Securities Act File No. 333-48117
Investment Company File No. 811-08703
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM N-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 1 /X/
(Check appropriate box or boxes)
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DREYFUS HIGH YIELD STRATEGIES FUND
(Exact Name of Registrant as Specified in Charter)
200 Park Avenue, New York, New York 10166
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code:
1-888-338-8084
---------------
Mark N. Jacobs
General Counsel
The Dreyfus Corporation
Legal Department
200 Park Avenue - 8th Floor West
New York, New York 10166
(Name and address of agent for service)
---------------
Copies to:
Thomas A. Hale Clifford J. Alexander
Skadden, Arps, Slate, Kirkpatrick & Lockhart LLP
Meagher & Flom (Illinois) 1800 Massachusetts Avenue
333 Wacker Drive Second Floor
Chicago, Illinois 60606 Washington, DC 20036
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Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
---------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
=======================================================================================================
<S> <C> <C> <C> <C>
Proposed Proposed
Amount Being Maximum Aggregate Amount of
Registered(1) Offering Price Maximum Offering Registration Fee
per Unit Price(1)
- ------------------------------------------------------------------------------------------------------
Shares of Beneficial Interest 57,500,000 $15.00 $862,500,000 $254,438*
- ------------------------------------------------------------------------------------------------------
*$20,355.00 has been previously paid
(1)Includes 7,500,000 Shares which may be offered by the Underwriters pursuant
to an option to cover over allotments.
=======================================================================================================
</TABLE>
<PAGE>
Dreyfus High Yield Strategies Fund
Cross Reference Sheet Pursuant to Rule 404(c)
Under the Securities Act of 1933
Parts A and B of the Prospectus*
<TABLE>
<CAPTION>
Item No. Registration Statement Caption Location in Prospectus
- -------- ------------------------------ ----------------------
<S> <C> <C>
1 Outside Front Cover......................... Outside Front Cover
2 Inside Front and Outside back Cover Page.... Inside Front and Outside Back Cover
Page
3 Fee Table and Synopsis...................... Prospectus Summary; Expenses
Summary
4 Financial Highlights........................ Not Applicable
5 Plan of Distribution........................ Cover Page; Outside Front Cover
Page; Prospectus Summary;
Underwriting
6 Selling Shareholders........................ Not Applicable
7 Use of Proceeds............................. Outside Front Cover; Inside Front
Cover; Prospectus Summary; Use of
Proceeds; Investment Restrictions
8 General Description of Registrant........... Outside Front Cover; Inside Front
Cover; Prospectus Summary; The
Fund; Investment Practices; Special
Considerations and Risk Factors;
Investment Restrictions; Dividends
and Distributions; Taxes; Portfolio
Transactions; Determination of Net
Asset Value
9 Management.................................. Inside Front Cover; Prospectus
Summary; Management of the Fund;
Investment Adviser; Trustees and
Officers of the Fund; Investment
Management Contract; Portfolio
Transactions; Custodian; Transfer
Agent, Shareholder Servicing Agent,
Custodian and Transfer and
Dividend Paying Agent;
10. Capital Stock, Long-term Debt, and Other
Securities.................................. Prospectus Summary; Dividends and
Distributions; Taxes; Automatic
Dividend Reinvestment Plan
11 Defaults and Arrears on Senior Securities... Not Applicable
12 Legal Proceedings........................... Not Applicable
13. Table of Contents of Statement of Additional
<PAGE>
Information................................. Not Applicable
14 Cover Page.................................. Not Applicable
15 Table of Contents........................... Not Applicable
16 General Information......................... Not Applicable
17 Investment Objectives and Policies.......... Outside Front Cover; Inside Front
Cover; Prospectus Summary;
Restrictions; Investment
Considerations and Risks
18 Management.................................. Trustees and Officers of the Fund
19. Control Persons and Principal Holders of
Securities.................................. Not Applicable
20 Investment and Advisory and Other Services.. Prospectus Summary; Investment
Advisor; Trustees and Officers of the
Fund; Management Contract;
Portfolio Transactions; Shareholder
Servicing Agent, Custodian and
Transfer and Dividend Paying Agent
21 Brokerage Allocation and Other Practices.... Portfolio Transactions
22 Tax Status.................................. Dividends and Distributions; Taxes;
Independent Auditor's Report
23 Financial Statements........................ Not Applicable
</TABLE>
- ----------------
*Pursuant to General Instruction H of Form N-2, all information required to be
set forth in Part B: Statement of Additional Information has been included in
Part A: The Prospectus.
PART C
The information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
<PAGE>
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.......................................... $ None $
- -------------------------------------------------------------------------------------------
Total Assuming Full Exercise of Over-Allotment
Option (3).................................... $ None $
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</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 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 against income over a five-year
period.
(3) Assuming exercise in full of the 60-day option granted by the Fund to the
Underwriters to purchase up to 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 Shares of Beneficial In-
terest, par value $.001 per share ("Shares"),
through a group of underwriters ("Underwriters")
led by PaineWebber Incorporated, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Salomon
Smith Barney,Fahnestock & Co. Inc., and
Interstate/Johnson Lane Corporation. The Under-
writers have been granted an option to purchase
up to additional Shares solely to cover over-
allotments, if any. The initial public offering
price is $15 per share. The minimum investment in
the offering is 100 Shares ($1,500). See "Under-
writing."
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," subject to notice of issuance.
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, LLC will act as the Fund's Transfer and
Dividend Disbursing Agent. See "Shareholder Ser-
vicing Agent, Custodian and Transfer and Dividend
Disbursing Agent."
RISK FACTORS AND SPECIAL
CONSIDERATIONS............. Investors are advised to consider carefully the
special risks involved in investing in the Fund.
General. The Fund is a newly organized, non-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 $ ($ 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
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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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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 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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<PAGE>
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
25
<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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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.
37
<PAGE>
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
38
<PAGE>
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, Salomon Smith Barney, 388 Greenwich
Street, New York, New York, Fahnestock & Co. Inc., 125 Broad Street, New York,
New York, 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..................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated........
Salomon Smith Barney......................................
Fahnestock & Co. Inc. ....................................
Interstate/Johnson Lane Corporation.......................
Bear, Stearns & Co. Inc. .................................
BT Alex. Brown Incorporated...............................
CIBC Oppenheimer Corp. ...................................
A.G. Edwards & Sons, Inc. ................................
Prudential Securities Incorporated........................
Advest, Inc. .............................................
Robert W. Baird & Co. Incorporated........................
Crowell, Weedon & Co. ....................................
Dain Rauscher Wessels.....................................
Everen Securities, Inc. ..................................
First Albany Corporation..................................
First of Michigan Corporation.............................
Gruntal & Co., Incorporated...............................
Janney Montgomery Scott Inc. .............................
Josephthal & Co. Inc. ....................................
Ladenburg Thalmann & Co. Inc. ............................
McDonald & Company Securities, Inc. ......................
Morgan Keegan & Company, Inc. ............................
The Ohio Company..........................................
Pacific Growth Equities Inc. .............................
Parker/Hunter Incorporated................................
Pennsylvania Merchant Group...............................
Piper Jaffray Inc. .......................................
Raymond James & Associates, Inc. .........................
The Robinson-Humphrey Company, LLC........................
Roney & Co. ..............................................
Scott & Stringfellow, Inc. ...............................
Stifel, Nicolaus & Company, Incorporated..................
Sutro & Co. Incorporated..................................
C.E. Unterberg, Towbin....................................
Van Kasper & Company......................................
Wheat, First Securities, Inc. ............................
Allen & Company of Florida Inc. ..........................
George K. Baum & Company..................................
BlueStone Capital Partners, L.P. .........................
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Branch, Cabell & Company..................................
Fechtor, Detwiler & Co., Inc. ............................
J.W. Charles Securities, Inc. ............................
John G. Kinnard & Company, Incorporated...................
Miller, Johnson & Kuehn, Inc. ............................
Moors & Cabot, Inc. ......................................
Morgan Fuller Capital Group...............................
David A. Noyes & Company..................................
Paulson Investment Company, Incorporated..................
Sentra Securities Corporation.............................
Spelman & Company.........................................
M.L. Stern & Co., Inc. ...................................
Toronto Dominion Securities (USA) Inc. ...................
Torrey Pines Securities, Inc. ............................
U.S. Clearing Corporation.................................
----
Total...................................................
