<PAGE>
53,350,000 SHARES
LOGO
DREYFUS HIGH YIELD STRATEGIES FUND
----------------
Dreyfus High Yield Strategies 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 will also seek
capital growth 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 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 securities organization)
or in unrated income securities that The Dreyfus Corporation ("Dreyfus"), the
Fund's investment manager, determines to be of comparable quality. The Fund
may invest up to 25% 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. There is 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
interest. As a non-diversified investment company, the Fund may invest a
greater 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 and interest rate 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 growth. 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 OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Proceeds to
Public Sales Load (1) Fund (2)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...................................... $15.00 None $15.00
- --------------------------------------------------------------------------------------------
Total.......................................... $800,250,000 None $800,250,000
- --------------------------------------------------------------------------------------------
Total Assuming Full Exercise of Over-Allotment
Option (3).................................... $920,287,500 None $920,287,500
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
(Footnotes on the following page)
----------------
The Shares are offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to their
right to reject orders in whole or in part. It is expected that delivery of
the Shares will be made in New York City on or about April 29, 1998.
----------------
PAINEWEBBER INCORPORATED
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
FAHNESTOCK & CO. INC.
INTERSTATE/JOHNSON LANE
CORPORATION
----------------
THE DATE OF THIS PROSPECTUS IS APRIL 23, 1998.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF THE
FUND AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
NASDAQ MARKET OR OTHERWISE. SUCH STABILIZATION, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
----------------
(Continued from Cover Page)
Dreyfus will serve as investment manager to the Fund. The Fund's address is
200 Park Avenue, New York, New York 10166, and its telephone number is 1-888-
338-8084.
At times, the Fund expects to utilize financial 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 financial leverage. The Fund intends to utilize financial
leverage in an initial amount equal to approximately 25% of its total assets
(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 common shareholders than that obtainable
over time with an unleveraged capital structure. Use of financial leverage
creates an opportunity for increased income and capital growth 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 shares of beneficial interest, par value $.001 per
share (the "Shares"). Prior to this offering, there has been no market for the
Fund's Shares. The Shares have been approved for listing, subject to notice of
issuance, on the New York Stock Exchange under the symbol "DHF." Shares of
closed-end management investment companies have in the past frequently traded
at discounts from their net asset values and the Fund's Shares may likewise
trade at such a discount. The risks associated with this characteristic of
closed-end management investment companies may be greater for investors
expecting to sell shares of a closed-end management investment company soon
after completion of an initial public offering of the company's shares. The
minimum investment in this offering is 100 Shares ($1,500). This Prospectus
sets forth in concise form information about the Fund that a prospective
investor should know before investing in the Fund. Investors are advised to
read this Prospectus carefully and to retain it for future reference.
The Underwriters may engage in transactions that stabilize, maintain or
otherwise affect the price of the Fund's Shares. Such transactions may include
stabilizing the purchase of the Fund's Shares to cover short positions and the
imposition of penalty bids. For a description of these activities, see
"Underwriting."
The Fund's Shares do not represent a deposit or obligation of, and are not
guaranteed or endorsed by, any bank or other insured depository institution,
and are not federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.
----------------
(Footnotes from cover page)
(1) Dreyfus or an affiliate (not the Fund) from its own assets will pay a
commission to the Underwriters in the amount of 5% of the Price to Public
per Share in connection with the sale of the Shares offered hereby. The
Fund and Dreyfus have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting organizational and offering expenses payable by the Fund,
including payment of $250,000 to the Underwriters in partial reimbursement
of their expenses, estimated at $61,000 and $1,039,000, respectively.
Offering expenses will be deducted from net proceeds, and organizational
expenses will be capitalized and amortized as described in the footnotes
to the "Statement of Assets and Liabilities."
(3) Assuming exercise in full of the 60-day option granted by the Fund to the
Underwriters to purchase up to 8,002,500 additional Shares, on the same
terms, solely to cover over-allotments. See "Underwriting."
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Investors should carefully
consider information set forth under the heading "Risk Factors and Special
Considerations."
THE FUND.................... Dreyfus High Yield Strategies Fund ("Fund") is a
newly organized, non-diversified, closed-end man-
agement investment company. The Fund is managed
by The Dreyfus Corporation ("Dreyfus"). See "The
Fund."
THE OFFERING................ The Fund is offering 53,350,000 Shares of Benefi-
cial Interest, par value $.001 per share
("Shares"), through a group of underwriters ("Un-
derwriters") led by PaineWebber Incorporated,
Merrill Lynch, Pierce, Fenner & Smith Incorporat-
ed, Salomon Smith Barney,Fahnestock & Co. Inc.,
and Interstate/Johnson Lane Corporation. The Un-
derwriters have been granted an option to pur-
chase up to 8,002,500 additional Shares solely to
cover over-allotments, if any. The initial public
offering price is $15 per share. The minimum in-
vestment in the offering is 100 Shares ($1,500).
See "Underwriting."
NO SALES CHARGE............. The Shares will be sold during the initial public
offering without any sales load or underwriting
discounts payable by investors or the Fund. Drey-
fus or an affiliate (not the Fund) from its own
assets will pay a commission to the Underwriters
in connection with sales of the Shares in this
offering. See "Underwriting."
INVESTMENT OBJECTIVES AND The Fund's primary investment objective is to
POLICIES................... seek high current income. The Fund will also seek
capital growth as a secondary objective, to the
extent consistent with its objective of seeking
high current income. The Fund is designed for in-
vestors willing to assume additional risk in re-
turn for the potential for high current income
and capital growth. The Fund is not intended to
be a complete investment program and there is no
assurance that the Fund will achieve its objec-
tives.
Under normal market conditions, the Fund will in-
vest at least 65% of its total assets in income
securities of U.S. issuers rated below investment
grade quality (lower than Baa by Moody's Invest-
ors Service, Inc. ("Moody's") or lower than BBB
by Standard & Poor's Ratings Group ("S&P") or
comparably rated by another nationally recognized
securities organization (each, a "Rating Agen-
cy")) or in unrated income securities that Drey-
fus determines to be of comparable quality. Lower
grade income securities are commonly known as
"junk bonds." The Fund may invest up to 25% of
its total assets in securities of issuers domi-
ciled outside the United States or that are de-
nominated in various foreign currencies and mul-
tinational currency units. The Fund may also in-
vest up to 10% of its total assets in securities
that are the subject of bankruptcy proceedings or
otherwise in default or in significant risk of
being in default ("Distressed Securities"). The
Fund may engage in various portfolio strategies
to seek to enhance income and hedge its portfo-
1
<PAGE>
lio against investment and interest rate risks,
including the use of leverage and the use of de-
rivative financial instruments. Of course, there
can be no assurance that the Fund's strategies
will be successful. The Fund is designed for in-
vestors willing to assume additional risk in re-
turn primarily for the potential for high current
income and secondarily capital growth. An invest-
ment in the Fund may be speculative in that it
involves a high degree of risk.
At times, the Fund expects to utilize financial
leverage through borrowings, including the issu-
ance of debt securities, or the issuance of pre-
ferred shares or through other transactions, such
as reverse repurchase agreements, which have the
effect of financial leverage. The Fund intends to
utilize financial leverage in an initial amount
equal to approximately 25% of its total assets
(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 hold-
ers of Shares ("Shareholders") than that obtain-
able over time with an unleveraged capital struc-
ture. Use of financial leverage creates an oppor-
tunity for increased income and capital growth
for the Shareholders but, at the same time, cre-
ates 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--Lever-
age."
In selecting investments for the Fund's portfo-
lio, Dreyfus will seek to identify issuers and
industries that Dreyfus believes are likely to
experience stable or improving financial condi-
tions. Dreyfus believes that this strategy should
enhance the Fund's ability to earn high current
income while also providing opportunities for
capital growth. Dreyfus's analysis may include
consideration of general industry trends, the is-
suer's managerial strength, changing financial
condition, borrowing requirements or debt matu-
rity schedules, and its responsiveness to changes
in business conditions and interest rates. Drey-
fus may also consider relative values based on
anticipated cash flow, interest or dividend cov-
erage, asset coverage and earnings prospects. Of
course there can be no assurances that this
strategy will be successful.
The Fund will seek its secondary objective of
capital growth by investing in securities that
Dreyfus expects may appreciate in value as a re-
sult 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.
In certain market conditions, Dreyfus may deter-
mine that securities rated investment grade
(i.e., at least Baa by Moody's or BBB by S&P or
comparably rated by another Rating Agency) offer
significant opportunities for high income and
capital growth. In such conditions, the Fund may
invest less than 65% of its total assets in lower
grade income securities of U.S. issuers. In addi-
tion, the Fund may implement various temporary
"defensive" strategies at times when Dreyfus de-
termines that conditions in the markets make pur-
2
<PAGE>
suing the Fund's basic investment strategy incon-
sistent with the best interests of its Sharehold-
ers. These strategies may include investing all
or a portion of the Fund's assets in higher-qual-
ity debt securities. See "Investment Objectives
and Policies."
INVESTMENT MANAGER AND
ADMINISTRATOR.............. Dreyfus is the Fund's investment manager and ad-
ministrator. Dreyfus provides investment manage-
ment and/or administration services to the Drey-
fus Family of Funds. Dreyfus is a wholly-owned
subsidiary of Mellon Bank, N.A. ("Mellon Bank").
As of December 31, 1997, aggregate assets under
the management of Mellon Bank and its affiliates
worldwide exceeded $305 billion. The companies
comprising Mellon Bank and its affiliates are di-
rect and indirect subsidiaries of Mellon Bank
Corporation. As of March 31, 1998, Dreyfus man-
aged or administered assets of approximately $100
billion.
LISTING..................... Prior to this offering, there has been no market
for the Shares. The Shares have been approved for
listing, subject to notice of issuance, on the
New York Stock Exchange, Inc. ("NYSE") under the
symbol "DHF."
DIVIDENDS AND OTHER The Fund intends to pay monthly distributions to
DISTRIBUTIONS.............. Shareholders from net investment income. The ini-
tial distribution to Shareholders is expected to
be paid approximately 60 days after the comple-
tion of the offering of the Fund's Shares. 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, in either case
unless the Shareholder elects to receive cash.
Shareholders who intend to hold their Shares
through a broker or nominee should contact such
broker or nominee to determine whether or how
they may participate in the Plan. See "Automatic
Dividend Reinvestment Plan."
STOCK REPURCHASES AND
TENDER OFFERS; CONVERSION
TO 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, in
consultation with Dreyfus, from time to time may
review the possibility of open market repurchases
or tender offers for Shares at net asset value.
There can be no assurance that the Board of
Trustees will 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 of Trustees from time to time also may
consider the conversion of the Fund to an open-
end investment company. See "Description of
Shares."
3
<PAGE>
INVESTMENT MANAGEMENT AND
ADMINISTRATION FEE......... As the Fund's investment manager, Dreyfus will
determine the composition of the Fund's portfo-
lio, place all orders for the purchase and sale
of securities and for other transactions, and
oversee the settlement of the Fund's securities
and other portfolio transactions. Dreyfus will
also provide administration services to the Fund.
These will include, among other things, furnish-
ing office space, arranging for persons to serve
as Fund officers, preparing or assisting in pre-
paring materials for Shareholders and regulatory
bodies and overseeing the provision to the Fund
of custodial and accounting services. For these
investment management and administration servic-
es, the Fund will pay Dreyfus a monthly fee at
the annual rate of .90% of the Fund's average
weekly value of the total assets of the Fund mi-
nus the sum of accrued liabilities (other than
the aggregate indebtedness constituting financial
leverage) (the "Managed Assets"). This fee is
higher than fees paid by other comparable invest-
ment companies. During periods in which the Fund
is utilizing financial leverage, the management
and administration fee, which is payable to Drey-
fus as a percentage of the Fund's Managed Assets,
will be higher than if the Fund did not utilize a
leveraged capital structure because the fee is
calculated as a percentage of the Fund's Managed
Assets including those purchased with leverage.
See "Management of the Fund."
SHAREHOLDER SERVICING
AGENT, CUSTODIAN AND
TRANSFER AND DIVIDEND
DISBURSING AGENT...........
PaineWebber Incorporated will act as Shareholder
Servicing Agent for the Fund. The Fund will pay a
monthly fee at the annual rate of .10% of the
Fund's average weekly Managed Assets (as defined
above) for such services. Mellon Bank, the parent
company of Dreyfus, will act as custodian for the
Fund and may employ sub-custodians outside the
U.S. approved by the Trustees of the Fund in ac-
cordance with regulations of the Securities and
Exchange Commission. ChaseMellon Shareholder
Services, L.L.C. will act as the Fund's Transfer
and Dividend Disbursing Agent. See "Shareholder
Servicing Agent, Custodian and Transfer and Divi-
dend 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-di-
versified, closed-end management investment com-
pany and has no operating history. Shares of
closed-end management investment companies fre-
quently trade at a discount from their net asset
value. This risk of loss associated with this
characteristic may be greater for investors ex-
pecting to sell their Shares in a relatively
short period after completion of the public of-
fering. Accordingly, the Shares are designed pri-
marily for long-term investors and should not be
considered a vehicle for trading purposes. The
net asset value of the Fund's Shares will fluctu-
ate with interest rate changes as well as with
price changes of the Fund's portfolio securities
and these fluctuations are likely to be
4
<PAGE>
greater during periods in which the Fund utilizes
a leveraged capital structure. See "Other Invest-
ment 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 secu-
rities involves substantial risk. Lower grade se-
curities 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 secu-
rities. 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 pe-
riods 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 ad-
versely affected by specific issuer developments,
the issuer's inability to meet specific projected
business forecasts or the unavailability of addi-
tional financing. Therefore, there can be no as-
surance that in the future there will not exist a
higher default rate relative to the rates cur-
rently existing in the market for lower grade se-
curities. 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 in-
vest 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 af-
ter the Fund purchases a particular security, in
which case the Fund may experience losses and in-
cur 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 tend to 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 signifi-
cantly 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.
