238)
Cash flows from financing activities:
Interest paid on notes payable ................................... (7,449,624)
Cash dividends paid .............................................. (26,304,378)
Proceeds from borrowings ......................................... 174,600,000
Repayments of borrowings ......................................... (57,400,000)
--------------
Net cash provided by financing activities ......................... 83,445,998
--------------
Net decrease in cash .............................................. (956)
Cash -- beginning of year ......................................... 5,550
--------------
Cash -- end of year ............................................... $ 4,594
==============
RECONCILIATION OF NET INCREASE IN NET ASSETS
FROM OPERATIONS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net increase in net assets resulting from operations .............. $ 25,133,690
Adjustments to reconcile net increase in net assets from operations
to net cash provided by operating activities.
Interest expense and leveraging fees ............................. $ 8,021,293
Increase in dividends and interest receivable .................... (4,142,449)
Increase in accrued expenses ..................................... 168,004
Decrease in other assets ......................................... 27,147
Decrease in advisory fees payable ................................ (844,655)
Net realized loss on investments ................................. 30,606,551
Net unrealized appreciation on investments ....................... (12,681,862)
Amortization of organization costs ............................... 47,815
Net amortization of discount on investments ...................... (8,550,250)
--------------
Total adjustments .............................................. 12,651,594
--------------
Net cash provided by operating activities ......................... $ 37,785,284
==============
</TABLE>
See notes to financial statements.
<PAGE>
DLJ High Yield Bond Fund--Notes to Financial Statements October 31, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
DLJ High Yield Bond Fund is a business trust under the laws of the State
of Delaware organized on April 30, 1998. The Fund is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended (the "1940 Act"), as a non-diversified, closed-end management
investment company. The Fund's shares trade on the New York Stock Exchange
under the ticker symbol DHY. Prior to the commencement of operations on July
28, 1998, the Fund had no operations other than those relating to
organizational matters and the sale of 10,000 shares of beneficial interest on
July 2, 1998 to DLJ Investment Management Corp. ("DLJIM") for $100,000. The
Fund's primary objective is to seek high current income. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements.
Portfolio valuation: Fixed-income securities (other than short-term
obligations, but including listed issues) are valued based on prices obtained
by one or more independent pricing services approved by the Board of Trustees.
Securities (other than fixed-income securities) for which the principal
market is one or more securities exchanges are valued at the last reported sale
price (or if there has been no current sale, at the closing bid price) on the
primary exchange on which such securities are traded. If a securities exchange
is not the principal market for a security, such security will, if market
quotations are readily available, be valued at the closing bid price in the
over-the-counter market (or the last sale price in the case of securities
reported on the NASDAQ national market system for which any sales occurred
during the day). Portfolio securities for which there are no such valuations
are valued at fair value as determined in good faith by or at the direction of
the Board of Trustees. Short-term obligations with maturities of less than 60
days are valued at amortized cost, which approximates market value.
Securities transactions and investment income: Securities transactions are
recorded as of the trade date. Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income is
recorded on the ex-dividend date. Interest income, including, where applicable,
accretion of discount on investments is recorded on the accrual basis.
Dividends and distributions to shareholders: The Fund distributes monthly
to shareholders substantially all of its net investment income. Capital gains,
if any, net of capital losses, are distributed annually. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund.
Federal income taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Service applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no provisions for federal income or excise taxes
have been made in the accompanying financial statements.
Offering and organization costs: Direct expenses of $899,200 relating to
the initial public offering of the Fund's shares were charged to capital at the
time of issuance. An additional $106,056 relating to the initial public
offering of the Fund's shares were charged to capital during the year ended
October 31, 1999. Organization costs of $60,000 have been amortized from the
commencement of operations through October 31, 1999.