====
</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 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 $ ($ 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 $ per Share from such payment
received from Dreyfus to certain dealers who sell the 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 intends to apply to list its Shares 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
The Board of Trustees and Shareholder of Dreyfus High Yield Strategies Fund
We have audited the accompanying statement of assets and liabilities of
Dreyfus High Yield Strategies Fund (the "Fund") 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 financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of the Fund as of April 15,
1998, in conformity with generally accepted accounting principles.
April 22, 1998
53
<PAGE>
DREYFUS HIGH YIELD STRATEGIES FUND
STATEMENT OF ASSETS AND LIABILITIES CAPITAL
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 CAPITAL
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 are normally be 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 required 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
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Fee Table................................................................ 10
The Fund................................................................. 11
Use of Proceeds.......................................................... 11
Investment Objectives and Policies....................................... 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>
---------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements:
The Selected Financial Information, Statement of Operations, Statement of
Changes in Net Assets, and Schedules II through VII, inclusive, are
omitted because the required information is included in the financial
statement included in Part A or Part B, or because the conditions
requiring their filing do not exist.
(2) Exhibits
(a) Declaration of Trust [previously filed]
(b) Bylaws [previously filed]
(c) Inapplicable
(d) (1) Form of Certificate Representing Shares of Beneficial
Interest
(2) Portions of Declaration of Trust Relating to Shareholders'
Rights [previously filed]
(3) Portions of Bylaws Relating to Shareholders' Rights
[previously filed]
(e) Form of Terms and Conditions of Dividend Reinvestment Plan (f)
Inapplicable (g) Form of Investment Management and Administration
Agreement (h) (1) Form of Master Agreement Among Underwriters
(2) Form of Underwriting Agreement
(3) Form of Master Selected Dealers Agreement
(i) Inapplicable
(j) Form of Custodian Contract
(k) (1) Form of Shareholder Servicing Agreement
(2) Inapplicable
(l) Opinion and Consent of Counsel
(m) Inapplicable
(n) Consent of Independent Auditors
(o) Inapplicable
(p) Initial Capital Agreement
(q) Inapplicable
ITEM 25. MARKETING ARRANGEMENTS
Reference is made to the Form of Underwriting Agreement for Registrant's
shares of beneficial interest to be filed by amendment to this Registration
Statement.
<PAGE>
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Securities and Exchange Commission Fees........... $ 254,438
NASD Fees and Expenses............................ $ 39,500
New York Stock Exchange Listing Fee............... $ 270,000
Printing.......................................... $ 90,000
Accounting Fees and Expenses...................... $ 15,000
Legal Fees........................................ $ 95,000
Blue Sky Fees and Expenses........................ $ 2,000
Reimbursement of Underwriters' Expenses........... $ 250,000
Miscellaneous..................................... $ 22,962
==========
Total $1,039,000
==========
......
ITEM 27.....PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
......None
ITEM 28.....NUMBER OF RECORD HOLDERS OF SECURITIES
......None
ITEM 29.....INDEMNIFICATION
Article V of the Registrant's Declaration of Trust provides as follows:
Section 5.1. No Shareholder shall be subject to any personal
liability whatsoever to any Person in connection with Fund Property
or the acts, obligations or affairs of the Fund. The Trustees shall
have no power to bind any Shareholder personally or to call upon any
Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time
personally agree to pay by way of subscription to any Shares or
otherwise. Shareholder liability for the acts and obligations of the
Fund is hereby expressly disclaimed. Every note, bond, contract, or
other undertaking issued by or on behalf of the Fund or the Trustees
relating to the Fund shall include a notice and provision limiting
the obligation represented thereby to the Fund and its assets (but
the omission of such notice and provision shall not operate to
impose any liability or obligation on any Shareholder). No Trustee,
officer, employee or agent of the Fund shall be subject to any
personal liability whatsoever to any Person, in connection with the
Fund Property or the affairs of the Fund, save only that arising
from bad faith, willful misfeasance, gross negligence or reckless
disregard for his or her duty to such Person; and all such Persons
<PAGE>
shall look solely to the Fund Property for satisfaction of claims of
any nature arising in connection with the affairs of the Fund. If
any Shareholder, Trustee, officer, employee or agent, as such, of
the Fund is made a party to any suit or proceeding to enforce any
such liability, he or she shall not, on account thereof, be held to
any personal liability. The Fund shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities, to
which such Shareholder may become subject by reason of his or her
being or having been a Shareholder, other than by reason of his or
her own wrongful act or omission, and shall reimburse such
Shareholder for all legal and other expenses reasonably incurred by
him or her in connection with any such claim or liability. The
rights accruing to a Shareholder under this Section 5.1 shall not
exclude any other right to which such Shareholder may be lawfully
entitled, nor shall anything herein contained restrict the right of
the Fund to indemnify or reimburse a Shareholder in any appropriate
situation even though not specifically provided herein.
Section 5.2. No Trustee, officer, employee or agent of the Fund
shall be liable to the Fund, its Shareholders, or to any
Shareholder, Trustee, officer, employee, or agent thereof for any
action or failure to act (including without limitation the failure
to compel in any way any former or acting Trustee to redress any
breach of trust) except for his or her own bad faith, willful
misfeasance, gross negligence or reckless disregard of his or her
duties.
Section 5.3. (a) The Trustee shall provide for indemnification by
the Fund of any person who is, or has been, a Trustee, officer,
employee or agent of the Fund against all liability and against all
expenses reasonably incurred or paid by him in connection with any
claim, action, suit or proceeding in which he becomes involved as a
party or otherwise by virtue of his being or having been a Trustee,
officer, employee or agent and against amounts paid or incurred by
him in the settlement thereof, in such manner as the Trustees may
provide from time to time in the by-laws. (b) The words "claim,"
"action," "suit," or "proceeding" shall apply to all claims,
actions, suits or proceedings (civil, criminal or other, including
appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorney's fees,
costs, judgments, amounts paid in settlement, fines, penalties and
other liabilities.
Insofar as indemnification for liability arising under the Securities Act
of 1933 ("1933 Act") may be permitted to trustees, officers and controlling
persons of the Fund, pursuant to the foregoing provisions, or otherwise, the
<PAGE>
Fund has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for a
trustee, officer or controlling person of the Fund in the successful defense of
any action, suit or proceeding or payment pursuant to any insurance policy) is
asserted against the Fund by such trustee, officer or controlling person in
connection with the securities being registered, the Fund will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
ITEM 30.....BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The directors and officers of the Registrant's investment adviser have been
engaged for the past two fiscal years in no business, vocation or employment of
a substantial nature other than as directors or officers of the investment
adviser or certain of it's corporate affiliates. The address of the investment
adviser is 200 Park Avenue, New York, New York 10166.
ITEM 31.....LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents of the Fund required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and rules promulgated
thereunder will be maintained at the office of the fund's custodian at One
Mellon Bank Center, Pittsburgh, Pennsylvania 15258, and the Fund's dividend
disbursing agent and registrar at P.O. Box 9671, Providence, Rhode Island,
09240-9671, except that the Fund's corporate records (its articles of
incorporation, by-laws, and minutes of the meetings of its Board of Directors
and shareholders) will be maintained at the offices of the Fund's investment
advisor at 200 Park Avenue, New York, New York 10166.
ITEM 32.....MANAGEMENT SERVICES
None
ITEM 33.....UNDERTAKINGS
(1) The Registrant undertakes to suspend offering of its shares until it
amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent
from its net asset value as of the effective date of the Registration
Statement or (2) the net asset value increases to an amount greater than
its net proceeds as stated in the prospectus.
(2) Inapplicable
(3) Inapplicable
(4) Inapplicable
(5) the undersigned registrant hereby undertakes that:
<PAGE>
(a) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A
and contained in the form of prospectus filed by the Registrant
pursuant to Rule 42(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of the registration statement as of the
time it was declared effective.
(b) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(6) Inapplicable
<PAGE>
NOTICE
A copy of the Declaration of Trust of Dreyfus High Yield Strategies Fund
is on file with the Secretary of State of the Commonwealth of
Massachusetts and notice is hereby given that this instrument is executed
on behalf of the Registrant by an officer of the Registrant as an officer
and not individually and that the obligations of or arising out of this
instrument are not binding upon any of the Trustees, officers or
shareholders individually, but are binding only upon the assets and
property of the Registrant.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 1 to the Registration Statement to be signed on
behalf of the undersigned, thereto duly authorized, in the City of Boston, and
the Commonwealth of Massachusetts on the 21st day of April, 1998.
DREYFUS HIGH YIELD STRATEGIES FUND
By: /s/ Marie E. Connolly
--------------------------------------
Marie E. Connolly
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on the 21st day of April, 1998.