5
<PAGE>
Like higher-rated fixed-income securities, lower
grade securities generally are purchased and sold
through dealers who make a market in such securi-
ties for their own accounts. However, there are
fewer dealers in the lower grade securities mar-
ket, 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 vari-
ous dealers. As a result, during periods of high
demand in the lower grade securities market, it
may be difficult to acquire lower grade securi-
ties appropriate for investment by the Fund. Ad-
verse economic conditions and investor percep-
tions 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 port-
folio 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 recov-
ery upon a default on a portfolio holding or to
participate in the restructuring of the obliga-
tion. See "Investment Objectives and Policies."
Distressed Securities. The Fund may invest up to
10% of its total assets in securities that are
the subject of bankruptcy proceedings or other-
wise in default as to the repayment of principal
and/or payment of interest at the time of acqui-
sition by the Fund or are rated in the lower rat-
ing categories (Ca or lower by Moody's and CC or
lower by S&P) or which, if unrated, are in the
judgment of Dreyfus of equivalent quality ("Dis-
tressed Securities"). Investment in Distressed
Securities is speculative and involves signifi-
cant risk. Distressed Securities frequently do
not produce income while they are outstanding and
may require the Fund to bear certain extraordi-
nary expenses in order to protect and recover its
investment. Therefore, to the extent the Fund
pursues its secondary objective of capital growth
through investment in Distressed Securities, the
Fund's ability to achieve current income for its
Shareholders may be diminished.
Leverage. The use of leverage by the Fund creates
an opportunity for increased net income and capi-
tal growth 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
holders of Shares with a potentially higher re-
turn. Leverage creates risks for holders of
Shares including the likelihood of greater vola-
tility 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 re-
turn to the holders of Shares. To the extent the
income or capital growth derived
6
<PAGE>
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 growth 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 Share-
holders as dividends and other distributions will
be reduced. In the latter case, Dreyfus in its
best judgment may nevertheless determine to main-
tain the Fund's leveraged position if it deems
such action to be appropriate under the circum-
stances. During periods in which the Fund is
utilizing financial leverage, the investment man-
agement and administration fee, which is payable
to Dreyfus as a percentage of the Fund's Managed
Assets, 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 agree-
ments, including those relating to asset coverage
and portfolio composition requirements. The Fund
may be subject to certain restrictions on invest-
ments 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 Invest-
ment Company Act of 1940, as amended (the "In-
vestment Company Act"). It is not anticipated
that these covenants or guidelines will impede
Dreyfus in managing the Fund's portfolio in ac-
cordance with the Fund's investment objectives
and policies. The Fund at times may borrow from
affiliates of Dreyfus, provided that the terms of
such borrowings are no less favorable than those
available from comparable sources of funds in the
marketplace. As discussed under "Management of
the Fund," the fee paid to Dreyfus will be calcu-
lated on the basis of the Fund's assets including
proceeds from borrowings for leverage and the is-
suance of preferred shares. See "Other Investment
Policies--Leverage."
Foreign Securities. The Fund may invest up to 25%
of its total assets in securities of issuers dom-
iciled 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 cer-
tain risks not involved in domestic investments,
including, but not limited to, fluctuations in
foreign exchange rates, future foreign political
and economic developments, different legal sys-
tems and the possible imposition of exchange con-
trols or other foreign governmental laws or re-
strictions. Securities prices in different coun-
tries are subject to different economic, finan-
cial, 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
7
<PAGE>
value of securities denominated in such curren-
cies. 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, con-
fiscatory 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 prod-
uct, rates of inflation, capital reinvestment,
resources, self-sufficiency and balance of pay-
ments 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, Dreyfus may
determine that, notwithstanding otherwise favora-
ble investment criteria, it may not be practica-
ble or appropriate to invest in a particular
country. The Fund may invest in countries in
which foreign investors, including Dreyfus, have
had no or limited prior experience.
Other Investment Management Techniques. The Fund
may use various other investment management tech-
niques that also involve special considerations,
including engaging in interest rate transactions,
utilization of options and futures transactions,
making forward commitments and lending its port-
folio 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 secu-
rities for which no readily available market ex-
ists or which are otherwise illiquid. The Fund
may not be able readily to dispose of such secu-
rities 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 illi-
quidity, the Fund may have to sell other invest-
ments or engage in borrowing transactions if nec-
essary 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 "di-
versified" management investment company. Accord-
ingly, the Fund may be subject to greater risk
with respect to its portfolio securities than a
management investment company that is "diversi-
fied" 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 invest-
ment companies in the past frequently have traded
at a discount to their net asset values. The risk
of loss
8
<PAGE>
associated with this characteristic of closed-end
management investment companies may be greater
for investors purchasing Shares in the initial
public offering and expecting to sell the Shares
soon after the completion thereof. Whether in-
vestors will realize gains or losses upon the
sale of Shares will not depend directly upon the
Fund's net asset value, but will depend upon the
market price of the Shares at the time of sale.
Since the market price of the Shares will be de-
termined 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 de-
signed primarily for long-term investors, and in-
vestors 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 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 Fund's Trustees 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 Sharehold-
ers of opportunities to sell their Shares at a
premium over prevailing market prices by discour-
aging a third party from seeking to obtain con-
trol of the Fund in a tender offer or similar
transaction. See "Investment Objectives and Poli-
cies," "Risk Factors and Special Considerations"
and "Description of Shares."
9
<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 FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS
ATTRIBUTABLE TO SHARES)(1)(2)
Management and Administration Fee....................................... 0.90%
Interest Payments on Borrowed Funds..................................... None
Shareholder Servicing Fee............................................... 0.10%
Other Expenses.......................................................... 0.36%
-----
Total Annual Fund Expenses............................................ 1.36%
=====
</TABLE>
- --------
(1) See "Management of the Fund" for additional information. In the event the
Fund utilizes leverage by borrowing in an amount equal to approximately
25% of the Fund's total assets (including the amount obtained from
leverage), it is estimated that, as a percentage of net assets
attributable to the Shares, the Management and Administration Fee would be
1.20%, Interest Payments on Borrowed Funds (assuming an interest rate of
6.00%) would be 2.00%, the Shareholder Servicing Fee would be 0.13%, Other
Expenses would be 0.36% and Total Annual Fund Expenses would be 3.69%.
"Other Expenses" have been estimated. The Fund may utilize leverage up to
33 1/3% of the Fund's total assets (including the amount obtained from the
leverage), depending on economic conditions. See "Risk Factors and
Considerations--Leverage" and "Other Investment Policies--Leverage."
(2) The Fund may reimburse the Underwriters up to $250,000 for expenses. A
portion of the management and administrative fee may be used by Dreyfus or
an affiliate of Dreyfus as reimbursement for compensation paid to the
Underwriters.
EXAMPLE
The following Example demonstrates the projected dollar amount of total
cumulative expense 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 operating expenses at the levels set forth in the above table.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would directly or indirectly pay
the following expenses on a $1,000 investment
in the Fund, assuming (i) total annual
expenses of 1.36% (assuming no leverage) and
3.69% (assuming leverage of 25% 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:
Assuming No Leverage........................ 14 43 74 164
Assuming 25% Leverage....................... 37 113 191 394
</TABLE>
This Example assumes that the percentage amounts listed under Total Annual
Fund Expenses remain the same in the years shown, except, as to Ten Years, for
the completion of organizational expense amortization. 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 Securities and Exchange
Commission applicable to all investment companies; the assumed 5% annual
return is not a prediction of, and does not represent, the projected or actual
performance of the Shares. Actual expenses and annual rates of return may be
more or less than those assumed for purposes of the Example. In addition,
although the Example assumes reinvestment of all dividends and other
distributions at net asset value, participants in the Fund's Automatic
Dividend Reinvestment Plan may receive Shares obtained by the Plan Agent at or
based on the market price in effect at that time, which may be at, above or
below net asset value.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES,
AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
10
<PAGE>
THE FUND
Dreyfus High Yield Strategies Fund ("Fund") is registered under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), as
a non-diversified, closed-end management investment company. The Fund was
organized as a business trust under the laws of the Commonwealth of
Massachusetts on March 16, 1998 and has no operating history. The Fund's
principal office is located at 200 Park Avenue, New York, New York 10166, and
its telephone number is 1-888-338-8084 . The Dreyfus Corporation ("Dreyfus")
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. This risk may be greater
for investors expecting to sell their shares in a relatively short period
after the completion of the public offering.
USE OF PROCEEDS
The proceeds of this initial public offering are estimated at $800,250,000
($920,287,500 if the Underwriters' over-allotment option is exercised in full)
before payment of organizational and offering expenses (estimated at $61,000
and $1,039,000, respectively). The proceeds will be invested in accordance
with the Fund's investment objectives and policies during a period not to
exceed six months from the closing of the initial public offering. Pending
such investment, the proceeds may be invested in U.S. dollar-denominated, high
quality, short-term instruments. A portion of the Fund's organizational and
offering expenses has been advanced by Dreyfus and will be repaid by the Fund
upon completion of the initial public offering. There is no sales load or
underwriting discount imposed on sales of Shares in the initial public
offering. Dreyfus or its affiliate (not the Fund) from its own assets will pay
a commission to the Underwriters in connection with sales of Shares in this
offering. See "Underwriting."
11
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The Fund's primary investment objective is to seek high current income. The
Fund will also seek capital growth 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 growth. The
Fund is not intended to be a complete investment program and there is no
assurance that the Fund will achieve its objectives. The Fund's investment
objectives cannot be changed without approval by the holders of a majority (as
defined in the Investment Company Act) of the Fund's outstanding voting
securities.
INVESTMENT POLICIES
Under normal market conditions, the Fund will invest at least 65% of its
total assets in 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 securities organization (each, a "Rating
Agency")) or in unrated income securities that Dreyfus determines to be of
comparable quality. Lower grade income securities are commonly known as "junk
bonds." The Fund may invest up to 25% 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
up to 10% of its total assets in securities that are the subject of bankruptcy
proceedings or otherwise in default or in significant risk of being in default
("Distressed Securities").
At times, the Fund expects to utilize financial 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 financial leverage. The Fund intends to utilize financial
leverage in an initial amount equal to approximately 25% of its total assets
(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 financial leverage creates an
opportunity for increased income and capital growth 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 "Other Investment Practices--Leverage" and "Risk Factors and
Special Considerations--Leverage."
In certain market conditions, Dreyfus may determine that securities rated
investment grade (i.e., at least Baa by Moody's or BBB by S&P or comparably
rated by another Rating Agency) offer significant opportunities for high
income and capital growth. In such conditions, the Fund may invest less than
65% of its total assets in lower grade income securities of U.S. issuers. In
addition, the Fund may implement various temporary "defensive" strategies at
times when Dreyfus determines that conditions in the markets make pursuing the
Fund's basic investment strategy inconsistent with the best interests of its
Shareholders. These strategies may include an increase in the portion of the
Fund's assets invested in higher-quality debt securities. The Fund may invest
in money market instruments consisting of U.S. Government securities,
certificates of deposit, 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. However, when Dreyfus determines that adverse market conditions
exist, the Fund may adopt a temporary defensive posture and invest all or a
portion of its assets in money market instruments.
In selecting investments for the Fund's portfolio, Dreyfus will seek to
identify issuers and industries that Dreyfus believes are likely to experience
stable or improving financial conditions. Dreyfus believes that this strategy
should enhance the Fund's ability to earn high current income while also
providing opportunities for capital growth. Dreyfus's analysis may include
consideration of general industry trends, the issuer's managerial strength,
changing financial condition, borrowing requirements or debt maturity
schedules, and its responsiveness to changes in business conditions and
interest rates. Dreyfus may also consider relative values based on
12
<PAGE>
anticipated cash flow, interest or dividend coverage, asset coverage and
earnings prospects. The Fund will seek its secondary objective of capital
growth by investing in securities that Dreyfus 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. Of course there
is no assurance the Fund's strategies will be successful.