<PAGE>
DLJ High Yield Bond Fund--Notes to Financial Statements October 31, 1999
(continued)
- --------------------------------------------------------------------------------
Cash flow information: Cash, as used in the Statement of Cash Flows, is
the amount reported in the Statement of Assets and Liabilities. The Fund
invests in securities and distributes dividends from net investment income and
net realized gains (which are either paid in cash or reinvested at the
discretion of shareholders). These activities are reported in the Statement of
Changes in Net Assets. Information on cash payments is presented in the
Statement of Cash Flows. Accounting practices that do not affect reporting
activities on a cash basis include unrealized gain or loss on investment
securities and accretion income recognized on investment securities.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reported period. Actual results could differ from those estimates.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER RELATED PARTY
TRANSACTIONS
The Fund has entered into an investment management agreement (the
"Management Agreement") with DLJIM. The Agreement provides that the Fund will
pay DLJIM a fee, computed and payable monthly, at the annual rate of 1% of the
average weekly value of the Fund's total assets minus the sum of accrued
liabilities (other than the aggregate indebtedness constituting leverage) (the
"Managed Assets").
The Fund has also entered into an Administration and Support Agreement
with PFPC, Inc. to provide all administrative services to the Fund other than
those related to the investment decisions. For these administration services,
the Fund will pay PFPC, Inc. a fee at the annual rate of $50,000 per year.
The Fund pays each Trustee not affiliated with DLJIM $2,000 per board
meeting attended, $1,000 per audit committee meeting attended and reimburses
each such Trustee for travel and out-of-pocket expenses relating to their
attendance at such meetings. The Fund pays the actual out-of-pocket expenses of
the Trustees affiliated with DLJIM relating to their attendance at such
meetings.
Citibank, N.A. serves as the Fund's custodian. Investor Services Group
serves as the Fund's shareholder servicing agent (transfer agent).
3. INVESTMENTS
For federal income tax purposes, the cost of securities owned at October
31, 1999, was substantially the same as the cost of securities for financial
statement purposes. At October 31, 1999, the aggregate gross unrealized
appreciation amounted to $6,093,158, and the aggregate gross unrealized
depreciation amounted to $48,436,402, resulting in net unrealized depreciation
of $42,343,244.
Cost of purchases and proceeds from sales of investment securities,
excluding short-term investments, during the year ended October 31, 1999,
amounted to $425,504,466 and $305,180,030, respectively.
<PAGE>
DLJ High Yield Bond Fund--Notes to Financial Statements October 31, 1999
(continued)
- --------------------------------------------------------------------------------
4. FUND SHARES
The Fund has one class of shares of beneficial interest, par value $0.001
per share. 200,000,000 shares are authorized. Transactions in shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
Year Ended Period Ended
October 31, 1999 October 31, 1998
------------------ -----------------
<S> <C> <C>
Shares sold ............................................. 0 42,500,000
Shares issued through reinvestment of dividends ......... 1,907,819 535,288
--------- ----------
Net increase ............................................ 1,907,819 43,035,288
========= ==========
</TABLE>
5. NOTES PAYABLE
The Fund currently has a $200 million ("commitment amount") line of credit
provided by Citibank North America, Inc., under a Revolving Credit and Security
Agreement (the "Agreement") dated July 31, 1998, primarily to leverage its
investment portfolio. Under this Agreement the Fund may borrow up to the lesser
of $200 million or 33 1/3% of its gross assets. Interest is payable at the
Bank's Base Rate plus a commission of 0.05%. The Fund is charged a structuring
fee of $19,000 per quarter, a program fee of 0.20% of the average daily amount
leveraged, an administration fee of 0.02% of the average daily amount leveraged
and a liquidity fee of 0.13% of the maximum borrowing limit (currently $200
million). The Agreement requires, among other provisions, that the percentage
obtained by dividing total indebtedness for money borrowed by total assets of
the Fund shall not exceed 33 1/3%. The average daily amount of borrowings
during the year ended October 31, 1999 was $140,178,356, with a related
weighted average annualized interest rate of 5.72%.