SIGNATURE TITLE
- --------- -----
/s/ Marie E. Connolly Principal Executive Officer,
- ----------------------------------- President and Treasurer
Marie E. Connolly
/s/ Joseph F. Tower, III Principal financial Officer,
- ----------------------------------- Vice President and Assistant Treasurer
Joseph F. Tower, III
/s/ Francis P. Brennan* Trustee,
- ----------------------------------- Chairman of the Board of Trustees
Francis P. Brennan
Trustee
- -----------------------------------
Ruth Marie Adams
/s/ Joseph S. DiMartino* Trustee
- -----------------------------------
Joseph S. DiMartino
<PAGE>
/s/ James M. Fitzgibbons* Trustee
- -----------------------------------
James M. Fitzgibbons
/s/ J. Tomlinson Fort* Trustee
- -----------------------------------
J. Tomlinson Fort
/s/ Arthur L. Goeschel* Trustee
- -----------------------------------
Arthur L. Goeschel
/s/ Kenneth A. Himmel* Trustee
- -----------------------------------
Kenneth A. Himmel
/s/ Arch S. Jeffrey* Trustee
- -----------------------------------
Arch S. Jeffrey
/s/ Stephen J. Lockwood* Trustee
- -----------------------------------
Stephen J. Lockwood
/s/ John J. Sciullo* Trustee
- -----------------------------------
John J. Sciullo
Trustee
- -----------------------------------
Roslyn M. Watson
/s/ Benaree Pratt Wiley* Trustee
- -----------------------------------
Benaree Pratt Wiley
/s/ Marie E. Connolly
- -----------------------------------------
* By Marie E. Connolly, Attorney-in-Fact
TEMPORARY CERTIFICATE - EXCHANGEABLE FOR
DEFINITIVE ENGRAVED CERTIFICATE WHEN READY FOR DELIVERY
SHARES OF THIS CERTIFICATE IS TRANSFERABLE IN
BENEFICIAL INTEREST NEW YORK CITY AND
PAR VALUE RIDGEFIELD PARK, N.J.
$.001 PER SHARE
-----------------------------------------
: SHARES :
: :
: :
: :
: :
-----------------------------------------
CUSIP 26200S 10 1
SEE REVERSE FOR CERTAIN DEFINITIONS
DREYFUS HIGH YIELD STRATEGIES FUND
A BUSINESS TRUST ORGANIZED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
- --------------------------------------------------------------------------------
: :
: THIS CERTIFIES that :
: :
: :
: :
: :
: :
: is the owner of :
: :
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST OF
DREYFUS HIGH YIELD STRATEGIES FUND transferable only on the books of the Trust
by the holder hereof in person or by duly authorized attorney upon surrender of
this Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be subject to all of the provisions of the
Declaration of Trust and Bylaws of the Trust, each as from time to time amended,
copies of which are on file with the Transfer Agent, to all of which the holder
by acceptance hereof assents. This Certificate is not valid until countersigned
and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Trust and the facsimile signatures of
its duly authorized officers.
Dated:
[SEAL OF DREYFUS [SIDE BAR]
HIGH YIELD STRATEGIES COUNTERSIGNED AND REGISTERED:
FUND] ChaseMellon Shareholder
Services, L.L.C.
TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
---------------------------- ----------------------------
/s/ Assistant Treasurer /s/ President
<PAGE>
The Trust is authorized to issue two or more classes of shares. The Trust
will furnish to any shareholder on request and without charge a full statement
of the designation and any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the shares of each class which the Trust is
authorized to issue and, if the Trust is authorized to issue any preferred or
special class in a series, of the differences in the relative rights and
preferences between the shares of each series to the extent they have been set
and the authority of the Board of Trustees to set the relative rights and
preferences of subsequent series.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties ----------
JT TEN - as joint tenants with right (Cust)
of survivorship and not as -------------------
tenants in common (Minor)
under Uniform Gifts
to Minors Act
-------------------
(State)
UNIF TRSFR MIN ACT - Custodian
----------
(Cust)
-------------------
(Minor)
under Uniform
Transfers to
Minors Act
-------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
----------------
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE
- --------------------------------
: :
: :
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares of Beneficial Interest represented by the within Certificate, and do
hereby irrevocably constitute and appoint
--------------------------------------
Attorney to transfer the said stock on the books of the within-named Trust with
full power of substitution in the premises.
Dated,
---------------------------
------------------------------------------
<PAGE>
[SIDE BAR]
NOTE: The signature to this assignment must correspond with the name as written
upon the face of the Certificate, in every particular, without alteration of
enlargement, or any change whatever.
TERMS AND CONDITIONS OF THE DREYFUS HIGH YIELD STRATEGIES FUND DIVIDEND
REINVESTMENT PLAN
All shareholders participating (the "Participants") in the Dividend
Reinvestment Plan (the "Plan") of the Dreyfus High Yield Strategies Fund (the
"Fund") will be bound by the following provisions:
ChaseMellon Shareholder Services, L.L.C. (the "Agent") will act as Agent for
each Participant, and will open an account for each Participant under the Plan
in the same name as their present shares are registered, and put into effect for
them the dividend reinvestment option of the Plan as of the first record date
for a dividend or capital gains distribution.
Whenever the Fund declares an income dividend or capital gains distribution
payable in shares of the Fund or cash at the option of the shareholders, each
Participant that does not opt for cash distributions shall take such
distribution entirely in shares. If on the payment date for a dividend or
distribution, the net asset value is equal to or less than the market price per
share plus estimated brokerage commissions, the Agent shall automatically
receive such shares, including fractions, for each Participant's account except
in the circumstances described in paragraph 3 below. Except in such
circumstances, the number of additional shares to be credited to each
Participant's account shall be determined by dividing the dollar amount of the
income dividend or capital gains distribution payable on their shares by the
greater of the net asset value per share determined as of the date of purchase
or 95% of the then current market price per share of the fund's shares on the
payment date.
Should the net asset value per share of the Fund shares exceed the market
price per share plus estimated brokerage commissions on the payment date for a
share or cash income dividend or capital gains distribution, the Agent or a
broker-dealer selected by the Agent shall endeavor, for a purchase period of 30,
days to apply the amount of such dividend or distribution on each Participant's
shares (less their PRO RATA share of brokerage commissions incurred with respect
to the Agent's open-market purchases in connection with the reinvestment of such
dividend or distribution) to purchase shares of the Fund on the open market for
each Participant's account. In no event may such purchases be made more than 30
days after the payment date for such dividend except where temporary curtailment
or suspension of purchase is necessary to comply with applicable provisions of
federal securities laws. If, at the close of business on any day during the
purchase period the net asset value per share equals or is less than the market
price per share plus estimated brokerage commissions, the Agent will not make
any further open-market purchases in connection with the reinvestment of such
dividend or distribution. If the Agent is unable to invest the full dividend or
distribution amount through open-market purchases during the purchase period,
the Agent shall request that, with respect to the uninvested portion of such
dividend or distribution amount, the Fund issue new shares at the close of
business on the earlier of the last day of the purchase period or the first day
during the purchase period on which the net asset value per share equals or is
less than the market price per share, plus estimated brokerage commissions, such
shares to be issued in accordance with the terms specified in the third
paragraph hereof. These newly issued shares will be valued at the then-current
market price per share of the Fund's shares at the time such shares are to be
issued.
For purposes of making the dividend reinvestment purchase comparison under
the Plan, (a) the market price of the Fund's shares on a particular date shall
be the last sales price on the New York Stock Exchange on that date, or, if
there is no sale on such Exchange on that date, then the mean between the
closing bid and asked quotations for such shares on such Exchange on such date
and (b) the net asset value per share of the Fund's shares on a particular date
shall be the net asset value per share most recently calculated by or on behalf
of the Fund.
Open-market purchases provided for above may be made on any securities
exchange where the Fund's shares are traded, in the over-the-counter market or
in negotiated transactions and may be on such terms as to price, delivery and
otherwise as the Agent shall determine. Each Participant's uninvested funds held
by the Agent will not bear interest, and it is understood that, in any event,
the Agent shall have no liability in connection with any inability to purchase
shares within 30 days after the initial date of such purchase as herein
provided, or with the timing of any purchases effected. The Agent shall have no
responsibility as to the value of the Fund's shares acquired for each
Participant's account. For the purpose of cash investments, the Agent may
commingle each Participant's funds with those of other shareholders of the Fund
for whom the Agent similarly acts as Agent, and the average price (including
brokerage commissions) of all shares purchased by the Agent as Agent shall be
the price per share allocable to each Participant in connection therewith.