The market for lower grade income securities, as measured by the ML High-
Yield Master Index, posted total annual returns of 39.17%, 17.44%, 16.69%,
(1.03)%, 20.46%, 11.27% and 13.27% for the calendar years 1991, 1992, 1993,
1994, 1995, 1996 and 1997, respectively. By comparison, the market for
investment grade income securities, as measured by the ML Long-Term Corporate
Index, posted total annual returns of 17.60%, 8.59%, 11.57%, (3.91)%, 21.66%,
2.76% and 10.43% for calendar years 1991, 1992, 1993, 1994, 1995, 1996 and
1997, respectively. The U.S. Treasury Bill market, as measured by the ML U.S.
Treasury 91-Day Index, posted total returns of 6.38%, 3.93%, 3.19%, 4.19%,
6.03%, 5.31% and 5.33% for calendar years 1991, 1992, 1993, 1994, 1995, 1996
and 1997, respectively. The ML High-Yield Master Index is an unmanaged
composite index of securities rated below BBB that are not in default. The ML
Long-Term Corporate Index is an unmanaged index which includes fixed coupon
domestic corporate bonds with at least $100 million par amount outstanding
that are rated between BBB and AAA. The ML U.S. Treasury 91-Day Index is an
average price based on all three-month Treasury bill auctions over the course
of the previous month. Treasury Bills are guaranteed as to principal by the
U.S. Government. The Fund will have no direct investment in, nor will its
performance be indicative of, these unmanaged indices.
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 $59 billion, in 1989 was $244 billion, in 1994 was
$270 billion and in 1997 was over $450 billion. The default rates on lower
grade income securities of U.S. issuers for the calendar years 1989, 1990,
1991, 1992, 1993, 1994, 1995, 1996 and 1997 were 5.8%, 8.7%, 10.5%, 4.6%,
3.3%, 1.8%, 3.2%, 1.4% and 1.1%, respectively. The statistical information
with respect to the principal amounts of outstanding securities and with
respect to historical default rates is based on information the Fund obtained
from Chase Securities, Inc.
For the period January 1, 1989 through December 31, 1997, the cumulative
default rate for lower grade corporate bonds was 38.34%. This figure
represents the probability that a lower grade bond issued on January 1, 1989
would default by December 31, 1997. The rate is based on the ratio of the
number of issuers that defaulted on lower grade bonds outstanding on January
1, 1989 to the number of issuers at risk of defaulting on such bonds as of
such date, and is based only on bonds which have been rated by Moody's. The
foregoing is derived from information obtained by the Fund from the February
1998 issue of a Moody's publication entitled "Historical Default Rates of
Corporate Bond Issuers, 1920-1997."
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, convertible debt obligations and
convertible preferred stock, participation interests in commercial loans,
mortgage-related securities, asset-backed securities, municipal obligations,
government securities, stripped securities, commercial paper and other short-
term debt obligations. The issuers of the Fund's portfolio securities may
include domestic and foreign corporations, partnerships, trusts or similar
entities, and governmental entities or their political subdivisions, agencies
or instrumentalities. The Fund may invest in companies in, or governments of,
developing countries. The Fund may invest up to 25% 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. The Fund's portfolio will be invested without regard to maturity. 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 Dreyfus determines it is appropriate in light of current market
conditions to effect a disposition of such securities.
13
<PAGE>
PORTFOLIO SECURITIES
LOWER GRADE SECURITIES. Under normal market conditions, the Fund will invest
at least 65% of its total assets in 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 income
securities that Dreyfus determines to be of comparable quality. Securities
rated Ba by Moody's are judged to have speculative elements; their future
cannot be considered as well assured and often the protection of interest and
principal payments may be very moderate. Securities rated BB by S&P are
regarded as having predominantly speculative characteristics and, while such
obligations have less near-term vulnerability to default than other
speculative grade debt, in the opinion of S&P 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. Securities rated C by Moody's are regarded by Moody's as
having extremely poor prospects of ever attaining any real investment
standing. Securities rated D by S&P are in default and the payment of interest
and/or repayment of principal is in arrears. 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 can 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,
Dreyfus 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 Dreyfus' 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
securities, including those that are 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. Such distributions may require the Fund
to sell other securities and incur a gain or loss at a time it may otherwise
not want to in order to obtain the cash needed for these distributions. 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
14
<PAGE>
aggregate par value of the securities. Deferred payment securities are
securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes
payable at regular intervals. Zero coupon, pay-in-kind and deferred payment
securities are subject to greater fluctuation in value and may have less
liquidity in the event of adverse market conditions than comparably rated
securities paying cash interest at regular interest payment periods.
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. A unique feature of convertible securities is that 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 are investments that provide for a stable stream of
income with generally higher yields than common stock. There can be no
assurance of current income because the issuers of the convertible securities
may default on their obligations. A convertible security, in addition to
providing fixed income, offers the potential for capital growth through the
conversion feature, which enables the holder to benefit from increases in the
market price of the underlying common stock. There can be no assurance of
capital growth, however, because securities prices fluctuate. Convertible
securities, however, generally offer lower interest or dividend yields than
non-convertible securities of similar quality because of the potential for
capital growth.
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
15
<PAGE>
in realizing payment in connection with the participation interest or suffer a
loss of principal and/or interest. Further, in the event of the bankruptcy or
insolvency of the Borrower, the obligation of the Borrower to repay the loan
may be subject to certain defenses that can be asserted by such Borrower as a
result of improper conduct by the Agent Bank or Intermediate Participant.
DISTRESSED SECURITIES. The Fund may invest up to 10% of its total assets in
securities, including participation interests purchased in the secondary
market, which 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 Dreyfus of equivalent quality ("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 growth through investment in
Distressed Securities, the Fund's ability to achieve current income for its
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 25% 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. 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
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<PAGE>
rates are adjusted periodically based upon an interest rate adjustment index
as provided in the respective obligations. The adjustment intervals may be
regular, and range from daily up to annually, or may be event based, such as
based on a change in the prime rate.
The Fund may invest in floating rate debt instruments ("floaters"). The
interest rate on a floater is a variable rate which is tied to another
interest rate, such as a money-market index or Treasury bill rate. The
interest rate on a floater resets periodically, typically every six months.
Because of the interest rate reset feature, floaters provide the Fund with a
certain degree of protection against rises in interest rates, although the
Fund will participate in any declines in interest rates as well. The Fund also
may invest in inverse floating rate debt instruments ("inverse floaters"). The
interest rate on an inverse floater resets in the opposite direction from the
market rate of interest to which the inverse floater is indexed or inversely
to a multiple of the applicable index. An inverse floating rate security may
exhibit greater price volatility than a fixed rate obligation of similar
credit quality.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities are a form of
derivative collateralized by pools of commercial or residential mortgages.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related and private organizations. These
securities may include complex instruments such as collateralized mortgage
obligations, stripped mortgage-backed securities, mortgage pass-through
securities, interests in real estate mortgage investment conduits ("REMICs"),
adjustable rate mortgages, interests in real estate investment trusts
("REITs"), including debt and preferred stock issued by REITs, as well as
other real estate-related securities. The mortgage-related securities in which
the Fund may invest include those with fixed, floating or variable interest
rates, those with interest rates that change based on multiples of changes in
a specified index of interest rates and those with interest rates that change
inversely to changes in interest rates, as well as those that do not bear
interest.
Mortgage-related securities are subject to credit risks associated with the
performance of the underlying mortgage properties. Adverse changes in economic
conditions and circumstances are more likely to have an adverse impact on
mortgage-related securities secured by loans on certain types of commercial
properties than on those secured by loans on residential properties. In
addition, these securities are subject to prepayment risk, although commercial
mortgages typically have shorter maturities than residential mortgages and
prepayment protection features. In certain instances, the credit risk
associated with mortgage-related securities can be reduced by third-party
guarantees or other forms of credit support. Improved credit risk does not
reduce prepayment risk which is unrelated to the rating assigned to the
mortgage-related security. Prepayment risk can lead to fluctuations in value
of the mortgage-related security which may be pronounced. If a mortgage-
related security is purchased at a premium, all or part of the premium may be
lost if there is a decline in the market value of the security, whether
resulting from changes in interest rates or prepayments on the underlying
mortgage collateral. Certain mortgage-related securities that may be purchased
by the Fund, such as inverse floating rate collateralized mortgage
obligations, have coupons that move inversely to a multiple of a specific
index which may result in a form of leverage. As with other interest-bearing
securities, the prices of certain mortgage-related securities are inversely
affected by changes in interest rates. However, although the value of a
mortgage-related security may decline when interest rates rise, the converse
is not necessarily true, since in periods of declining interest rates the
mortgages underlying the security are more likely to be prepaid. For this and
other reasons, a mortgage-related security's stated maturity may be shortened
by unscheduled prepayments on the underlying mortgages, and, therefore, it is
not possible to predict accurately the security's return to the Fund.
Moreover, with respect to certain stripped mortgage-backed securities, if the
underlying mortgage securities experience greater than anticipated prepayments
of principal, the Fund may fail to fully recoup its initial investment even if
the securities are rated in the highest rating category by a Rating Agency.
During periods of rapidly rising interest rates, prepayments of mortgage-
related securities may occur at slower than expected rates. Slower prepayments
effectively may lengthen a mortgage-related security's expected maturity which
generally would cause the value of such security to fluctuate more widely in
response to changes in interest rates. Were the prepayments on the Fund's
mortgage-related securities to decrease broadly, the Fund's effective
duration, and thus sensitivity to interest rate fluctuations, would increase.
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Government-Agency Securities. Mortgage-related securities issued by the
Government National Mortgage Association ("GNMA") include GNMA Mortgage Pass-
Through Certificates (also known as "Ginnie Maes") which are guaranteed as to
the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-
owned U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Government-Related Securities. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes") which are
solely the obligations of FNMA and are not backed by or entitled to the full
faith and credit of the United States. FNMA is a government-sponsored
organization owned entirely by private shareholders. Fannie Maes are
guaranteed as to timely payment of principal and interest by FNMA. Mortgage-
related securities issued by the Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the United
States created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States
or by any Federal Home Loan Bank and do not constitute a debt or obligation of
the United States or of any Federal Home Loan Bank. Freddie Macs entitle the
holder to timely payment of interest, which is guaranteed by FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee
timely payment of principal, FHLMC may remit the amount due on account of its
guarantee of ultimate payment of principal at any time after default on an
underlying mortgage, but in no event later than one year after it becomes
payable.
Private Entity Securities. These mortgage-related securities are issued by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Timely
payment of principal and interest on mortgage-related securities backed by
pools created by non-governmental issuers often is supported partially by
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance. The insurance and guarantees are issued by
government entities, private insurers and the mortgage poolers. There can be
no assurance that the private insurers or mortgage poolers can meet their
obligations under the policies, so that if the issuers default on their
obligations the holders of the security could sustain a loss. No insurance or
guarantee covers the Fund or the price of the Fund's Shares. Mortgage-related
securities issued by non-governmental issuers generally offer a higher rate of
interest than government-agency and government-related securities because
there are no direct or indirect government guarantees of payment.
Commercial Mortgage-Related Securities. Commercial mortgage-related
securities generally are multi-class debt or pass-through certificates secured
by mortgage loans on commercial properties. These mortgage-related securities
generally are structured to provide protection to the senior classes of
investors against potential losses on the underlying mortgage loans. This
protection generally is provided by having the holders of subordinated classes
of securities ("Subordinated Securities") take the first loss if there are
defaults on the underlying commercial mortgage loans. Other protection, which
may benefit all of the classes or particular classes, may include issuer
guarantees, reserve funds, additional Subordinated Securities, cross-
collateralization and over-collateralization.
The Fund may invest in Subordinated Securities issued or sponsored by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Subordinated
Securities have no governmental guarantee, and are subordinated in some manner
as to the payment of principal and/or interest to the holders of more senior
mortgage-related securities arising out of the same pool of mortgages. The
holders of Subordinated Securities typically are compensated with a higher
stated yield than are the holders of more senior mortgage-related securities.
On the other hand, Subordinated Securities typically subject the holder to
greater risk than senior mortgage-related securities and tend to be rated in a
lower rating category, and frequently a substantially lower rating category,
than the senior mortgage-related securities issued in respect of the same pool
of mortgages. Subordinated Securities generally are likely to be more
sensitive to
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changes in prepayment and interest rates and the market for such securities
may be less liquid than is the case for traditional fixed-income securities
and senior mortgage-related securities.
The market for commercial mortgage-related securities developed more
recently and in terms of total outstanding principal amount of issues is
relatively small compared to the market for residential single-family
mortgage-related securities. In addition, commercial lending generally is
viewed as exposing the lender to a greater risk of loss than one- to four-
family residential lending. Commercial lending, for example, typically
involves larger loans to single borrowers or groups of related borrowers than
residential one- to four-family mortgage loans. In addition, the repayment of
loans secured by income producing properties typically is dependent upon the
successful operation of the related real estate project and the cash flow
generated therefrom. Consequently, adverse changes in economic conditions and
circumstances are more likely to have an adverse impact on mortgage-related
securities secured by loans on commercial properties than on those secured by
loans on residential properties.