6. CAPITAL LOSS CARRYFORWARD
At October 31, 1999, the Fund had available for Federal tax purposes an
unused capital loss carryforward of $44,461,701, of which $13,855,150 expires
in 2006 and $30,606,551 expires in 2007. Capital loss carryforwards are
available to offset future realized capital gains. To the extent that these
carryforwards are used to offset future capital gains, it is probable that the
amount which is offset will not be distributed to shareholders.
7. CONCENTRATION OF RISK
The Fund invests in securities offering high current income which
generally will be in the lower rating categories of recognized ratings agencies
(so-called "junk bonds"). These securities generally involve more credit risk
than securities in the higher rating categories. In addition, the trading
market for high yield securities may be relatively less liquid than the market
for higher-rated securities. The Fund's use of leverage also increases exposure
to capital risk.
<PAGE>
DLJ High Yield Bond Fund--Financial Highlights
- --------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout the periods presented. This information has been derived
from the Fund's financial statements.
<TABLE>
<CAPTION>
Year Ended Period Ended
10/31/1999 10/31/1998*
------------ -------------
<S> <C> <C>
Net asset value, beginning of period ..................................... $ 8.36 $ 10.00
-------- --------
Income from Investment Operations:
Net investment income ................................................. 0.98 0.24
Net realized and unrealized (loss) on investments ..................... (0.38) ( 1.62)
-------- --------
Total from investment operations ................................... 0.60 ( 1.38)
-------- --------
Less Distributions:
From net investment income ............................................ (0.98) ( 0.24)
-------- --------
Offering costs charged to paid-in capital ................................ 0.00+ ( 0.02)
--------- --------
Net asset value, end of period ........................................... $ 7.98 $ 8.36
======== ========
Market value, end of period .............................................. $ 8.06 $ 9.56
======== ========
Total return (market value)*** ........................................... (5.71)% ( 1.74)%
Ratios/Supplemental Data:
Net assets, end of period (000) ....................................... $358,679 $359,956
Average debt per share ................................................ $ 3.18 $ 1.02
Ratio of operating expenses to average net assets ..................... 1.53% 1.16%* *
Ratio of interest and leveraging expenses to average net assets ....... 2.09% 0.65%* *
Ratio of net investment income to average net assets .................. 11.24% 10.48%* *
Portfolio turnover .................................................... 60.23% 15.26%
</TABLE>
* The DLJ High Yield Bond Fund commenced operations on July 28, 1998.
** Annualized
*** Total return (market value) is based on the change in market price of a
share during the period and assumes reinvestment of dividends and
distributions at actual prices pursuant to the Fund's Dividend
Reinvestment Plan. Total return for periods of less than one year are not
annualized. Total return based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns.
+ Amount rounds to less than $.01.
See notes to financial statements.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
- --------------------------------------------------------------------------------
Shareholders and Board of Trustees
DLJ High Yield Bond Fund
We have audited the accompanying statement of assets and liabilities of DLJ High
Yield Bond Fund, including the statement of investments, as of October 31, 1999,
and the related statements of operations and cash flows for the year then ended
and the statement of changes in net assets and financial highlights for the year
then ended and for the period from July 28, 1998 (commencement of operations) to
October 31, 1998. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1999 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of DLJ
High Yield Bond Fund at October 31, 1999, the results of its operations and its
cash flows for the year then ended, and the changes in its net assets and the
financial highlights for the year then ended and for the period from July 28,
1998 to October 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
----------------------------
New York, New York
December 27, 1999
<PAGE>
DLJ High Yield Bond Fund--Additional Information October 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan
Referenced below are policies related to the Fund's Automatic Dividend
Reinvestment Plan ("The Plan"). These policies referenced apply to shareholders
whose shares are registered directly with the Fund in their own name.
Shareholders whose shares are purchased through a broker-dealer or nominee
should contact such broker-dealer or nominee regarding questions related to the
reinvestment of the Fund's dividends.