The Agent may hold each Participant's shares acquired pursuant to the Plan
together with the shares of other shareholders of the Fund acquired pursuant to
the Plan in noncertificated form in the Agent's name or that of the Agent's
<PAGE>
nominee. The Agent will forward to each Participant any proxy solicitation
material; and will vote any shares so held for each Participant first in
accordance with the instructions set forth on proxies returned by the
participant to the Fund, and then with respect to any proxies not returned by
the participant to the Fund in the same portion as the agent votes proxies
returned by the participants to the Fund. Upon a Participant's written request,
the Agent will deliver to the Participant, without charge, a certificate or
certificates for the full shares.
The Agent will confirm to each Participant each acquisition made for their
account as soon as practicable but not later than 60 days after the date
thereof. Although each Participant may from time to time have an undivided
fractional interest (computed to three decimal places) in a share of the Fund,
no certificates for a fractional share will be issued. However, dividends and
distributions on fractional shares will be credited to each Participant's
account. In the event of termination of a Participant's account under the Plan,
the Agent will adjust for any such undivided fractional interest in cash at the
market value of the Fund's shares at the time of termination.
Any share dividends or split shares distributed by the Fund on shares held by
the Agent for Participants will be credited to their accounts. In the event that
the Fund makes available to its shareholders rights to purchase additional
shares of other securities, the shares held for each Participant under the Plan
will be added to other shares held by the Participant in calculating the number
of rights to be issued to each Participant.
The Agent's service fee for handling capital gains distributions or income
dividends will be paid by the Fund. Each Participant will be charged their PRO
RATA share of brokerage commissions on all open-market purchases.
Each Participant may terminate their account under the Plan by notifying the
Agent in writing. Such termination will be effective immediately if the
Participant's notice is received by the Agent not less than ten days prior to
any dividend or distribution record date, otherwise such termination will be
effective shortly after the investment of such dividend distributions with
respect to any subsequent dividend or distribution. The Plan may be terminated
by the Agent or the Fund upon notice in writing mailed to each Participant at
least 90 days prior to any record date for the payment of any dividend or
distribution by the Fund. Upon any termination, the Agent will cause a
certificate or certificates to be issued for the full shares held for each
Participant under the Plan and cash adjustment for any fraction to be delivered
to them without charge. If a Participant elects by notice to the Agent in
writing in advance of such termination to have the Agent sell part or all of
their shares and remit the proceeds to them, the Agent is authorized to deduct a
$5.00 fee plus brokerage commission for this transaction from the proceeds.
These terms and conditions may be amended or supplemented by the Agent or the
Fund at any time or times but, except when necessary or appropriate to comply
with applicable law or the rules or policies of the Securities and Exchange
Commission or any other regulatory authority, only by mailing to each
Participant appropriate written notice at least 30 days prior to the effective
date thereof. The amendment or supplement shall be deemed to be accepted by each
Participant unless, prior to the effective date thereof, the Agent receives
written notice of the termination of their account under the Plan. Any such
amendment may include an appointment by the Agent in its place and stead of a
successor Agent under these terms and conditions, with full power and authority
to perform all or any of the acts to be performed by the Agent under these terms
and conditions. Upon any such appointment of any Agent for the purpose of
receiving dividends and distributions, the Fund will be authorized to pay to
such successor Agent, for each Participant's account, all dividends and
distributions payable on shares of the Fund held in their name or under the Plan
for retention or application by such successor Agent as provided in these terms
and conditions.
The Agent shall at all times act in good faith and agree to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement and to comply with applicable law, but assumes no
responsibility and shall not be liable for loss or damage due to errors unless
such error is caused by the Agent's negligence, bad faith, or willful misconduct
or that of its employees.
These terms and conditions shall be governed by the laws of the State of New
York.
<PAGE>
04/20/98
<TABLE>
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<S> <C>
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DREYFUS HIGH YIELD This form is for shareholders who hold stock in their own names.
STRATEGIES FUND If your shares are held through a brokerage firm, bank or other
nominee, you may need to instruct your nominee to opt out on your
behalf.
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</TABLE>
I hereby elect NOT to participate in the Plan as provided in the Terms and
Conditions. I understand that I may elect to participate in the Plan at any
time.
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------- ----------------------------------
Print Name(s) (Last, First, M.I.) Stockholder signature
- ---------------------------------------- ----------------------------------
Print Address Stockholder signature
- ---------------------------------------- ----------------------------------
Date
Please sign exactly as
your shares are registered.
( ) All persons whose names appear on the stock
- --------------------------------------------------- certificates must sign.
Print Telephone Number
</TABLE>
YOU SHOULD RETURN THIS FORM IF YOU WISH TO RECEIVE CASH AND DO NOT WISH TO
PARTICIPATE IN THE FUND'S DIVIDEND REINVESTMENT PLAN THIS IS NOT A PROXY
This form, when signed, should be mailed to:
ChaseMellon Shareholder Services, LLC
85 Challenger Road
Ridgefield Park, New Jersey 07660
<PAGE>
DREYFUS HIGH YIELD STRATEGIES FUND
ELECTION NOT TO PARTICIPATE IN REINVESTMENT OF DIVIDENDS AND
DISTRIBUTIONS (Please read carefully before signing.)
I hereby elect not to participate in the Dreyfus High Yield Strategies Fund
Dividend Reinvestment Plan.
INVESTMENT MANAGEMENT AND ADMINISTRATION AGREEMENT
DREYFUS HIGH YIELD STRATEGIES FUND
200 PARK AVENUE
NEW YORK, NEW YORK 10166
April 22, 1998
The Dreyfus Corporation
767 Fifth Avenue
New York, New York 10153
Dear Sirs:
Dreyfus High Yield Strategies Fund, a Massachusetts business trust (the
"Fund"), herewith confirms its agreement with you as follows:
The Fund desires to employ its capital by investing and reinvesting the
same in investments of the type and in accordance with the limitations specified
in its Declaration of Trust and in its Prospectus as from time to time in
effect, copies of which have been or will be submitted to you, and in such
manner and to such extent as from time to time may be approved by the Fund's
Board of Trustees. The Fund desires to employ you to act as its investment
adviser.
In this connection it is understood that from time to time you will
employ or associate with yourself such person or persons as you may believe to
be particularly fitted to assist you in the performance of this Agreement. Such
person or persons may be officers or employees who are employed by both you and
the Fund. The compensation of such person or persons will be paid by you and no
obligation may be incurred on the Fund's behalf in any such respect.
Subject to the supervision and approval of the Fund's Board of
Trustees, you will provide investment management of the Fund's portfolio in
accordance with the Fund's investment objective and policies as stated in its
Prospectus as from time to time in effect. In connection therewith, you will
obtain and provide investment research and will supervise the Fund's investments
and conduct a continuous program of investment, evaluation and, if appropriate,
sale and reinvestment of the Fund's assets. You will furnish to the Fund such
statistical information, with respect to the investments which the Fund may hold
or contemplate purchasing, as the Fund may reasonably request. The Fund wishes
to be informed of important developments materially affecting its portfolio and
will expect you, on your own initiative, to furnish to the Fund from time to
time such information as you may believe appropriate for this purpose.
Subject to the supervision and approval of the Fund's Board of
Trustees, you also will provide administrative services for the Fund, including
the following: (i) assist in preparing financial information relating to the
<PAGE>
Fund for the Fund's periodic reports to shareholders, proxy materials and
earnings press releases; (ii) assemble all reports required to be filed by the
Fund with the Securities and Exchange Commission on Form N-SAR, or such other
form as the Securities and Exchange Commission may substitute for Form N-SAR,
and file such completed forms with the Securities and Exchange Commission; (iii)
assist in providing to the Fund's independent accountants such information as is
necessary with respect to the Fund's Federal, state and local tax returns; (iv)
monitor compliance of the Fund's operations with the 1940 Act and with its
investment policies and limitations as currently in effect; (v) arrange for the
dissemination to shareholders of the Fund's proxy materials; (vi) negotiate
contractual arrangements with the Fund's agents, including custodians, transfer
agents, dividend paying agents, independent accountants and printing companies;
monitor the performance of such agents pursuant to such arrangements; and make
such reports and recommendations to the Board concerning the provision of such
services as the Board reasonably requests or as you deem appropriate; (vii)
oversee the calculation of the Fund's net asset value and make the Fund's net
asset value available for public dissemination; (viii) oversee the maintenance
of the Fund's books and records under Rule 31a-1 under the 1940 Act by the
Fund's custodians and transfer agent as applicable; (ix) establish the
accounting policies of the Fund; establish and monitor the Fund's operating
expense budgets; review the Fund's bills and process the payment of bills; (x)
assist the Fund in determining the amount of dividends and distributions
available to be paid by the Fund to its shareholders; prepare and arrange for
the printing of dividend notices to shareholders; and provide the Fund's
transfer and dividend disbursing agent and custodians with such information as
is required for such parties to effect the payment of dividends and
distributions and to implement the Fund's Automatic Dividend Reinvestment Plan,
and (xi) if requested by the Board, arrange for persons to serve as Fund
officers.