Collateralized Mortgage Obligations ("CMOs"). A CMO is a multi-class bond
backed by a pool of mortgage pass-through certificates or mortgage loans. CMOs
may be collateralized by (a) Ginnie Mae, Fannie Mae, or Freddie Mac pass-
through certificates, (b) unsecuritized mortgage loans insured by the Federal
Housing Administration or guaranteed by the Department of Veterans' Affairs,
(c) unsecuritized conventional mortgages, (d) other mortgage-related
securities, or (e) any combination thereof. Each class of CMOs, often referred
to as a "tranche," is issued at a specific coupon rate and has a stated
maturity or final distribution date. Principal prepayments on collateral
underlying a CMO may cause it to be retired substantially earlier than the
stated maturities or final distribution dates. The principal and interest on
the underlying mortgages may be allocated among the several classes of a
series of a CMO in many ways. One or more tranches of a CMO may have coupon
rates which reset periodically at a specified increment over an index, such as
the London Interbank Offered Rate ("LIBOR") (or sometimes more than one
index). These floating rate CMOs typically are issued with lifetime caps on
the coupon rate thereon. The Fund also may invest in inverse floating rate
CMOs. Inverse floating rate CMOs constitute a tranche of a CMO with a coupon
rate that moves in the reverse direction to an applicable index such as LIBOR.
Accordingly, the coupon rate thereon will increase as interest rates decrease.
Inverse floating rate CMOs are typically more volatile than fixed or floating
rate tranches of CMOs. Many inverse floating rate CMOs have coupons that move
inversely to a multiple of the applicable indexes. The effect of the coupon
varying inversely to a multiple of an applicable index creates a leverage
factor. Inverse floaters based on multiples of a stated index are designed to
be highly sensitive to changes in interest rates and can subject the holders
thereof to extreme reductions of yield and loss of principal. The markets for
inverse floating rate CMOs with highly leveraged characteristics at times may
be very thin. The Fund's ability to dispose of its positions in such
securities will depend on the degree of liquidity in the markets for such
securities. It is impossible to predict the amount of trading interest that
may exist in such securities, and therefore the future degree of liquidity.
Stripped Mortgage-Backed Securities. The Fund also may invest in stripped
mortgage-backed securities. Stripped mortgage-backed securities are created by
segregating the cash flows from underlying mortgage loans or mortgage
securities to create two or more new securities, each with a specified
percentage of the underlying security's principal or interest payments.
Mortgage securities may be partially stripped so that each investor class
receives some interest and some principal. When securities are completely
stripped, however, all of the interest is distributed to holders of one type
of security, known as an interest-only security, or IO, and all of the
principal is distributed to holders of another type of security known as a
principal-only security, or PO. Strips can be created in a pass-through
structure or as tranches of a CMO. The yields to maturity on IOs and POs are
very sensitive to the rate of principal payments (including prepayments) on
the related underlying mortgage assets. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Fund may not
fully recoup its initial investment in IOs. Conversely, if the underlying
mortgage assets experience less than anticipated prepayments of principal, the
yield on POs could be materially and adversely affected.
Real Estate Investment Trusts. A REIT is a corporation or a business trust
that would otherwise be taxed as a corporation, which meets the definitional
requirements of the Internal Revenue Code of 1986, as amended (the "Code").
The Code permits a qualifying REIT to deduct dividends paid, thereby
effectively eliminating
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corporate-level Federal income tax and making the REIT a pass-through vehicle
for Federal income tax purposes. To meet the definitional requirements of the
Code, a REIT must, among other things, invest substantially all of its assets
in interests in real estate (including mortgages and other REITs) or cash and
government securities, derive most of its income from rents from real property
or interest on loans secured by mortgages on real property, and distribute to
shareholders annually a substantial portion of its otherwise taxable income.
REITs are characterized as equity REITs, mortgage REITs and hybrid REITs.
Equity REITs, which may include operating or finance companies, own real
estate directly and the value of, and income earned by, the REITs depends upon
the income of the underlying properties and the rental income they earn.
Equity REITs also can realize capital gains (or losses) by selling properties
that have appreciated (or depreciated) in value. Mortgage REITs can make
construction, development or long-term mortgage loans and are sensitive to the
credit quality of the borrower. Mortgage REITs derive their income from
interest payments on such loans. Hybrid REITs combine the characteristics of
both equity and mortgage REITs, generally by holding both ownership interests
and mortgage interests in real estate. The value of securities issued by REITs
are affected by tax and regulatory requirements and by perceptions of
management skill. They also are subject to heavy cash flow dependency,
defaults by borrowers or tenants, self-liquidation and the possibility of
failing to qualify for conduit status under the Code or to maintain exemption
from the Investment Company Act.
Adjustable-Rate Mortgage Loans ("ARMs"). ARMs eligible for inclusion in a
mortgage pool will generally provide for a fixed initial mortgage interest
rate for a specified period of time, generally for either the first three,
six, twelve, thirteen, thirty-six, or sixty scheduled monthly payments.
Thereafter, the interest rates are subject to periodic adjustment based on
changes in an index. ARMs typically have minimum and maximum rates beyond
which the mortgage interest rate may not vary over the lifetime of the loans.
Certain ARMs provide for additional limitations on the maximum amount by which
the mortgage interest rate may adjust for any single adjustment period.
Negatively amortizing ARMs may provide limitations on changes in the required
monthly payment. Limitations on monthly payments can result in monthly
payments that are greater or less than the amount necessary to amortize a
negatively amortizing ARM by its maturity at the interest rate in effect
during any particular month.
Other Mortgage-Related Securities. Other mortgage-related securities include
securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage
loans on real property, including CMO residuals. Other mortgage-related
securities may be equity or debt securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
ASSET-BACKED SECURITIES. Asset-backed securities are a form of derivative
securities. The securitization techniques used for asset-backed securities are
similar to those used for mortgage-related securities. The collateral for
these securities has included home equity loans, automobile and credit card
receivables, boat loans, computer leases, airplane leases, mobile home loans,
recreational vehicle loans and hospital account receivables. The Fund may
invest in these and other types of asset-backed securities that may be
developed in the future. Asset-backed securities present certain risks that
are not presented by mortgage-backed securities. Primarily, these securities
may provide the Fund with a less effective security interest in the related
collateral than do mortgage-backed securities. Therefore, there is the
possibility that recoveries on the underlying collateral may not, in some
cases, be available to support payments on these securities.
MUNICIPAL OBLIGATIONS. Municipal obligations generally include debt
obligations issued to obtain funds for various public purposes as well as
certain industrial development bonds issued by or on behalf of public
authorities. Municipal obligations are classified as general obligation bonds,
revenue bonds and notes. General obligation bonds are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable from the revenue derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source, but not from the general
taxing power. Industrial development bonds, in most cases, are revenue bonds
that generally do not carry the pledge of the credit of the issuing
municipality, but generally are guaranteed by the corporate entity on
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whose behalf they are issued. Notes are short-term instruments which are
obligations of the issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other revenues.
Municipal obligations include municipal lease/purchase agreements which are
similar to installment purchase contracts for property or equipment issued by
municipalities.
Municipal obligations bear fixed, floating or variable rates of interest.
Certain municipal obligations are subject to redemption at a date earlier than
their stated maturity pursuant to call options, which may be separated from
the related municipal obligations and purchased and sold separately. The Fund
also may acquire call options on specific municipal obligations. The Fund
generally would purchase these call options to protect the Fund from the
issuer of the related municipal obligation redeeming, or other holder of the
call option from calling away, the municipal obligation before maturity.
While, in general, municipal obligations are tax-exempt securities having
relatively low yields as compared to taxable, non-municipal obligations of
similar quality, certain municipal obligations are taxable obligations,
offering yields comparable to, and in some cases greater than, the yields
available on other permissible Fund investments. Dividends received by
Shareholders from the Fund that are attributable to interest income received
by the Fund from municipal obligations generally will be subject to Federal
income tax. The Fund may invest in municipal obligations, the ratings of which
correspond with the ratings of other permissible Fund investments. The Fund
currently intends to invest no more than 25% of its total assets in municipal
obligations.
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 Dreyfus 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. Examples include the
International Bank for Reconstruction and Development (the World Bank), the
European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank.
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
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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 that are different in some respects from those
incurred by the Fund, which invests only in debt obligations of U.S. domestic
issuers.
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 Dreyfus 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 the borrower meets the criteria set
forth in the Fund's Prospectus for other commercial paper issuers.
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 25% of its total
assets (including the amount obtained from leverage); however, the Fund has
the ability to utilize leverage in an amount up to 33 1/3% of its total assets
(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 holders of the Shares than that obtainable
if the Shares were unleveraged for any significant amount of time. 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. The Fund at times may borrow from affiliates of Dreyfus, provided
that the terms
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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 growth, the holders of Shares should be the
beneficiaries of any incremental return. Should the differential between the
underlying assets and cost of leverage narrow, the incremental return "pick
up" will be reduced. Furthermore, if long-term rates rise, the net asset value
of the Shares will reflect the decline in the value of portfolio holdings
resulting therefrom.
Leverage creates risks for holders of the Shares, 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
holders of the Shares. To the extent the income or capital growth 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 growth 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, Dreyfus 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 fee paid to Dreyfus will be
calculated on the basis of the Fund's assets including 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 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 additional 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. Borrowings and the issuance of a
class of preferred shares having priority over the Fund's Shares create an
opportunity for greater return per Share, but at the same time such borrowing
is a speculative technique in that it will increase the Fund's exposure to
capital risk. Unless the income and appreciation, if any, on assets acquired
with borrowed funds or offering proceeds exceed the cost of borrowing or
issuing additional classes of securities, the use of leverage will diminish
the investment performance of the Fund compared with what it would have been
without leverage.
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 Dreyfus from managing the Fund's portfolio
in accordance with the Fund's investment objectives and policies. The Fund
currently is in preliminary negotiations with a commercial bank to arrange a
syndicated credit facility pursuant to which the Fund would be entitled to
borrow up to an amount to be determined. Any such borrowings would constitute
financial leverage as described herein. The terms of any agreements relating
to the credit facility, including commitment and facility fees and the rate of
interest charged on such borrowings, have not been determined and are subject
to definitive agreement and other conditions.
Under the Investment Company Act, the Fund is not permitted to incur
indebtedness unless immediately after such incurrence the Fund has an asset
coverage of at least 300% of the aggregate outstanding principal balance of
indebtedness (i.e., such indebtedness may not exceed 33 1/3% of the Fund's
total assets). Additionally,
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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 net asset value of the
Fund's portfolio is at least 200% of the liquidation value of the outstanding
preferred shares (i.e., such liquidation value may not exceed 50% of the
Fund's total assets). In addition, the Fund is not permitted to declare any
cash dividend or other distribution on its 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'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 Dreyfus' 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 25% of the Fund's total assets, and an annual interest rate of
6.00% 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 2.00%. The
Fund's actual cost of leverage will be based on market rates at the time the
Fund undertakes a leveraging strategy, and such actual cost of leverage may be
higher or lower than that assumed in the previous example.
The following table is designed to illustrate the effect on the return to a
holder of the Fund's Shares of the leverage obtained by borrowings in the
amount of approximately 25% 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.............................. (15)% (9)% (2)% 5% 11%
</TABLE>
Until the Fund borrows or issues preferred shares, the Fund's 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 5% of
the outstanding securities of any class of an issuer.
The Fund also may make short sales "against the box," in which the Fund
enters into a short sale of a security it owns. See "Taxes."
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<PAGE>
Until the Fund closes 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 33 1/3%
of the value of the Fund's total assets, and the Securities and Exchange
Commission ("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 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 Fund's 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 employ with such changes as required.
ILLIQUID SECURITIES. 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
Fund's 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 Fund's Board has directed Dreyfus 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.
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
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
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<PAGE>
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, mortgage-related securities, asset-backed 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, Dreyfus will consider the
creditworthiness of counterparties to over-the-counter Derivatives in the same
manner as it would review the credit quality of a security to be purchased by
the Fund. Over-the-counter Derivatives are less liquid than exchange-traded
Derivatives since the other party to the transaction may be the only investor
with sufficient understanding of the Derivative to be interested in bidding
for it.
Futures and Options on Futures Transactions--In General. The Fund may enter
into futures contracts and options on futures contracts in U.S. domestic
markets, such as the Chicago Board of Trade and the International Monetary
Market of the Chicago Mercantile Exchange or on exchanges located outside the
United States, such as the London International Financial Futures Exchange and
the Sydney Futures Exchange Limited. Foreign
26
<PAGE>
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
Dreyfus 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 Securities and
Exchange Commission, 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.
27
<PAGE>
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 Dreyfus
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
Dreyfus 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 Dreyfus anticipates that
there will be a correlation between the two currencies.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are
involved. When the Fund enters into a forward currency contract, it relies on
the counterparty to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the counterparty to do so would result in
the loss of some or all of any expected benefit of the transaction.