Pursuant to the Fund's Plan, unless a shareholder otherwise elects, all
dividends and capital gain distributions will be automatically reinvested by
PFPC, Inc. as agent for Shareholders in administering the Plan (the "Plan
Agent"), in additional shares of the Fund. Shareholders who elect not to
participate in the Plan will receive all dividends and other distributions in
cash paid by check mailed directly to the shareholder of record (or, if the
shares are held in street or other nominee name, then to such nominee) by PFPC,
Inc. as the Dividend Disbursing Agent. Such participants may elect not to
participate in the Plan and to receive all dividends and capital gain
distributions in cash by sending written instructions to PFPC, Inc., as the
Dividend Disbursing Agent, at the address set forth below. Participation in the
Plan is completely voluntary and may be terminated or resumed at any time
without penalty by written notice if received by the Plan Agent not less than
ten days prior to any dividend record date; otherwise such termination will be
effective with respect to any subsequently declared dividend or other
distribution.
Whenever the Fund declares an income dividend or a capital gain
distribution (collectively referred to as "dividends") payable either in shares
or in cash, non-participants in the Plan will receive cash and participants in
the Plan will receive the equivalent in shares. The shares will be acquired by
the Plan Agent for the participants' accounts, depending upon the circumstances
described below, either (i) through receipt of additional unissued but
authorized shares from the Fund ("newly issued shares") or (ii) by purchase of
outstanding shares on the open market ("open-market purchases") on the NYSE or
elsewhere. If on the record date for the dividend, the net asset value per
share is equal to or less than the market price per share plus estimated
brokerage commissions (such condition being referred to herein as "market
premium"), the Plan Agent will invest the dividend amount in newly issued
shares on behalf of the participants. The number of newly issued shares to be
credited to each participant's account will be determined by dividing the
dollar amount of the dividend by the net asset value per share on the date the
shares are issued. If on the dividend record date the net asset value per share
is greater than the market value (such condition being referred to herein as
"market-discount"), the Plan Agent will invest the dividend amount in shares
acquired on behalf of the participants in open-market purchases.
In the event of a market discount on the dividend record date, the Plan
Agent will have until the last business day before the next date on which the
shares trade on an "ex-dividend" basis or in no event more than 30 days after
the dividend record date (the "last purchase date") to invest the dividend
amount in shares acquired in open-market purchases. It is contemplated that the
Fund will pay monthly income dividends. Therefore, the period during which
open-market purchases can be made will exist only from the record date of the
dividend through the date before the next "ex-dividend" date. If, before the
Plan Agent has completed its open-market purchases, the market price of a share
exceeds the net asset value per share, the average per share purchase price
paid by the Plan Agent may exceed the net asset value of the shares, resulting
in the acquisition of fewer shares than if the dividend had been paid in newly
issued shares on the dividend record date. Because of the foregoing difficulty
with respect to open market purchases, the Plan provides that if the Plan Agent
is unable to invest the full dividend amount in open market purchases during
the purchase period or if the market discount shifts to a market premium during
the purchase period, the Plan
<PAGE>
DLJ High Yield Bond Fund--Additional Information October 31, 1999 (unaudited)
(continued)
- --------------------------------------------------------------------------------
Agent may cease making open-market purchases and may invest the uninvested
portion of the dividend amount in newly issued shares at the net asset value
per share at the close of business on the last purchase date.
The Plan Agent maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the accounts, including
information needed by shareholders for tax records. Shares in the account of
each Plan participant will be held by the Plan Agent on behalf of the Plan
participant, and each shareholder proxy will include those shares purchased or
received pursuant to the Plan. The Plan Agent will forward all proxy
solicitation materials to participants and vote proxies for shares held
pursuant to the Plan in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees that hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by
the record shareholder and held for the account of beneficial owners who
participate in the Plan.