In addition, you will supply office facilities (which may be in your
own offices), data processing services, clerical, accounting and bookkeeping
services, internal auditing and legal services, internal executive and
administrative services, and stationery and office supplies; prepare reports to
the Fund's stockholders, tax returns, reports to and filings with the Securities
and Exchange Commission and, if necessary, state Blue Sky authorities; and
generally assist in all aspects of the Fund's operations.
You will exercise your best judgment in rendering the services to be
provided to the Fund hereunder and the Fund agrees as an inducement to your
undertaking the same that you will not be liable hereunder for any error of
judgment or mistake of law or for any loss suffered by the Fund, provided that
nothing herein will be deemed to protect or purport to protect you against any
liability to the Fund or to its security holders to which you would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties hereunder, or by reason of your reckless disregard of
your obligations and duties hereunder.
In consideration of services rendered pursuant to this Agreement, the
Fund will pay you on the first business day of each month a fee at the annual
rate of .90 of 1% of the value of the Fund's average weekly net assets. Net
asset value will be computed on such days and at such time or times as described
in the Fund's then-current Prospectus. The fee for the period from the date of
the closing of the initial public offering of the Fund's shares to the end of
2
<PAGE>
the month during which such sale will have closed will be pro-rated according to
the proportion which such period bears to the full monthly period, and upon any
termination of this Agreement before the end of any month, the fee for such part
of a month will be pro-rated according to the proportion which such period bears
to the full monthly period and will be payable upon the date of termination of
this Agreement.
For the purpose of determining fees payable to you, the value of the
Fund's net assets will be computed in the manner specified in the Fund's
then-current Prospectus.
You will bear all expenses in connection with the performance of your
services under this Agreement. All other expenses to be incurred in the
operation of the Fund will be borne by the Fund, except to the extent
specifically assumed by you. The expenses to be borne by the Fund include,
without limitation, the following: organizational costs, taxes, interest,
brokerage fees and commissions, if any, and other expenses in any way related to
the execution, recording and settlement of portfolio security transactions, fees
of Trustees who are not officers, Trustees, employees or holders of 5% or more
of your outstanding voting securities, Securities and Exchange Commission fees,
state Blue Sky qualification fees, advisory fees, shareholder servicing fees,
charges of custodians, transfer and dividend paying agents' fees, certain
insurance premiums, industry association fees, outside auditing and legal
expenses, costs of independent pricing services, costs of maintaining corporate
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 attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of shareholders' reports
and meetings, costs of preparing, printing and mailing share certificates, proxy
statements and prospectuses, and any extraordinary expenses.
If in any fiscal year the aggregate expenses of the Fund (including
fees pursuant to this Agreement, but excluding interest on borrowings, taxes,
brokerage and, with the prior written consent of the necessary state securities
commissions, extraordinary expenses) exceed the expense limitation of any state
having jurisdiction over the Fund, the Fund may deduct from the payment to be
made to you under this Agreement, or you will bear, such excess expense to the
extent required by state law. Your obligation pursuant hereto will be limited to
the amount of your fees hereunder. Such deduction or payment, if any, will be
estimated, reconciled and effected or paid, as the case may be, on a monthly
basis.
The Fund understands that you now act, and that from time to time
hereafter you may act, as investment adviser to one or more other investment
companies and fiduciary or other managed accounts, and the Fund has no objection
to your so acting, provided that when purchase or sale of securities of the same
issuer is suitable for the investment objectives of two or more companies or
accounts managed by you which have available funds for investment, the available
securities will be allocated in a manner believed by you to be equitable to each
company or account. It is recognized that in some cases this procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtainable for or disposed of by the Fund.
3
<PAGE>
In addition, it is understood that the persons employed by you to
assist in the performance of your duties hereunder will not devote their full
time to such service and nothing contained herein will be deemed to limit or
restrict your right or the right of any of your affiliates to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.
You will not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith or gross negligence on your part in the performance of your duties, or
from reckless disregard by you of your obligations and duties, under this
Agreement. Any person, even though also your officer, Trustee, partner, employee
or agent, who may be or become an officer, Trustee, employee or agent of the
Fund, will be deemed, when rendering services to the Fund or acting on any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as your officer, Trustee, partner, employee, or agent or one under
your control or direction even though paid by you.
This Agreement will continue until April 4, 2000, and thereafter will
continue automatically for successive annual periods ending on April 4 of each
year, provided such continuance is specifically approved at least annually by
(i) the Fund's Board of Trustees or (ii) vote of a majority (as defined in the
Investment Company Act of 1940) of the Fund's outstanding voting securities,
provided that in either event its continuance also is approved by a majority of
the Fund's Trustees who are not "interested persons" (as defined in said Act) of
any party to this purpose of voting on such approval. This Agreement is
terminable without penalty, on 60 days' notice, by the Fund's Board of Trustees
or by vote of holders of a majority of the Fund's shares or, upon not less than
90 days' notice, by you. This Agreement also will terminate automatically in the
event of its assignment (as defined in said Act).
The Fund recognizes that from time to time your Trustees, officers and
employees may serve as Trustees, trustees, partners, officers and employees of
other corporations, business trusts, partnerships or other entities (including
other investment companies) and that such other entities may include the name
"Dreyfus" as part of their name, and that your corporation or its affiliates may
enter into investment advisory or other agreements with such other entities. If
you cease to act as the Fund's investment adviser, the Fund agrees that, at your
request, the Fund will take all necessary action to change the name of the Fund
to a name not including "Dreyfus" in any form or combination of words.
4
<PAGE>
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and return to us the enclosed copy hereof.
Very truly yours,
DREYFUS HIGH YIELD STRATEGIES FUND
By:
----------------------------------
Accepted:
THE DREYFUS CORPORATION
By:
---------------------------
AMENDED AND RESTATED
MASTER AGREEMENT AMONG UNDERWRITERS
June 11, 1984
PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Gentlemen:
1. GENERAL. We understand that PaineWebber Incorporated ("PWI") is
entering into this Agreement in counterparts with us and other firms who may be
underwriters for issues of securities for which PWI is acting as Representative
or one of the Representatives of the several underwriters. This Agreement shall
apply to any offering of securities in which we elect to act as an underwriter
after receipt of a telegram, telex or other form of written communication
("Written Communication") from PWI stating the identity of the issuer and, if
different from the issuer, the seller or sellers of such securities, the
securities proposed to be offered, whether the underwriters are afforded an
option to purchase additional securities to cover over-allotments, the price to
underwriters, public offering price and date, interest rate, if any, and other
variables, the amount of our proposed participation and the names of the other
Representatives, if any, and that our participation as an underwriter in the
proposed offering shall be subject to the provisions of this Agreement. Upon our
telegraphic acceptance of such Written Communication we shall become one of the
underwriters of such issue for the amount specified in the Written
Communication, and this Agreement shall become binding upon us and the
Representatives with respect to such offering. The obligations of each
underwriter shall be several and not joint. The issuer of the securities offered
in any offering of securities made pursuant to this Agreement is hereinafter
referred to as the "Company", and such securities are hereinafter called the
"Securities". The seller or sellers of the Securities (including, if applicable,
the Company) are hereinafter referred to collectively as the "Seller". All
references herein to "you" or the "Representatives" shall include PWI and the
other firms, if any, which are named as Representatives in the Written
Communication. The Securities to be offered in any offering may but need not be
registered in a shelf registration pursuant to Rule 415 under the Securities Act
of 1933 (the "Securities Act"). The following provisions of this Agreement shall
apply separately to each individual offering of Securities.