Secondary markets generally do not exist for forward currency contracts,
with the result that closing transactions generally can be made for forward
currency contracts only by negotiating directly with the counterparty. Thus,
there can be no assurance that the Fund will in fact be able to close out a
forward currency contract at a favorable price prior to maturity. In addition,
in the event of insolvency of the counterparty, the Fund might be unable to
close out a forward currency contract. In either event, the Fund would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in securities denominated in
the foreign currency or to maintain cash or liquid assets in a segregated
account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change
28
<PAGE>
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
Dreyfus 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 Dreyfus 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 Dreyfus 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 Dreyfus 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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<PAGE>
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
Dreyfus 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
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<PAGE>
may expose the Fund to risks because they may experience such fluctuations
prior to their actual delivery. Purchasing securities on a when-issued basis
can involve the additional risk that the yield available in the market when
the delivery takes place actually may be higher than that obtained in the
transaction itself. Purchasing securities on a forward commitment or when-
issued basis when the Fund is fully or almost fully invested may result in
greater potential fluctuation in the value of the Fund's net assets and its
net asset value per share.
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. This risk may be greater for investors expecting to sell their
shares in a relatively short period after completion of the public offering.
Accordingly, 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 Fund's 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 tend to 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.
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Like higher-rated fixed-income securities, lower grade securities generally
are purchased and sold through dealers who make a market in such securities
for their own accounts. However, there are fewer dealers in the lower grade
securities market, which market may be less liquid than the market for higher-
rated fixed-income securities, even under normal economic conditions. Also,
there may be significant disparities in the prices quoted for lower grade
securities by various dealers. As a result, during periods of high demand in
the lower grade securities market, it may be difficult to acquire lower grade
securities appropriate for investment by the Fund. Adverse economic conditions
and investor perceptions thereof (whether or not based on economic reality)
may impair liquidity in the lower grade securities market and may cause the
prices the Fund receives for its lower grade securities to be reduced. In
addition, the Fund may experience difficulty in liquidating a portion of its
portfolio when necessary to meet the Fund's liquidity needs or in response to
a specific economic event such as deterioration in the creditworthiness of the
issuers. Under such conditions, judgment may play a greater role in valuing
certain of the Fund's portfolio instruments than in the case of instruments
trading in a more liquid market. In addition, the Fund may incur additional
expense to the extent that it is required to seek recovery upon a default on a
portfolio holding or to participate in the restructuring of the obligation.
DISTRESSED SECURITIES
The Fund may invest up to 10% of its total assets in securities which 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
Dreyfus of equivalent quality ("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 growth through investment in Distressed
Securities, the Fund's ability to achieve current income for its Shareholders
may be diminished.
LEVERAGE
The use of leverage by the Fund creates an opportunity for increased net
income and capital growth 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 holders of Shares with a potentially higher
return. Leverage creates risks for holders of Shares 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
holders of Shares. To the extent the income or capital growth 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 growth 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, Dreyfus 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 financial leverage, the
management and administration fee, which is payable to Dreyfus as a percentage
of the Fund's Managed Assets, will be higher than if the Fund did not utilize
a leveraged capital structure because the fee is calculated as a percentage of
the Fund's Managed Assets including those purchased with leverage. Certain
types of borrowings by the Fund may result in the Fund's being subject to
covenants in credit agreements, including those relating to asset coverage and
portfolio composition requirements. The Fund may be subject to certain
restrictions on investments imposed by guidelines of one or more Rating
Agencies, which may issue ratings for the corporate debt securities or
preferred shares issued by the Fund. These guidelines may impose asset
coverage or portfolio composition requirements that are more stringent than
those imposed by the Investment Company Act. It is not anticipated that these
covenants or guidelines will impede Dreyfus in managing the Fund's portfolio
in accordance with the Fund's investment objectives and policies. The Fund at
times may borrow from affiliates of Dreyfus, provided that the terms of such
borrowings are no less favorable
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than those available from comparable sources of funds in the marketplace. As
discussed under "Management of the Fund," the fee paid to Dreyfus will be
calculated on the basis of the Fund's assets including proceeds from
borrowings for leverage and the issuance of preferred shares.
FOREIGN SECURITIES
The Fund may invest up to 25% 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 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, Dreyfus 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 Dreyfus, 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. The risk of loss
associated with this characteristic of closed-end management investment
companies may be greater for investors purchasing Shares in the initial public
offering and expecting to sell the Shares soon after the completion thereof.
Whether investors will realize gains or losses upon the sale of Shares will
not depend directly upon the Fund's net asset value, but will depend upon the
market price of the Shares at the time of sale. Since the market price of the
Shares will be determined by such factors as relative demand for and supply of
the Shares in the market, general market and economic conditions and other
factors beyond the control of the Fund, the Fund cannot predict whether the
Shares will trade at, below or above net asset value or
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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 Fund's
Trustees 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 Dreyfus 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."
Dreyfus 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
The Fund has adopted investment restrictions numbered 2 through 7 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, the
policies of the Fund may be changed by the Board of Trustees without
shareholder approval.
1. Make any investment inconsistent with the Fund's classification as a
non-diversified company under the Investment Company Act.
2. Invest more than 25% of the value of its total assets in the
securities of issuers in any 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.
3. Invest in commodities or commodity contracts, except that the Fund may
purchase and sell futures contracts and options thereon.
4. 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.
5. Issue senior securities or borrow money except as permitted by the
Investment Company Act.
6. 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 33 1/3% of the value of its
total assets. Any loans of portfolio securities will be made according to
guidelines established by the Securities and Exchange Commission and the
Fund's Board.
7. 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.
8. 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.
9. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with
respect to options, forward contracts, futures contracts, options on
futures contracts, swaps, caps, collars and floors.
10. Purchase securities of other investment companies, except to the
extent permitted under the Investment Company Act.
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MANAGEMENT OF THE FUND
INVESTMENT MANAGER. The Dreyfus Corporation ("Dreyfus"), located at 200 Park
Avenue, New York, New York 10166, was formed in 1947 and serves as the Fund's
investment manager and administrator. Dreyfus is a wholly-owned subsidiary of
Mellon Bank, N.A. ("Mellon Bank"), which is a wholly-owned subsidiary of
Mellon Bank Corporation ("Mellon Bank Corporation"). As of March 31, 1998,
Dreyfus managed or administered assets of approximately $100 billion for
approximately 1.7 million investor accounts nationwide. Dreyfus has been an
innovator in the fixed-income securities market, and introduced what Dreyfus
believes to be the first retail-oriented money market mutual fund, the first
incorporated municipal bond mutual fund and the first short-term and limited-
term no load and load high yield bond mutual funds.
Mellon Bank Corporation is a publicly owned multibank holding company
incorporated under Pennsylvania law in 1971 and registered under the Federal
Bank Holding Company Act of 1956, as amended. Mellon Bank Corporation provides
a comprehensive range of financial products and services in domestic and
selected international markets. Mellon Bank Corporation is among the twenty-
five largest bank holding companies in the United States based on total
assets. Mellon Bank Corporation's principal wholly-owned subsidiaries are
Mellon Bank, Mellon Bank (DE) National Association, Mellon Bank (MD), The
Boston Company, Inc., AFCO Credit Corporation, Buck Consultants, Inc., and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including Dreyfus, Mellon Bank Corporation managed more than
$305 billion in assets as of December 31, 1997 including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon
Bank Corporation, through various subsidiaries, provided non-investment
services, such as custodial or administration services, for more than $1.532
trillion in assets, including approximately $60 billion in mutual fund assets.
Dreyfus supervises and assists in the overall management of the Fund's
affairs under a Management and Administration Agreement with the Fund, subject
to the authority of the Fund's Board in accordance with Massachusetts law. The
Fund's primary portfolio manager is Roger E. King. He has held that position
since the Fund's inception, and has been employed by Dreyfus since February
1996. Prior thereto, Mr. King was a Vice President of High Yield Research and,
most recently, Director of High Yield Research at Citibank Securities, Inc. In
1995, Mr. King was named by Institutional Investor to its All America Fixed
Income Research Second Team--High Yield Securities--Manufacturing/Aviation and
Defense. Dreyfus also provides research services for the Fund and for other
funds advised by Dreyfus through a professional staff of portfolio managers
and securities analysts. Other portfolio managers of the Fund are Kevin M.
McClintock, Head of Taxable Fixed Income, Michael Hoeh, Senior Portfolio
Manager, and Gerald E. Thunelius, Senior Portfolio Manager and Head of Fixed-
Income Trading.
The Dreyfus taxable fixed-income team adheres to a clearly defined process.
Emphasis is placed on sector and issue selection with portfolio managers and
analysts focusing on specific areas of the credit market. Each area conducts
detailed research in order to identify attractively priced securities within
their respective sectors.
INVESTMENT MANAGEMENT AND ADMINISTRATION AGREEMENT. Dreyfus provides
investment management and administrative services pursuant to the Investment
Management and Administration Agreement (the "Agreement") dated April 23, 1998
with the Fund. As compensation for Dreyfus's services to the Fund, the Fund
has agreed to pay Dreyfus a monthly investment management and administration
fee at the annual rate of .90 of 1% of the value of the average weekly value
of the total assets of the Fund minus the sum of accrued liabilities (other
than the aggregate indebtedness constituting financial leverage) (the "Managed
Assets"). This fee is higher than fees paid by other comparable investment
companies. During the period in which the Fund is utilizing financial
leverage, the management and administration fee payable to Dreyfus will be
higher than if the Fund did not utilize a leveraged capital structure because
the fee is calculated as a percentage of the Fund's Managed Assets including
those purchased with leverage. The 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 also is approved by a majority of the Board
members who are not "interested persons" (as defined in the Investment Company
Act) of the Fund or Dreyfus,
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by vote cast in person at a meeting called for the purpose of voting on such
approval. The 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
Agreement, at a meeting held on April 22, 1998. The Agreement was approved by
the Fund's initial shareholder on April 22, 1998. The 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 Fund's Shares, or, on not less than 90 days'
notice, by Dreyfus. The Agreement will terminate automatically in the event of
its assignment (as defined in the Investment Company Act).
The following persons are officers and/or directors of Dreyfus: W. Keith
Smith, Chairman of the Board; Christopher M. Condron, President, Chief
Executive Officer, Chief Operating Officer and a director; Stephen E. Canter,
Vice Chairman, Chief Investment Officer and a director; Lawrence S. Kash, Vice
Chairman--Distribution and a director; Ronald P. O'Hanley, III, Vice Chairman;
J. David Officer, Vice Chairman; William T. Sandalls, Jr., Senior Vice
President and Chief Financial Officer; Mark N. Jacobs, Vice President, General
Counsel and Secretary; Patrice M. Kozlowski, Vice President--Corporate
Communications; Mary Beth Leibig, Vice President--Human Resources; Jeffrey N.
Nachman, Vice President--Mutual Fund Accounting; Andrew S. Wasser, Vice
President--Information Systems; William V. Healey, Assistant Secretary; and
Mandell L. Berman, Burton Borgelt, Frank V. Cahouet and Richard F. Syron,
directors.
Dreyfus manages the Fund's investments in accordance with the stated
policies of the Fund, subject to the approval of the Fund's Board. Dreyfus 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. Dreyfus also maintains 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 advised by Dreyfus.
Mellon Bank, Dreyfus's parent, and its affiliates may have deposit, loan and
commercial banking or other relationships with the issuers of securities
purchased by the Fund. Dreyfus has informed the Fund that in making its
investment decisions it does not obtain or use material non-public information
that Mellon Bank, or its affiliates, may possess with respect to such issuers.
Dreyfus 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. Dreyfus 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 Dreyfus. 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 Dreyfus or any of its affiliates, Securities and Exchange
Commission fees, state Blue Sky qualification fees, advisory and
administration fees, shareholder servicing fees, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance premiums,
industry association fees, outside auditing and legal expenses, costs of
maintaining the Fund's existence, expenses of reacquiring Shares, expenses in
connection with the Fund's Automatic Dividend Reinvestment Plan, costs of
maintaining the required books and accountings (including the costs of
calculating the net asset value of the Fund's 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, and any extraordinary expenses.
FEDERAL LAW AFFECTING MELLON BANK. The Glass-Steagall Act of 1933 prohibits
national banks from engaging in the business of underwriting, selling or
distributing securities and prohibits a member bank of the Federal Reserve
System from having certain affiliations with an entity engaged primarily in
that business. The activities of Mellon Bank in informing its customers of,
and performing, investment and reception services in connection with the Fund,
and in providing services to the Fund as custodian, as well as Dreyfus's
investment advisory activities, may raise issues under these provisions.
Mellon Bank has been advised by counsel that the activities contemplated under
these arrangements are consistent with statutory and regulatory obligations.
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Changes in either Federal or state statutes and regulations relating to the
permissible activities of banks and their subsidiaries or affiliates, as well
as further judicial or administrative decisions or interpretations of such
future statutes and regulations, could prevent Mellon Bank or Dreyfus from
continuing to perform all or a part of the above services for its customers
and/or the Fund. If Mellon Bank or Dreyfus were prohibited from serving the
Fund in any of its present capacities, the Board of Trustees would seek an
alternative provider(s) of such services.