There will be no brokerage charges with respect to shares issued directly
by the Fund as a result of dividends or capital gains distributions payable
either in shares or in cash. However, each participant will pay a pro rata
share of brokerage commissions incurred with respect to the Plan Agent's
open-market purchases in connection with the reinvestment of dividends.
The automatic reinvestment of dividends will not relieve participants of
any Federal, state or local income tax that may be payable (or required to be
withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not available
to shareholders not participating in the Plan. If the market price (plus
commissions) of the shares is above their net asset value, participants in the
Plan will receive shares of the Fund at less than they could otherwise purchase
them and will have shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market price plus
commissions is below the net asset value, participants will receive
distributions in shares with a net asset value greater than the value of any
cash distribution they would have received on their shares. However, there may
be insufficient shares available in the market to make distributions in shares
at prices below the net asset value. Also, since the Fund does not redeem
shares, the price on resale may be more or less than the net asset value.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan. There
is no direct service charge to participants in the Plan; however, the Fund
reserves the right to amend the Plan to include a service charge payable by the
participants.
All correspondence concerning the Plan should be directed to the Plan
Agent at P.O. Box 8030, Boston, MA 02266-8030, 1-800-331-1710.
Year 2000 Risks
Like other investment companies, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by DLJIM and the Fund's other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." DLJIM has
taken steps to address the Year 2000 Problem with respect to the computer
systems that it uses and has obtained assurances that comparable steps have
been taken by the Fund's other major service providers. To date, all of DLJIM's
business and non-business-critical internal systems and applications and links
with major suppliers and vendors have been remediated and tested for Y2K
compliance. Full integration testing of these systems and testing of interfaces
with third-party suppliers have been completed. At this time, management of
DLJIM believes that the costs associated with resolving this issue and any
related problems will not have a material adverse effect on its operations or
on its ability to
<PAGE>
DLJ High Yield Bond Fund--Additional Information October 31, 1999 (unaudited)
(continued)
- --------------------------------------------------------------------------------
provide the level of services it currently provides to the Fund.
The Fund and DLJIM have been advised by the Fund's Transfer Agent and
Custodian that they have also reviewed their systems. As of the date of this
report the Fund and DLJIM have no reason to believe that the Transfer Agent and
Custodian will be unable to achieve the necessary goal of minimizing any impact
created by the Year 2000 risk.
Managed Dividend Policy
The Fund's dividend policy is to distribute substantially all of its net
investment income to its shareholders on a monthly basis. However, in order to
provide shareholders with a more consistent yield to the current trading price
of shares of Common Stock of the Fund, the Fund may at times pay out less than
the entire amount of net investment income earned in any particular month and
may at times in any month pay out such accumulated but undistributed income in
addition to net investment income earned in that month. As a result, the
dividends paid by the Fund for any particular month may be more or less than
the amount of net investment income earned by the Fund during such month. The
Fund's current accumulated but undistributed net investment income, if any, is
disclosed in the Statement of Assets and Liabilities, which comprises part of
the Financial Information included in this report.
Leverage--Benefits and Risks
The use of leverage by the Fund creates an opportunity for increased net
income and capital appreciation for the Fund, but, at the same time, creates
special risks, and there can be no assurance that a leveraging strategy will be
successful during any period in which it is employed. The Fund intends to
utilize leverage to provide the Shareholders with a potentially higher return.