2. UNDERWRITING ARRANGEMENTS. The Representatives shall determine which
signatories to this Agreement will be invited to become underwriters for the
Securities. Changes may be made by the Representatives in those who are to be
underwriters and in the respective amounts of Securities to be purchased by
them, but the amount of Securities to be purchased by us as set forth in the
Written Communication to us will not be changed without our consent except as
provided herein or in the underwriting agreement (the "Underwriting Agreement")
with the Seller covering the Securities. We authorize you on our behalf to
execute and deliver the Underwriting Agreement in such form as you determine and
to take such action as you deem advisable in connection with the performance of
the Underwriting Agreement and this Agreement and the purchase, carrying, sale
<PAGE>
and distribution of the Securities, including the election to exercise any
option to purchase additional Securities to cover over-allotments if so
provided. The parties on whose behalf you execute the Underwriting Agreement are
hereinafter called the "Underwriters". You may waive performance or satisfaction
by the Seller of certain of its obligations or conditions included in the
Underwriting Agreement, if in your judgment such waiver will not have a material
adverse effect upon the interests of the Underwriters. It is understood that, if
so specified in the Written Communication for the issue, arrangements may be
made for the sale of Securities by the Seller pursuant to delayed delivery
contracts. Such Securities are hereinafter referred to as "Delayed Delivery
Securities", and such contracts as "Delayed Delivery Contracts". References
herein to delayed delivery and Delayed Delivery Contracts apply only to
offerings in which delayed delivery is authorized. The term "underwriting
obligation", as used in this Agreement with respect to any Underwriter, shall
refer to the principal amount or number of shares of the Securities which such
Underwriter is obligated to purchase pursuant to the provisions of the
Underwriting Agreement, without regard to any reduction in such obligation as a
result of Delayed Delivery Contracts which are entered into by the Seller.
As compensation for your services we will pay a management fee as
specified in the Written Communication for the issue (without deduction in
respect of Delayed Delivery Securities), and you may charge our account
therefor. If there is more than one Representative, such compensation will be
divided among the Representatives in such proportions as they determine.
3. PROSPECTUS AND REGISTRATION STATEMENT. You will furnish to us as soon
as possible copies of the prospectus or supplemented prospectus to be used in
connection with the offering of the Securities. As used herein with respect to
an offering of Securities registered under the Securities Act, "Prospectus"
means the form of prospectus (including any supplements) authorized for use in
connection with such offering, and "Registration Statement" means the
registration statement, as amended, filed under the Securities Act pursuant to
which the Securities are registered under the Securities Act. As used herein
with respect to an offering of Securities not registered under the Securities
Act, "Prospectus" or "Registration Statement" means the form of final offering
circular (including any supplements) authorized for use in connection with such
offering and "preliminary prospectus" means any preliminary offering circular
authorized for use in connection with such offering. We consent to being named
in the prospectus as one of the Underwriters of the Securities.
4. PUBLIC OFFERING. (a) In connection with the public offering of
the Securities, we authorize you, in your discretion
(i) to determine the time of the initial public offering, to change
the public offering price and the concessions and discounts to dealers
after the initial public offering, to furnish the Company with the
information to be included in the Registration Statement or Prospectus
with respect to the terms of offering, and to determine all matters
relating to advertising and communications with dealers or others;
2
<PAGE>
(ii) to reserve for sale to dealers selected by you ("Selected
Dealers") and to others, and to reserve for sale pursuant to Delayed
Delivery Contracts (including Delayed Delivery Contracts arranged by you
through Selected Dealers), all or any part of our Securities, which
reservations for sales to others and for sales pursuant to Delayed
Delivery Contracts not arranged through Selected Dealers are to be as
nearly as practicable in proportion to the respective underwriting
obligations of the Underwriters, unless you agree to a smaller proportion
at the request of any Underwriter, and such other reservations to be in
such proportions as you determine, and, from time to time, to add to the
reserved Securities any Securities retained by us remaining unsold and to
release to us any of our Securities reserved but not sold;
(iii) to sell reserved Securities, as nearly as practicable in
proportion to the respective reservations, to Selected Dealers at the
public offering price less the Selected Dealers' concession and to others
at the public offering price; and
(iv) to buy Securities for our account from Selected Dealers at the
public offering price less such amount not in excess of the Selected
Dealers' concession as you determine.
If, in accordance with the terms of offering set forth in the Prospectus,
the offering of the Securities is not at a fixed price but at varying prices set
by individual Underwriters based on market prices or at negotiated prices, the
provisions of clause (i) above relating to your right to change the public
offering price and concessions and discounts to dealers shall not apply, and
other references in this Section and elsewhere in this Agreement to the public
offering price or Selected Dealers' concession shall be deemed to mean the
prices and concessions determined by you from time to time in your discretion.
Sales of Securities between Underwriters may be made with your prior
consent, or as you deem advisable for Blue Sky purposes.
After advice from you that the Securities are released for public
offering, we will offer to the public in conformity with the terms of offering
set forth in the Prospectus such of our Securities as you advise us are not
reserved.
Any Securities sold by us (otherwise than through you) which you purchase
in the open market for the account of any Underwriter will be repurchased by us
on demand at a price equal to the total cost of such purchase including any
taxes on redelivery, commissions, accrued interest and dividends. Securities
delivered on such repurchase need not be the identical certificates so
purchased. In lieu of such action you may in your discretion sell for our
account the Securities so purchased and debit or credit our account for the loss
or profit resulting from such sale, or charge our account with an amount not in
excess of the Selected Dealers' concession with respect to such Securities.
(b) We authorize you to act on our behalf in making all arrangements for
the solicitation of offers to purchase Delayed Delivery Securities from the
Seller pursuant to Delayed Delivery Contracts and we agree that all such
arrangements will be made only through you, directly or through Selected Dealers
3
<PAGE>
(including Underwriters acting as Selected Dealers) to whom you may pay a
commission as provided in the Prospectus and herein.
The obligation of each of the Underwriters to purchase and pay for
Securities as set forth in the Underwriting Agreement shall be reduced in the
proportion provided for therein, except that (i) as to any Delayed Delivery
Contract determined by you, in your discretion, to have been directed and
allocated by a purchaser to a particular Underwriter, such obligation of such
Underwriters shall be reduced by the amount of Delayed Delivery Securities
covered thereby, (ii) as to any Delayed Delivery Contracts for which
arrangements are made through Selected Dealers, such obligation of each
Underwriter shall be reduced as nearly as practicable in the proportion
determined by you that the amount of Securities of such Underwriter reserved and
sold pursuant to Delayed Delivery Contracts arranged through Selected Dealers
bears to the total Securities so reserved and sold, and (iii) such reductions
shall be rounded, as you shall determine, to the nearest $1,000 principal amount
or whole share of the Securities.
The fee payable to each Underwriter with respect to Delayed Delivery
Securities pursuant to the Underwriting Agreement shall be credited to the
account of such Underwriter based upon the amount by which such Underwriter's
underwriting obligation is reduced as specified in the preceding paragraph.
If the amount of Delayed Delivery Securities applied to reduce an
Underwriter's underwriting obligation and the amount of Securities sold by or
for the account of such Underwriter exceeds such Underwriter's underwriting
obligation, there shall be credited to such Underwriter in connection with such
excess amount of Securities only the amount of the Selected Dealers' concession
with respect thereto.
The commissions payable to Selected Dealers in respect of Delayed Delivery
Contracts arranged through them shall be charged to each Underwriter in the
proportion which the amount of Securities of such Underwriter reserved and sold
pursuant to Delayed Delivery Contracts arranged through Selected Dealers bears
to the total Securities so reserved and sold.
5. PAYMENT AND DELIVERY. We authorize you to make payment on our behalf to
the Seller of the purchase price of our Securities, to take delivery of our
Securities, registered as you may direct in order to facilitate deliveries, and
to deliver our reserved Securities against sales. At your request we will pay
you, as you direct, (i) an amount equal to the public offering price, less the
selling concession, of either our Securities or our unreserved Securities or
(ii) the amount set forth or indicated in the Written Communication with respect
to the Securities, and such payment will be credited to our account and applied
to the payment of the purchase price. After you receive payment for reserved
Securities sold for our account, you will remit to us the purchase price (if
any) paid by us for such Securities and credit or debit our account with the
difference between the sale prices and the purchase price thereof. You will
deliver to us our unreserved Securities promptly, and our reserved but unsold
Securities, against payment of the purchase price therefor (except in the case
of Securities for which payment has previously been made), as soon as
practicable after the termination of the provisions referred to in Section 9,
except that if the aggregate amount of reserved but unsold Securities upon such
4
<PAGE>
termination does not exceed 10% of the total amount of the Securities, you may
in your discretion sell such reserved but unsold Securities for the accounts of
the several Underwriters as soon as practicable after such termination, at such
prices and in such manner as you determine. Unless we promptly give you written
instructions otherwise, if transactions in the Securities may be settled through
the facilities of The Depository Trust Company, payment for and delivery of
securities purchased by us will be made through such facilities, if we are a
member, or if we are not a member, settlement may be made through our ordinary
correspondent who is a member.