TRUSTEES AND OFFICERS OF THE FUND
The Fund has a Board composed of eleven Trustees which supervises the Fund's
investment activities and reviews 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 of the Trustees also serves as a Trustee of The Dreyfus/Laurel Funds
Trust and The Dreyfus/Laurel Tax-Free Municipal Funds, and as a Director of
The Dreyfus/Laurel Funds, Inc. (collectively, with the Fund, the
"Dreyfus/Laurel Funds"). Each Trustee serves on the Audit Committee of the
Board. Each Trustee who is not an "interested person" serves on the Nominating
Committee of the Board. Each of the Fund's officers listed below also serves
as an officer for other investment companies advised by or administered by
Dreyfus, including The Dreyfus/Laurel Funds Trust, The Dreyfus/Laurel Funds,
Inc. and The Dreyfus/Laurel Tax-Free Municipal Funds.
RUTH MARIE ADAMS. Trustee of the Fund; Professor of English and Vice
President Emeritus, Dartmouth College; Senator, United Chapters of Phi Beta
Kappa; Trustee, Woods Hole Oceanographic Institution; from November 1995 to
January 1997, Director, Access Capital Strategic Community Investment Fund,
Inc.--Institutional Investment Portfolio. Age: 83 years old. Address: 1026
Kendal Lyme Road, Hanover, New Hampshire 03755.
FRANCIS P. BRENNAN. Chairman of the Board of Trustees of the Fund;
Director and Chairman, Massachusetts Business Development Corp.; and from
November 1995 to January 1997, Director, Access Capital Strategic Community
Investment Fund, Inc.--Bank Portfolio. Age: 80 years old. Address:
Massachusetts Business Development Corp., 50 Milk Street, Boston,
Massachusetts 02109.
JOSEPH S. DIMARTINO. Trustee of the Fund. Since January 1995, Mr.
DiMartino has served as Chairman of the Board for various funds in the
Dreyfus Family of Funds. He also serves as a Director of The Muscular
Dystrophy Association, The Noel Group, Inc., a venture capital company,
Staffing Resources, Inc., a temporary placement agency, HealthPlan Services
Corporation, a provider of marketing, administrative and risk management
services to health and other benefit programs, Carlyle Industries, Inc.
(formerly Belding Heminway Company, Inc.), a button packager and
distributor, and Century Business Services, Inc., a provider of various
outsourcing functions for small and medium sized companies. Mr. DiMartino
is also a Board member of 151 other funds in the Dreyfus Family of Funds.
From November 1995 to January 1997, Director, Access Capital Strategic
Community Investment Fund, Inc.--Institutional Investment Portfolio and
Bank Portfolio. For more than five years prior to January 1995, he was
President, a director and, until August 24, 1994, Chief Operating Officer
of Dreyfus and Executive Vice President and a director of Dreyfus Service
Corporation (DSC), a wholly-owned subsidiary of Dreyfus. From August 1994
to December 31, 1994, he was a director of Mellon Bank Corporation. Age: 54
years old. Address: 200 Park Avenue, New York, New York 10166.
JAMES M. FITZGIBBONS. Trustee of the Fund; Chairman, Howes Leather
Company, Inc.; Director, Fiduciary Trust Company; Chairman, CEO and
Director, Fieldcrest-Cannon Inc.; Director, Lumber Mutual Insurance
Company; Director, Barrett Resources, Inc.; from November 1995 to January
1997, Director, Access Capital Strategic Community Investment Fund, Inc.--
Bank Portfolio. Age: 63 years old. Address: 40 Norfolk Road, Brookline,
Massachusetts 02167.
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J. TOMLINSON FORT.* Trustee of the Fund; Partner, Reed, Smith & McClay
(law firm). From November 1995 to January 1997, Director, Access Capital
Strategic Community Investment Fund, Inc.--Bank Portfolio. Age: 69 years
old. Address: 204 Woodcock Drive, Pittsburgh, Pennsylvania 15215.
ARTHUR L. GOESCHEL. Trustee of the Fund; Director, Calgon Carbon
Corporation; Director, Cerex Corporation; Director, National Picture Frame
Corporation; former Chairman of the Board and Director, Rexene Corporation;
Chairman of the Board and Director, Tetra Corporation 1991-1993; Director,
Medalist Corporation 1992-1993. From November 1995 to January 1997,
Director, Access Capital Strategic Community Investment Fund, Inc.--
Institutional Investment Portfolio. Age: 76 years old. Address: Way Hallow
Road and Woodland Road, Sewickley, Pennsylvania 15143.
KENNETH A. HIMMEL. Trustee of the Fund; Former Director, The Boston
Company, Inc. ("TBC") and Boston Safe Deposit and Trust Company; President
and Chief Executive Officer, Himmel & Co., Inc.; Vice Chairman, Sutton
Place Gourmet, Inc.; Managing Partner, Franklin Federal Partners. From
November 1995 to January 1997, Director, Access Capital Strategic Community
Investment Fund, Inc.--Bank Portfolio. Age: 51 years old. Address: Himmel
and Company, Inc., 399 Boylston Street, 11th Floor, Massachusetts 02116.
ARCH S. JEFFERY.* Trustee of the Fund; Financial Consultant. From
November 1995 to January 1997, Director, Access Capital Strategic Community
Investment Fund, Inc.--Institutional Investment Portfolio. Age: 80 years
old. Address: 1817 Foxcroft Lane, Unit 306, Allison Park, Pennsylvania
15101.
STEPHEN J. LOCKWOOD. Trustee of the Fund; President and CEO, LDG
Management Company Inc.; CEO, LDG Reinsurance Underwriters, SRRF Management
Inc. and Medical Reinsurance Underwriters Inc.; from November 1995 to
January 1997, Director, Access Capital Strategic Community Investment Fund,
Inc.--Institutional Investment Portfolio. Age: 50 years old. Address: 401
Edgewater Place, Wakefield, Massachusetts 01880.
JOHN J. SCIULLO. Trustee of the Fund; Dean Emeritus and Professor of Law,
Duquesne University Law School; Director, Urban Redevelopment Authority of
Pittsburgh; from November 1975 to January 1997, Director, Access Capital
Strategic Community Investment Fund, Inc.--Institutional Investment
Portfolio. Age: 66 years old. Address: 321 Gross Street, Pittsburgh,
Pennsylvania 15224.
ROSLYN M. WATSON. Trustee of the Fund; Principal, Watson Ventures, Inc.,
Director, American Express Centurion Bank; Director, Harvard/Pilgrim
Community Health Plan, Inc.; from November 1995 to January 1997, Director,
Access Capital Strategic Community Investment Fund, Inc.--Bank Portfolio;
Director, Massachusetts Electric Company; Director, the Hymans Foundation,
Inc., prior to February, 1993; Real Estate Development Project Manager and
Vice President, The Gunwyn Company. Age: 48 years old. Address: 25 Braddock
Park, Boston, Massachusetts 02116-5816.
BENAREE PRATT WILEY. Trustee of the Fund; President and CEO of The
Partnership, an organization dedicated to increasing the representation of
African-Americans in positions of leadership, influence and decision-making
in Boston, MA; Trustee, Boston College; Trustee, WGBH Educational
Foundation; Trustee, Children's Hospital; Director, The Greater Boston
Chamber of Commerce; Director, The First Albany Companies, Inc.; from April
1995 to March 1998, Director, The Boston Company, an affiliate of Dreyfus.
Age: 51 years old. Address: 334 Boylston Street, Suite 400, Boston, MA.
MARIE E. CONNOLLY. President and Treasurer of the Fund. President, Chief
Executive Officer, Chief Compliance Officer and a director of Funds
Distributor Inc., the ultimate parent of which is Boston Industrial Group,
Inc. Age: 40 years old.
DOUGLAS C. CONROY. Vice President and Assistant Secretary of the Fund.
Assistant Vice President of Funds Distributor Inc. From April 1993 to
January 1995, he was a Senior Fund Accountant for Investors Bank & Trust
Company. From December 1991 to March 1993, he was employed as the Fund
Accountant at TBC. Age: 28 years old.
RICHARD W. INGRAM. Vice President and Assistant Treasurer of the Fund.
Executive Vice President of Funds Distributor Inc. From March 1994 to
November 1995, he was Vice President and
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Division Manager for First Data Investor Services Group. From 1989 to 1994,
he was Vice President, Assistant Treasurer and Tax Director--Mutual Funds
of TBC. Age: 42 years old.
MARY A. NELSON. Vice President and Assistant Treasurer of the Fund. Vice
President of Funds Distributor Inc. From September 1989 to July 1994, she
was an Assistant Vice President and Client Manager of TBC. Age: 33 years
old.
MICHAEL S. PETRUCELLI. Vice President and Assistant Treasurer of the
Fund. Senior Vice President of Funds Distributor Inc. From December 1989
through November 1996, he was employed by GE Investment Services where he
held various financial, business development and compliance positions. He
also served as Treasurer of the GE Funds and as Director of GE Investment
Services. Age: 36 years old.
JOSEPH F. TOWER, III. Vice President and Assistant Treasurer of the Fund.
Senior Vice President, Treasurer and Chief Financial Officer of Funds
Distributor Inc. From July 1988 to August 1994, he was employed by TBC
where he held various positions in the Corporate Finance and Treasury
areas. Age: 35 years old.
ELBA VASQUEZ. Vice President and Assistant Secretary. Assistant Vice
President of Funds Distributor Inc. From March 1990 to May 1996, she was
employed by U.S. Trust Company of New York. As an officer of U.S. Trust,
she held various positions in sales and marketing. Age: 36 years old.
KATHLEEN K. MORRISEY. Vice President and Assistant Secretary. Vice
President and Assistant Secretary of Funds Distributor Inc. From July 1994
to November 1995, she was a Fund Accountant for Investors Bank & Trust
Company. Age: 25 years old.
CHRISTOPHER J. KELLEY. Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of Funds Distributor Inc.
and Premier Mutual Fund Services, Inc., and an officer of other investment
companies advised or administered by Dreyfus. From April 1994 to July 1996,
Mr. Kelley was Assistant Counsel at Forum Financial Group. From October
1992 to March 1994, Mr. Kelley was employed by Putnam Investments in legal
and compliance capacities. Age: 33 years old.
The address of each officer of the Fund is 200 Park Avenue, New York, New York
10166.
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 April 22, 1998.
No officer or employee of the Fund receives any compensation from the Fund
for serving as an officer or Trustee of the Fund. In addition, no officer or
employee of Dreyfus (or of any parent, subsidiary or affiliate thereof) serves
as an officer or Trustee of the Fund. The Fund pays each Trustee $1,500 per
annum. In addition, the Fund pays each Trustee $250 per Board meeting attended
and reimburses each Trustee for travel and out-of-pocket expenses.
39
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED AGGREGATE TOTAL COMPENSATION FROM THE
COMPENSATION FUND AND FUND COMPLEX
NAME OF BOARD MEMBER FROM FUND PAID TO BOARD MEMBER***
- -------------------- ------------------- ---------------------------
<S> <C> <C>
Ruth Marie Adams................ $2,500 $ 31,500
Francis P. Brennan*............. $2,500 $ 63,750
Joseph S. DiMartino**........... $2,500 $517,075
James M. Fitzgibbons............ $2,500 $ 31,500
J. Tomlinson Fort**............. $2,500 none
Arthur L. Goeschel.............. $2,500 $ 37,500
Kenneth A. Himmel............... $2,500 $ 32,500
Arch S. Jeffery**............... $2,500 none
Stephen J. Lockwood............. $2,500 $ 33,250
John J. Sciullo................. $2,500 $ 32,500
Roslyn M. Watson................ $2,500 $ 32,500
Benaree Pratt Wiley............. $2,500 none
</TABLE>
- --------
* Compensation of Francis Brennan includes $25,000 paid by the other
Dreyfus/Laurel Funds to be Chairman of the Board.
** J. Tomlinson Fort and Arch S. Jeffery are paid directly by Dreyfus for
serving as Board members of the other Dreyfus/Laurel Funds. For the fiscal
year ended October 31, 1997, the aggregate amount of fees and expenses
received by Joseph DiMartino, J. Tomlinson Fort and Arch S. Jeffery from
Dreyfus for serving as a Board member of the other Dreyfus/Laurel Funds
were $35,500, $35,500 and $34,500, respectively.
*** As of January 31, 1998, the Dreyfus Family of Funds consists of 151 funds.
Except for Mr. DiMartino, the amounts represent the total compensation
received from the Fund Complex for the twelve months ended October 31,
1997. For Mr. DiMartino, the amount represents total compensation for the
twelve months ending December 31, 1997.
PORTFOLIO TRANSACTIONS
Dreyfus 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
Dreyfus 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 Dreyfus'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
Dreyfus and Dreyfus's fees are not reduced as a consequence of the receipt of
such supplemental information. Such information may be useful to Dreyfus in
serving both the Fund and other funds which it advises and, conversely,
supplemental information obtained by the placement of business of other
clients may be useful to Dreyfus in carrying out its obligations to the Fund.
In allocating brokerage transactions, Dreyfus seeks to obtain the best
execution of orders at the most favorable net price. Subject to this
determination, Dreyfus may consider, among other things, the receipt of
research services and/or the sale of Shares of the Fund or other funds
managed, advised or administered by Dreyfus as factors in the selection of
broker-dealers to execute portfolio transactions for the Fund.