Leverage creates risks for Shareholders including the likelihood of greater
volatility of net asset value and market price of the Fund's shares and the
risk that fluctuations in interest rates on borrowings and short-term debt may
affect the return to Shareholders. To the extent the income or capital
appreciation derived from securities purchased with funds received from
leverage exceeds the cost of leverage, the Fund's return will be greater than
if leverage had not been used. Conversely, if the income or capital
appreciation from the securities purchased with such funds is not sufficient to
cover the cost of leverage, the return to the Fund will be less than if
leverage had not been used, and therefore the amount available for distribution
to Shareholders as dividends and other distributions will be reduced. In the
latter case, DLJIM in its best judgment nevertheless may determine to maintain
the Fund's leveraged position if it deems such action to be appropriate under
the circumstances. During periods in which the Fund is utilizing leverage, the
Management Fee will be higher than if the Fund did not utilize a leveraged
capital structure because the fee is calculated as a percentage of the Managed
Assets including those purchased with leverage. Certain types of borrowings by
the Fund may result in the Fund's being subject to covenants in credit
agreements, including those relating to asset coverage and portfolio
composition requirements. The Fund's lenders may establish guidelines for
borrowing which may impose asset coverage or portfolio composition requirements
that are more stringent than those imposed by the Investment Company Act. It is
not anticipated that these covenants or guidelines will impede DLJIM in
managing the Fund's portfolio in accordance with the Fund's investment
objectives and policies.
Supplemental Information
Since the initial filing of the Fund's registration statement with the
Securities and Exchange Commission, Michael A. Snyder, a Vice President of the
Fund, has been assigned as the person primarily responsible for the day-to-day
management of the Fund's portfolio. In addition, since the filing there have
been (i) no material changes in the Fund's investment objectives or policies,
(ii) no changes in the Fund's charter or by-laws that would delay or prevent a
change of
<PAGE>
DLJ High Yield Bond Fund--Additional Information October 31, 1999 (unaudited)
(continued)
- --------------------------------------------------------------------------------
control of the Fund, and (iii) no material changes in the principal risk
factors associated with investment in the Fund.
Proxy Voting Results
A special meeting of DLJ High Yield Bond Fund's shareholders was held on
May 20, 1999 for the purpose of considering and acting upon the matters set
forth in the Proxy Statement and summarized below. A quorum was represented at
the meeting and the voting results are set forth below:
A. Election of Trustees of the Fund for each Class (I, II and III):
For Against
---------- --------
Wilmot H. Kidd, III (Class I) 40,690,430 262,382
Martin Jaffe (Class II) 40,693,259 259,553
John W. Waller, III (Class III) 40,602,680 350,132
G. Moffett Cochran (Class III) 40,693,259 259,553
Robert E. Fischer (Class III) 40,675,411 277,401
B. Selection of Ernst & Young LLP as independent auditors of the Fund for the
fiscal year ending October 31, 1999:
For Against Abstain
---------- --------- --------
40,672,295 128,285 152,232
<PAGE>
DLJ High Yield Bond Fund
TRUSTEES
G. MOFFETT COCHRAN ROBERT E. FISCHER
WILMOT H. KIDD, III MARTIN JAFFE
JOHN W. WALLER, III
OFFICERS
G. MOFFETT COCHRAN, Chairman and President
MARTIN JAFFE, Vice President, Secretary and Treasurer
BRIAN A. KAMMERER, Vice President
CATHERINE M. NOLAN, Vice President
VANCE P. SHAW, Vice President
MICHAEL A. SNYDER, Vice President
INVESTMENT ADVISER
DLJ INVESTMENT MANAGEMENT CORP.
277 Park Avenue, New York, NY 10172
CUSTODIAN
CITIBANK, N.A.
111 Wall Street, New York, NY 10043
TRANSFER AGENT
PFPC, INC.
P.O. Box 61787 (211 South Gulph Road)
King of Prussia, PA 19406
DISTRIBUTOR
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
277 Park Avenue, New York, NY 10172
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
787 Seventh Avenue, New York, NY 10019
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 Third Avenue, New York, NY 10022
DLJ INVESTMENT MANAGEMENT CORP.
MEMBER OF DLJ ASSET MANAGEMENT GROUP,
A DIVISION OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
277 PARK AVENUE, NEW YORK, NEW YORK 10172
(888) 649-5711
DLJ High Yield
Bond Fund
Annual Report
October 31, 1999