6. AUTHORITY TO BORROW. In connection with the purchase or carrying of our
Securities or other securities purchased for our account, we authorize you, in
your discretion, to advance your funds for our account, charging current
interest rates, to arrange loans for our account, and in connection therewith to
execute and deliver any notes or other instruments and hold or pledge as
security any of our Securities or such other securities. Any lender may rely
upon your instructions in all matters relating to any such loan. Any Securities
or such other securities held by you for our account may be delivered to us for
carrying purposes, and if so delivered will be redelivered to you upon demand.
7. STABILIZATION AND OVER-ALLOTMENT. We authorize you, in your discretion,
to make purchases and sales of Securities, any other securities of the Company
of the same class and series and any other securities of the Company which you
may designate in the open market or otherwise, for long or short account, on
such terms as you deem advisable, and, in arranging sales, to over-allot and
cover any such over-allotment, at your discretion, by purchasing Securities,
exercising the over-allotment option, if any, indicated in the Written
Communication, or both. Such purchases and sales and over-allotments will be
made for the accounts of the Underwriters as nearly as practicable in proportion
to their respective underwriting obligations. It is understood that you may have
made purchases of securities of the Company for stabilizing purposes prior to
the time when we become one of the Underwriters, and we agree that any
securities so purchased shall be treated as having been purchased for the
respective accounts of the Underwriters pursuant to the foregoing authorization.
We authorize you, in your discretion, to cover any short position incurred
pursuant to this Section by purchasing securities on such terms as you deem
advisable. At no time will our net commitment under the foregoing provisions of
this Section exceed 15% of our underwriting obligation. Solely for purposes of
the immediately preceding sentence, our "underwriting obligation" shall be
deemed to exclude any Securities which we are obligated to purchase solely by
virtue of the exercise of an over-allotment option. We will on demand take up at
cost any securities so purchased and deliver any securities so sold or
over-alloted for our account, and, if any other Underwriter defaults in its
corresponding obligation, we will assume our proportionate share of such
obligation without relieving the defaulting Underwriter from liability. Upon
request, we will advise you of the Securities retained by us and unsold and will
sell to you for the account of one or more of the Underwriters such of our
unsold Securities and at such price, not less than the net price to Selected
Dealers nor more than the public offering price, as you determine.
8. OPEN MARKET TRANSACTIONS. We and you agree not to bid for, purchase,
attempt to induce others to purchase, or sell, directly or indirectly, any
Securities, any other securities of the Company of the same class and series and
any other securities of the Company which you may designate, except as brokers
5
<PAGE>
pursuant to unsolicited orders and as otherwise provided in this Agreement. If
the Securities are common stock or securities convertible into common stock, we
and you also agree not to effect, or attempt to induce others to effect,
directly or indirectly, any transactions in or relating to put or call options
on any stock of the Company, except to the extent permitted by Rule 10b-6 under
the Securities Exchange Act of 1934 (the "Exchange Act") as interpreted by the
Securities and Exchange Commission. An opening uncovered writing transaction in
options to acquire Securities for our account or for the account of any customer
shall be deemed, for purposes of the preceding sentence, to be a transaction
effected by us in or relating to put or call options on stock of the Company not
permitted by Rule 10b-6. The term "opening uncovered writing transaction" means
an opening sale transaction where the seller intends to become a writer of an
option to purchase stock which it does not own or have the right to acquire upon
exercise of conversion or option rights.
9. TERMINATION AS TO AN OFFERING. The provisions of the last two
paragraphs of Section 4(a), the first sentence of Section 7, and Section 8 will
terminate at the close of business on the thirtieth day after the date of the
initial public offering of the Securities, unless sooner terminated as
hereinafter provided. You may terminate such provision as to such offering at
any time by notice to us to the effect that the offering provisions of this
Agreement as to such offering are terminated.
10. EXPENSES AND SETTLEMENT. You may charge our account with any transfer
taxes on sales made by you of Securities purchased by us under the Underwriting
Agreement and with our proportionate shares (based upon our underwriting
obligation) of all other expenses incurred by you under this Agreement or in
connection with the purchase, carrying, sale or distribution of the Securities.
The accounts hereunder will be settled as promptly as practicable after the
termination of the provisions referred to in Section 9, but you may reserve such
amount as you deem advisable for additional expenses. Your determination of the
amount to be paid to or by us will be conclusive. You may at any time make
partial distributions of credit balances or call for payment of debit balances.
Any of our funds in your hands may be held with your general funds without
accountability for interest. Notwithstanding any settlement, we will remain
liable for any taxes on transfers for our account, and for our proportionate
share (based upon our underwriting obligation) of all expenses and liabilities
which may be incurred by or for the accounts of the Underwriters.
11. DEFAULT BY UNDERWRITERS. Default by one or more Underwriters hereunder
or under the Underwriting Agreement will not release the other Underwriters from
their obligations or affect the liability of any defaulting Underwriter to the
other Underwriters for damages resulting from such default. If one or more
Underwriters default under the Underwriting Agreement, you may arrange for the
purchase by others, including nondefaulting Underwriters, of Securities not
taken up by the defaulting Underwriter or Underwriters.
12. POSITION OF REPRESENTATIVES. You will be under no liability to us for
any act or omission except for obligations expressly assumed by you herein, and
no obligations on your part will be implied or inferred herefrom. Your authority
hereunder and under the Underwriting Agreement may be exercised by you jointly
or by PWI. The rights and liabilities of the Underwriters are several and not
6
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joint, and nothing will constitute the Underwriters a partnership, association
or separate entity.
If for Federal income tax purposes the Underwriters should be deemed to
constitute a partnership then each Underwriter elects to be excluded from the
application of Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code
of 1954, as amended. You, as Representatives of the several Underwriters, are
authorized, in your discretion, to execute on behalf of the Underwriters such
evidence of such election as may be required by the Internal Revenue Service.
13. INDEMNIFICATION. We will indemnify and hold harmless each other
Underwriter and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Securities Act to the extent and upon the terms
upon which each Underwriter agrees to indemnify the Company and any other Seller
in the Underwriting Agreement.
14. CONTRIBUTION. Each Underwriter (including you) will pay upon your
request, as contribution, its proportionate share, based upon its underwriting
obligation, of any losses, claims, damages or liabilities, joint or several,
paid or incurred by any Underwriter to any person other than an Underwriter,
arising out of or based upon any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement, the Prospectus, any
amendment or supplement thereto or any related preliminary prospectus or any
other selling or advertising material approved by you for use by the
Underwriters in connection with the sale of the Securities, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading (other than an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by an Underwriter specifically for use therein); and will pay such
proportionate share of any legal or other expenses reasonably incurred by you or
with your consent in connection with investigating or defending against any such
loss, claim, damage or liability, or any action or proceeding (including any
action or proceeding brought by a governmental or regulatory body) in respect
thereof. In determining the amount of any Underwriter's obligation under this
Section, appropriate adjustment may be made by you to reflect any amounts
received by any one or more Underwriters in respect of such claim from the
Company or any other Seller pursuant to the Underwriting Agreement or otherwise.
There shall be credited against any amount paid or payable by us pursuant to
this Section any loss, damage, liability or expense which is incurred by us as a
result of any such claim asserted against us, and if such loss, claim, damage,
liability or expense is incurred by us subsequent to any payment by us pursuant
to this Section, appropriate provision shall be made to effect such credit, by
refund or otherwise. If any such claim is asserted, you may take such action in
connection therewith as you deem necessary or desirable, including retention of
counsel for the Underwriters, and in your discretion separate counsel for any
particular Underwriter or group of Underwriters, and the fees and disbursements
of any counsel so retained by you shall be included in the amounts payable
pursuant to this Section. In determining amounts payable pursuant to this
Section, any loss, claim, damage, liability or expense incurred by any person
controlling any Underwriter within the meaning of Section 15 of the Securities
Act which has been incurred by reason of such control relationship shall be
deemed to have been incurred by such Underwriter. Any Underwriter may elect to
retain at its own expense its own counsel. You may settle or consent to the
settlement of any such claim, on advice of counsel retained by you, with the
approval of a majority in interest of the Underwriters. Whenever you receive
notice of the assertion of any claim to which the provisions of this Section
would be applicable, you will give prompt notice thereof to each Underwriter.