Sales of Fund Shares by a broker may be taken into consideration, and
brokers also 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 advised or administered by Dreyfus 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.
40
<PAGE>
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, Dreyfus 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 Dreyfus 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 the
other investment companies advised by Dreyfus. If, however, such other
investment companies 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. 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.
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 and each month,
using available market quotations or at fair value. Substantially all of the
Fund's fixed-income investments (excluding short-term investments) are valued
by one or more independent pricing services (the "Service") approved by the
Board. Securities valued by the Service for which quoted bid prices in the
judgment of the Service are readily available and are representative of the
bid side of the market are valued at the mean between the quoted bid prices
(as obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for such
securities). Other investments valued by the Service are carried at fair value
as determined by the Service, based on methods which include consideration of:
yields or prices of securities of comparable quality, coupon, maturity and
type; indications as to values from dealers; and general market conditions.
Short-term investments are not valued by the Service and are valued at the
mean price or yield equivalent for such securities or for securities of
comparable maturity, quality and type as obtained from market makers. Other
investments that are not valued by the Service are valued at the last sales
price for securities traded primarily on an exchange or the national
securities market or otherwise at the average of the most recent bid and asked
prices. Bid price is used when no asked price is available. 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 Dreyfus. Expenses and fees, including the
management and administration fee (reduced by the expense limitation, if any),
are accrued weekly and taken into account for the purpose of determining the
net asset value of the Fund's Shares.
Restricted securities, as well as securities or other assets for which
recent market quotations are not readily available, or are not valued by the
Service, are valued at fair value as determined in good faith by the Board of
Trustees. The Board will review the method of valuation on a current basis. In
making their good faith valuation of restricted securities, the Board members
generally will take the following factors into consideration: restricted
securities which are, or are convertible into, securities of the same class of
securities for which a public market exists usually will be valued at market
value less the same percentage discount at which purchased. This discount will
be revised periodically by the Board if it believes that the discount no
longer reflects the value of the restricted securities. Restricted securities
not of the same class as securities for which a public market exists usually
will be valued initially at cost. Any subsequent adjustment from cost will be
based upon considerations deemed relevant by the Board. 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.
41
<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, either will be
distributed to the Fund's Shareholders at least annually or will be retained
by the Fund, and subject to Fund-level associated tax liabilities thereon. 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 of Trustees 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 its 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 Fund's Shares in the event
of a default on the Fund's borrowings. Any limitation on the Fund's ability to
make distributions on its 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 holders of Shares may be
automatically reinvested in Shares of the Fund. Dividends and other
distributions may 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 within 60 days of
the date of this Prospectus.
TAXES
The Fund intends to elect to be, and to qualify to be treated as, a
regulated investment company ("RIC") under the Internal Revenue Code of 1986,
as amended (the "Code"). For each taxable year that the Fund so qualifies, the
Fund (but not its 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 its
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 its 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
42
<PAGE>
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.
The Fund will be subject to a non-deductible 4% excise tax ("Excise Tax") to
the extent 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.
The Fund may acquire zero coupon or other securities issued with original
issue discount. As the holder of such securities, the Fund must include in its
gross income the original issue discount that accrues on the securities during
the taxable year, even if it receives no corresponding payment on the
securities during the year. The Fund also must include in its gross income
each year any "interest" distributed in the form of additional securities on
payment-in-kind securities. Because the Fund annually must distribute
substantially all of its investment company taxable income, including any
accrued original issue discount and other non-cash income, to satisfy the
Distribution Requirement and to avoid imposition of the Excise Tax, the Fund
may be required in a particular year to distribute as a dividend an amount
that is greater than the total amount of cash it actually receives. Those
distributions will be made from the Fund's cash assets or from the proceeds of
sales of portfolio securities, if necessary. The Fund may recognize capital
gains or losses from those sales, which would increase or decrease its
investment company taxable income and/or net capital gain.
The use of certain Derivatives, such as selling (writing) and purchasing
options and futures and entering into forward currency contracts, involves
complex rules that will determine for federal income tax purposes the amount,
character and timing of recognition of the gains and losses the Fund realizes
in connection therewith. These rules also may require the Fund to "mark to
market" (that is, treat as sold for their fair market value) at the end of
each taxable year certain positions in its portfolio, which may cause the Fund
to recognize income or gain without receiving cash with which to make
distributions necessary to satisfy the Distribution Requirement and to avoid
imposition of the Excise Tax.
Gains from the disposition of foreign currencies, and gains from options,
futures and forward currency contracts derived by the Fund with respect to its
business of investing in securities or foreign currencies, will be treated as
qualifying income under the Income Requirement. Under section 988 of the Code,
foreign currency gains or losses from certain forward contracts not traded in
the interbank market as well as certain other gains or losses attributable to
currency exchange rate fluctuations are typically treated as ordinary income
or loss. Such income or loss may increase or decrease (or possibly eliminate)
the Fund's income available for distribution. If, under the rules governing
the tax treatment of foreign currency gain and losses, the Fund's income
available for distribution is decreased or eliminated, all or a portion of the
distributions by the Fund may be treated for federal income tax purposes as a
return of capital or, in some circumstances, as capital gain.
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. Tax conventions between certain countries and the United States
may reduce or eliminate those taxes.
If the Fund has an "appreciated financial position"--generally, an interest
(including an interest through an option, futures or forward currency
contract, or short sale) with respect to any stock, debt instrument (other
than "straight debt") or partnership interest the fair market value of which
exceeds its adjusted basis--and enters into a "constructive sale" of the same
or substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that
time. A constructive sale generally consists of a short sale, an offsetting
notional principal contract or futures or forward currency contract entered
into by the Fund or a related person with respect to the same or substantially
similar property. In addition, if the
43
<PAGE>
appreciated financial position is itself a short sale or such a contract,
acquisition of the underlying property or substantially similar property will
be deemed a constructive sale.
Dividends from the Fund's investment company taxable income (whether
received in cash or reinvested in additional Fund Shares) generally are
taxable to its Shareholders as ordinary income to the extent of the Fund's
earnings and profits. 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 its 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 its 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 a capital asset) 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 its
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 65% of
the amount of undistributed capital gain included in their gross income.
The Fund will notify its 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. Shareholders who are not liable for tax on their income and
whose Shares are not debt-financed generally are not required to pay tax on
dividends or other distributions they receive from the Fund.
Dividends and other distributions declared by the Fund in December of any
year and payable to Shareholders of record on a date in that 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 are 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 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.
44
<PAGE>
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 (i) the same as ordinary income 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.
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.
The foregoing is only a brief summary of some of the important federal
income tax considerations generally affecting the Fund and its 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.
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 ChaseMellon Shareholder
Services, L.L.C. 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
ChaseMellon Shareholder Services, L.L.C. as 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 ChaseMellon Shareholder Services, L.L.C., as 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 or an independent broker-dealer for the participants' accounts,
depending upon the circumstances described below, either (i) through receipt
of additional unissued but authorized Shares from the Fund ("newly issued
shares") or (ii) by purchase of outstanding Shares on the open market ("open-
market purchases") on the New York Stock Exchange or elsewhere. If on the
payment 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,
provided that the maximum discount from the then current market price per
Share on the date of issuance may
45
<PAGE>
not exceed 5%. If on the dividend payment 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 payment 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 payment 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 payment 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 Fund's Shares, resulting in the acquisition
of fewer Shares than if the dividend had been paid in newly issued Shares on
the dividend payment 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 will cease making open-market purchases and
will invest the uninvested portion of the dividend amount in newly issued
Shares 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's name 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 gain 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 Fund's 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 its
Shares, the price on resale may be more or less than the net asset value. See
"Taxes" for a discussion of tax consequences of the Plan.
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 85 Challenger Road, Ridgefield Park, NJ 07660.
46
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, North Tower, World
Financial Center, New York, New York, Smith Barney Inc., 388 Greenwich Street,
New York, New York, Fahnestock & Co. Inc., 125 Broad Street, New York, New
York, and Interstate/Johnson Lane Corporation, 201 North Tryon Street,
Charlotte, North Carolina as their representatives (the "Representatives")
have severally agreed, subject to the terms and conditions of the Underwriting
Agreement with the Fund and Dreyfus (the "Underwriting Agreement"), to
purchase from the Fund the number of Shares set forth opposite their
respective names. The Underwriters are committed to purchase all of such
Shares if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
PaineWebber Incorporated.................................. 7,110,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated........ 7,110,000
Smith Barney Inc. ........................................ 7,110,000
Fahnestock & Co. Inc. .................................... 7,110,000
Interstate/Johnson Lane Corporation....................... 7,110,000
Bear, Stearns & Co. Inc. ................................. 800,000
BT Alex. Brown Incorporated............................... 800,000
CIBC Oppenheimer Corp. ................................... 800,000
A.G. Edwards & Sons, Inc. ................................ 800,000
Prudential Securities Incorporated........................ 800,000
Advest, Inc. ............................................. 400,000
Robert W. Baird & Co. Incorporated........................ 400,000
Crowell, Weedon & Co. .................................... 400,000
Dain Rauscher Wessels..................................... 400,000
Everen Securities, Inc. .................................. 400,000
First Albany Corporation.................................. 400,000
First of Michigan Corporation............................. 400,000
Gruntal & Co., Incorporated............................... 400,000
Janney Montgomery Scott Inc. ............................. 400,000
Josephthal & Co. Inc. .................................... 400,000
Ladenburg Thalmann & Co. Inc. ............................ 400,000
McDonald & Company Securities, Inc. ...................... 400,000
Morgan Keegan & Company, Inc. ............................ 400,000
The Ohio Company.......................................... 400,000
Pacific Growth Equities Inc. ............................. 400,000
Parker/Hunter Incorporated................................ 400,000
Pennsylvania Merchant Group............................... 400,000
Piper Jaffray Inc. ....................................... 400,000
Raymond James & Associates, Inc. ......................... 400,000
The Robinson-Humphrey Company, LLC........................ 400,000
Roney & Co. .............................................. 400,000
Scott & Stringfellow, Inc. ............................... 400,000
Stifel, Nicolaus & Company, Incorporated.................. 400,000
Sutro & Co. Incorporated.................................. 400,000
C.E. Unterberg, Towbin.................................... 400,000
Van Kasper & Company...................................... 400,000
Wheat, First Securities, Inc. ............................ 400,000
Allen & Company of Florida Inc. .......................... 200,000
George K. Baum & Company.................................. 200,000
BlueStone Capital Partners, L.P. ......................... 200,000
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Branch, Cabell & Company.................................. 200,000
Fechtor, Detwiler & Co., Inc. ............................ 200,000
J.W. Charles Securities, Inc. ............................ 200,000
John G. Kinnard & Company, Incorporated................... 200,000
Miller, Johnson & Kuehn, Inc. ............................ 200,000
Moors & Cabot, Inc. ...................................... 200,000
Morgan Fuller Capital Group............................... 200,000
David A. Noyes & Company.................................. 200,000
Southwest Securities, Inc. ............................... 200,000
M.L. Stern & Co., Inc. ................................... 200,000
TD Securities (USA) Inc. ................................. 200,000
Torrey Pines Securities, Inc. ............................ 200,000
----------
Total................................................... 53,350,000
==========
</TABLE>
The Fund has granted to the Underwriters an option, exercisable for 60 days
from the date of this Prospectus to purchase up to an additional 8,002,500
Shares to cover over-allotments, if any, at the initial offering price. The
Underwriters may exercise such option solely for the purpose of covering over-
allotments incurred in the sale of the Shares offered hereby. To the extent
that the Underwriters exercise this option, each of the Underwriters will have
a firm commitment, subject to certain conditions, to purchase an additional
number of Shares proportionate to such Underwriter's initial commitment.
As set forth in the notes to the table on the cover page of this Prospectus,
Dreyfus or an affiliate (not the Fund) from its own assets has agreed to pay a
commission to the Underwriters in the amount of $0.75 per Share (5% of the
public offering price per Share) or an aggregate amount of $40,012,500
($46,014,375 assuming full exercise of the over-allotment option) for all
Shares covered by this Prospectus. Such payment will be the legal obligation
of Dreyfus (or an affiliate) and made out of its own assets and will not in
any way represent an obligation of the Fund or its Shareholders. The
Representatives have advised the Fund that the Underwriters may pay up to
$0.45 per Share from such payment received from Dreyfus to selected dealers
who sell the Shares and that the Underwriters and such dealers may reallow a
concession of up to $0.10 per Share to certain other dealers who sell Shares.
In addition, the Fund has agreed to pay the Underwriters in the amount of
$250,000, in partial reimbursement of their expenses.
Prior to this offering, there has been no public market for the Shares or
any other securities of the Fund. The Shares have been approved for listing,
subject to notice of issuance, on the New York Stock Exchange under the symbol
"DHF." In order to meet the requirements for listing the Shares on the New
York Stock Exchange, the Underwriters have undertaken to sell lots of 100 or
more Shares to a minimum of 2,000 beneficial holders. The minimum investment
requirement is 100 Shares ($1,500).
The Fund and Dreyfus have each agreed to indemnify the several Underwriters
for or to contribute to the losses arising out of certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
The Fund has agreed not to offer or sell any additional 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 the Underwriters.
The Underwriters may take certain actions to discourage short-term trading
of Shares during a period of time following the initial offering date.
Included in these actions is the withholding of the concession and other
payments to dealers in connection with Shares which were sold by such dealers
and which are repurchased for the account of the Underwriters during such
period. In addition, physical delivery of certificates representing Shares is
required to transfer ownership of Shares for a certain period.
48
<PAGE>
Under the terms of and subject to the conditions of the Underwriting
Agreement, the Underwriters are committed to purchase and pay for all Shares
offered hereby if any are purchased. The Underwriting Agreement provides that
it may be terminated at or prior to the closing date for the purchase of the
Shares if, in the judgment of the Representatives, payment for the delivery of
the Shares is rendered impracticable or inadvisable because (1) trading in the
equity securities of the Fund is suspended by the Securities and Exchange
Commission, by an exchange that lists the Shares, or by the National
Association of Securities Dealers Automated Quotation National Market System,
(2) additional material governmental restrictions, not in force on the date of
the Underwriting Agreement, have been imposed upon trading in securities
generally or trading in securities generally has been suspended on any U.S.
securities exchange, or a general banking moratorium has been established by
Federal or New York authorities, or (3) any outbreak or material escalation of
hostilities or other calamity or crisis occurs, the effect of which is such as
to make it impracticable to market any or all of the Shares. The Underwriting
Agreement also may be terminated if any of the conditions specified in the
Underwriting Agreement have not been fulfilled when and as required by such
agreement.
The Fund anticipates that the Representatives 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." Dreyfus Investment
Services Corporation, an affiliate of the Fund, may act as a dealer in
connection with the offering of the Shares.
PaineWebber Incorporated will provide shareholder services to the Fund
pursuant to a Shareholder Servicing Agreement with the Fund. The Fund will pay
a monthly fee on an annual basis equal to 0.10% of the average weekly Managed
Assets of the Fund (as defined herein under "Management of the Fund--
Management and Administration Agreement") for such services. See "Shareholder
Servicing Agent, Custodian and Transfer and Dividend Disbursing Agent."
SHAREHOLDER SERVICING AGENT, CUSTODIAN AND
TRANSFER AND DIVIDEND DISBURSING AGENT
Pursuant to a Shareholder Servicing Agreement between PaineWebber
Incorporated (the "Shareholder Servicing Agent") and the Fund, the Shareholder
Servicing Agent will (i) undertake to make public information pertaining to
the Fund on an ongoing basis and to communicate to investors and prospective
investors the Fund's features and benefits (including periodic seminars or
conference calls, responses to questions from current or prospective
shareholders and specific shareholder contact where appropriate); (ii) make
available to investors and prospective investors market price, net asset
value, yield and other information regarding the Fund, if reasonably
obtainable, for the purpose of maintaining the visibility of the Fund in the
investor community; (iii) at the request of the Fund, provide certain economic
research and statistical information and reports, if reasonably obtainable, on
behalf of the Fund, and consult with representatives and Trustees of the Fund
in connection therewith, which information and reports shall include: (a)
statistical and financial market information with respect to the Fund's market
performance and (b) comparative information regarding the Fund and other
closed-end management investment companies with respect to (1) the net asset
value of their respective shares, (2) the respective market performance of the
Fund and such other companies and (3) other relevant performance indicators;
and (iv) at the request of the Fund, provide information to and consult with
the Board of Trustees with respect to applicable strategies designed to
address market value discounts, which may include share repurchase, tender
offers, modifications to dividend policies or capital structure, repositioning
or restructuring of the Fund, conversion of the Fund to an open-end investment
company, liquidation or merger; provided, however, that under the terms of the
Shareholder Servicing Agreement, the Shareholder Servicing Agent is not
obligated to render any opinions, valuations or recommendations of any kind or
to perform any such similar services. For these services, the Fund will pay
the Shareholder Servicing Agent a fee equal on an annual basis to 0.10% of the
Fund's average weekly Managed Assets (as defined above under "Management of
the Fund--Management and Administration Agreement"), payable in arrears at the
end of each calendar month. Under the terms of the Shareholder Servicing
Agreement, the Shareholder Servicing Agent is relieved from liability to the
Fund for any act or omission in the
49
<PAGE>
course of its performance under the Shareholder Servicing Agreement, in the
absence of gross negligence or willful misconduct by the Shareholder Servicing
Agent. The Fund has agreed to indemnify the Shareholder Servicing Agent or
contribute to losses arising out of certain liabilities under the Shareholder
Servicing Agreement. The Shareholder Servicing Agreement will continue for an
initial term of two years and thereafter for successive one-year periods
unless terminated by either party upon 60 days written notice. In this regard,
as part of its ongoing oversight responsibilities, the Board of Trustees will
monitor the performance of the Shareholder Servicing Agent and the continuing
appropriateness of the Shareholder Servicing Agreement.
Mellon Bank, located at One Mellon Bank Center, Pittsburgh, Pennsylvania
15258, will act as the Fund's Custodian. Dreyfus is a wholly-owned subsidiary
of Mellon Bank. The Custodian may employ sub-custodians outside the U.S.
approved by the Board of Trustees in accordance with regulations under the
Investment Company Act. ChaseMellon Shareholder Services, LLC will also act as
the Fund's Transfer and Dividend Disbursing Agent.
DESCRIPTION OF SHARES
The Fund is a newly organized unincorporated business trust under the laws
of the Commonwealth of Massachusetts created pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated March 16, 1998. The Fund is
authorized to issue an unlimited number of shares of beneficial interest, par
value $.001 per share. 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. Fund 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.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of a Massachusetts business trust.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Fund or a Trustee. The Trust Agreement provides for indemnification from the
Fund's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its
obligations, a possibility which management believes is remote. Upon payment
of any liability incurred by the Fund, the shareholder paying such liability
will be entitled to reimbursement from the general assets of the Fund. The
Fund intends to conduct its operations in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Fund.
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 its Shares, if made, will require approval of the Fund's
Board of Trustees. Any additional offering will not be sold 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.
The Fund Shares have been approved for listing, subject to notice of
issuance, on the New York Stock Exchange under the symbol "DHF." In accordance
with the rules of the New York Stock Exchange, the Fund will hold Annual
Meetings of Shareholders.
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 of Trustees, and could
have the effect of depriving Shareholders of an opportunity to sell their
Shares at a premium over
50
<PAGE>
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 of Trustees 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 of Trustees. A Trustee may be removed from office only for cause
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 of Trustees 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 of Trustees has determined that provisions with respect to the
Board of Trustees and the 80% voting requirements described above (and the
requirements relating to conversion to an open-end fund described below),
which voting requirements are greater than the minimum requirements under
Massachusetts law or the Investment Company Act, are in the best interest of
Shareholders generally. Reference should be made to the Declaration of Trust
on file with the Securities and Exchange Commission for the full text of these
provisions.
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 the Fund's
outstanding shares (including any preferred shares) entitled to vote on the
matter, voting as a single class (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) and, assuming the Fund has issued
preferred shares, by the affirmative vote of a majority of the outstanding
preferred shares, voting as a separate class. 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. 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. In particular, the Fund would be required to maintain its portfolio
such that not more than 15% of its assets would be invested in illiquid
securities, or other illiquid assets, or securities which are restricted as to
resale (excluding, for purposes of this limitation, Rule 144A and other
securities deemed liquid by Dreyfus pursuant to guidelines established by the
Board of Trustees). Such requirement could cause the Fund to dispose of
portfolio securities or other assets at a
51
<PAGE>
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 New York Stock Exchange
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.
REPURCHASE OF SHARES
Shares of closed-end management investment companies often trade at a
discount to their net asset values, and the Fund's 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 Fund's
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 Fund's 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 its 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 Fund's 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.
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; (v)
information about Dreyfus and the Fund's portfolio managers, 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; and (vi) that Dreyfus sponsored the
first short-term lower grade securities fund in the mutual fund industry.
LEGAL OPINIONS
Certain legal matters in connection with the Shares offered hereby will be
passed upon for the Fund by Kirkpatrick & Lockhart LLP and for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, and its affiliated
entities.
EXPERTS
The statement of assets and liabilities of the Fund included in this
Prospectus has been so included in reliance upon the report of KPMG Peat
Marwick LLP, independent auditors, and on their authority as experts in
auditing and accounting.
52
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees
The Dreyfus High Yield Strategies Fund
We have audited the accompanying statement of assets and liabilities of
Dreyfus High Yield Strategies Fund (in organization) as of April 15, 1998.
This financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement 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 and
liabilities is free of material misstatement. An audit of a statement of
assets and liabilities includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit of a statement of assets and liabilities also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statement of assets and
liabilities presentation. We believe that our audit of the statement of assets
and liabilities provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Dreyfus
High Yield Strategies Fund (in organization) as of April 15, 1998 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
April 22, 1998
53
<PAGE>
DREYFUS HIGH YIELD STRATEGIES FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 15, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash................................................................. $100,005
Deferred organization expenses (Note 1).............................. 61,000
--------
Total Assets....................................................... 161,005
LIABILITIES
Accrued expenses (Note 1)............................................ 61,000
--------
NET ASSETS............................................................ $100,005
========
CAPITAL
Common Stock, par value $.001 per share; unlimited shares authorized;
6,667 shares issued and outstanding (Note 1)........................ $ 7
Paid in Capital in excess of par..................................... 99,998
--------
Total Capital--Equivalent of $15.00 net asset value per share of
common stock (Note 1)............................................. $100,005
========
</TABLE>
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
NOTE 1. ORGANIZATION
The Fund was incorporated under the laws of the Commonwealth of
Massachusetts on March 16, 1998 as a closed-end, non-diversified management
investment company and has had no operations other than the sale to MBC
Investments Corporation of an aggregate of 6,667 shares for $100,005 on April
15, 1998.
Deferred organization expenses are normally amortized on a straight-line
basis over a five-year period beginning with the commencement of operations of
the Fund.
On April 3, 1998, Statement of Position 98-5 was issued. This Statement of
Position requires that unamortized organization costs on the Fund's statement
of assets and liabilities be written off. This Statement of Position is
effective for fiscal years beginning after December 15, 1998, therefore, the
Fund is required to write off the deferred organization expenses on April 1,
1999.
NOTE 2. MANAGEMENT AND ADMINISTRATION ARRANGEMENTS
The Fund has engaged the Investment Manager to provide investment management
and administration services to the Fund. The Investment Manager will receive a
monthly fee for advisory and administration services at an annual rate equal
to .90% of 1% of the Fund's average weekly value of the Managed Assets.
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.
54
<PAGE>
APPENDIX A
RATINGS OF CORPORATE BONDS
DESCRIPTION OF CORPORATE BOND RATINGS OF STANDARD & POOR'S RATINGS GROUP:
AAA--Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
BB--Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B--Bonds rated B have a greater vulnerability to default but presently have
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC--Bonds rated CCC have a current identifiable vulnerability to default
and are dependent upon favorable business, financial and economic conditions
to meet timely payments of interest and repayment of principal. In the event
of adverse business, financial or economic conditions, they are not likely to
have the capacity to pay interest and repay principal.
CC--The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C--The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
D--Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus (+) or a
minus (-) sign designation, which is used to show relative standing within the
major rating categories, except in the AAA (Prime Grade) category.
DESCRIPTION OF BOND RATINGS OF MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
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
A-1
<PAGE>
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 issues 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 issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues
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
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<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS 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 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 SE-
CURITIES 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.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary....................................................... 1
Fee Table................................................................ 10
The Fund................................................................. 11
Use of Proceeds.......................................................... 11
Investment Objectives and Policies....................................... 12
Other Investment Practices............................................... 22
Risk Factors and Special Considerations.................................. 31
Investment Restrictions.................................................. 34
Management of the Fund................................................... 35
Trustees and Officers of the Fund........................................ 37
Portfolio Transactions................................................... 40
Determination of Net Asset Value......................................... 41
Dividends and Other Distributions........................................ 42
Taxes.................................................................... 42
Automatic Dividend Reinvestment Plan..................................... 45
Underwriting............................................................. 47
Shareholder Servicing Agent, Custodian and Transfer and Dividend
Disbursing Agent........................................................ 49
Description of Shares.................................................... 50
Other Information........................................................ 52
Legal Opinions........................................................... 52
Experts.................................................................. 52
Independent Auditors' Report............................................. 53
Statement of Assets and Liabilities...................................... 54
Appendix A: Ratings of Corporate Bonds................................... A-1
</TABLE>
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UNTIL MAY 18, 1998 ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO-
SPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPEC-
TUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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53,350,000 SHARES
DREYFUS HIGH YIELD
STRATEGIES FUND
---------------
PROSPECTUS
---------------
PAINEWEBBER INCORPORATED
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
FAHNESTOCK & CO. INC.
INTERSTATE/JOHNSON LANE
CORPORATION
---------------
APRIL 23, 1998
HYS/PO498
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