You will also furnish each Underwriter with periodic reports, at such times as
you deem appropriate, as to the status of such claim and the action taken by you
in connection therewith. If any Underwriter or Underwriters default in their
obligation to make any payments under this Section, each nondefaulting
Underwriter shall be obligated to pay its proportionate share of all defaulted
payments, based upon such Underwriter's underwriting obligation as related to
the underwriting obligations of all nondefaulting Underwriters.
7
<PAGE>
15. REPORTS AND BLUE SKY MATTERS. We authorize you to file with the
Securities and Exchange Commission and any other governmental agency any reports
required in connection with any transactions effected by you for our account
pursuant to this Agreement, and we will furnish any information needed for such
reports. If you effect stabilizing purchases pursuant to Section 7, you will
notify us promptly of the initiation and termination thereof. If stabilization
is effected we will file with you, c/o PWI, not later than the fifth full
business day following the termination of stabilization, any report required to
be filed pursuant to Rule 17a-2 under the Exchange Act. You will not have any
responsibility with respect to the right of any Underwriter or other person to
sell the Securities in any jurisdiction, notwithstanding any information you may
furnish in that connection.
16. REPRESENTATIONS AND AGREEMENTS. (a) You represent that you are a
member in good standing of the National Association of Securities Dealers, Inc.
(the "NASD"), and we represent that we are either a member in good standing of
the NASD or a foreign dealer not eligible for membership. If we are such a
member we agree that in making sale of the Securities we will comply with all
applicable rules of the NASD, including, without limitation, the NASD's
interpretation with Respect to Free-Riding and Withholding and Section 24 of
Article III of the Rules of Fair Practice. If we are such a foreign dealer, we
agree not to offer or sell any Securities in the United States of America except
through you and in making sales of Securities outside the United States of
America we agree to comply as though we were a member with such interpretation
and Sections 8, 24 and 36 of Article III of the NASD's Rules of Fair Practice
and to comply with Section 25 of such Article III as it applies to a nonmember
broker or dealer in a foreign country.
(b) We understand that it is our responsibility to examine the
Registration Statement, the Prospectus, any amendment or supplement thereto
relating to the offering of the Securities, any preliminary prospectus and the
material, if any, incorporated by reference therein and we will familiarize
ourselves with the terms of the Securities and the other terms of the offering
thereof which are to be reflected in the Prospectus and the Written
Communication with respect thereto. You are authorized, with the approval of
counsel for the Underwriters, to approve on our behalf any amendments or
supplements to the Registration Statement or the Prospectus.
(c) We confirm that the information that we have given or are deemed to
have given in response to the Master Underwriters' Questionnaire attached as
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<PAGE>
Exhibit A hereto (which information has been furnished to the Company for use in
the Registration Statement or the Prospectus) is correct. We will notify you
immediately of any development before the termination of this Agreement under
Section 9 as to the offering of the Securities which makes untrue or incomplete
any information that we have given or are deemed to have given in response to
the Master Underwriters' Questionnaire.
(d) Unless we have promptly notified you in writing otherwise, our name as
it should appear in the Prospectus and our address are set forth on the
signature page hereof.
(e)(i) If the Securities are being registered under the Securities Act, we
represent that we are familiar with Rule 15c2-8 under the Exchange Act
relating to the distribution of preliminary and final prospectuses and
agree that we will comply therewith; we agree to keep an accurate record
of the distribution (including dates, number of copies and persons to whom
sent) by us of copies of the Registration Statement, the Prospectus or any
preliminary prospectus (or any amendment or supplement to any thereof),
and promptly upon request by you, to bring all subsequent changes to the
attention of anyone to whom such material shall have been distributed; and
we agree to furnish to persons who receive a confirmation of sale a copy
of the Prospectus filed pursuant to Rule 424(b) or Rule 424(c) under the
Securities Act.
(ii) If the Securities will not be registered under the Securities
Act, we agree that we will deliver all preliminary and final offering
circulars required for compliance with the applicable laws and regulations
governing the use and distribution of offering circulars by underwriters,
and, to the extent consistent with such laws and regulations, we confirm
that we have delivered and agree that we will deliver all preliminary and
final offering circulars which would be required if the provisions of Rule
15c2-8 under the Exchange Act applied to this offering.
(f) If the Securities are being registered under the Securities Act, we
agree that, if we are advised by you that the Company was not, immediately prior
to the filing of the Registration Statement, subject to the requirements of
Section 13(a) or 15(d) of the Exchange Act, we will not, without your consent,
sell any of the Securities to an account over which we exercise discretionary
authority.
17. MISCELLANEOUS. (a) This Agreement may be terminated by either party
hereto upon five business days' written notice to the other party; PROVIDED that
with respect to any offering of Securities for which a Written Communication was
sent by you and accepted by us prior to such notice, this Agreement shall remain
in full force and effect as to such offering and shall terminate with respect to
such offering in accordance with the provisions of Section 9. This Agreement may
be supplemented or amended by you by written notice thereof to us, and any such
supplement or amendment to this Agreement shall be effective with respect to any
offering of securities to which this Agreement applies after the date of such
supplement or amendment. Each reference to "this Agreement" herein shall, as
appropriate, be to this Agreement as so amended and supplemented.
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<PAGE>
(b) This Agreement and the terms and conditions set forth herein with
respect to any offering of Securities together with such supplementary terms and
conditions with respect to such offering as may be contained in any Written
Communication from you to us in connection therewith shall be governed by, and
construed in accordance with, the laws of the State of New York.
Very truly yours,
----------------------------------
(Name of Firm)
by ----------------------------------
Confirmed, as of the date first above written.
PAINEWEBBER INCORPORATED,
by---------------------------------
Vice President
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EXHIBIT A
PaineWebber Incorporated
MASTER UNDERWRITERS' QUESTIONNAIRE
The terms used herein and not otherwise defined shall have the meanings
assigned thereto in the Amended and Restated Master Agreement Among Underwriters
dated June 11, 1984, between you and PaineWebber Incorporated ("PWI"). Reference
will be made to this Master Underwriters' Questionnaire in each Written
Communication described in Section 1 of the Amended and Restated Master
Agreement Among Underwriters received by you from PWI in connection with
offerings of securities in which PWI is acting as Representative or the manager
of the Representatives of the several Underwriters. Your telegraphic acceptance
of any such Written Communication should respond to this Master Underwriters'
Questionnaire.
Except as indicated in your telegraphic acceptance of our Written
Communication with respect to the Securities:
(1) neither you nor any of your directors, officers, partners or branch
managers has (nor have you or they had within the last three years) a
material relationship (as "material" is defined in Regulation C under the
Securities Act) with the Company or its parent (if any), nor are you an
affiliate of (within the meaning of the By-laws of the NASD), controlled
by, controlling or under common control with the Company;
(2) neither you nor any of your partners, officers, directors or branch
managers, separately or as a group, owns of record or beneficially more
than 5% of any class of voting securities of the Company or its parent (if
any);
(3) if the Securities are to be issued under an indenture to be qualified
under the Trust Indenture Act of 1939;
(a) neither you nor any of your directors, officers or partners is
an affiliate (as defined in Rule 0-2 under the Trust Indenture Act of
1939) of the Trustee, or its parent (if any) and neither the Trustee nor
its parent (if any) nor any of their directors or executive officers is a
director, officer, partner, employee, appointee or representative of
yours;
(b) neither you nor any of your directors, partners or executive
officers, separately or as a group, owns beneficially more than 1% of any
class of voting securities of the Trustee or its parent (if any); and
(c) if you are a corporation, you do not have outstanding nor have
you assumed or guaranteed any securities otherwise than in your corporate
name, and neither the Trustee nor its parent (if any) is a holder of such
securities;
<PAGE>
(4) other than as is, or is to be, stated in the Registration Statement,
the PWI Amended and Restated Master Agreement Among Underwriters, the PWI
Amended and Restated Master Selected Dealer Agreement, or the Underwriting
Agreement relating to the proposed offering, you do not know of or have
reason to believe that (a) there are any discounts or commissions to be
allowed or paid to underwriters or any other items that would be deemed by
the NASD to constitute underwriting compensation for purposes of the
NASD's Rules of Fair Practice, (b) there are any discounts or commissions
to be allowed or paid to dealers, including all cash, securities,
contracts, or other considerations to be received by any dealer in
connection with the sale of the Securities, (c) there is an intention to
over-allot or (d) the price of any security may be stabilized to
facilitate the offering of the Securities;
(5) your proposed commitment to purchase Securities will not result in a
violation of the financial responsibility requirements of Section 15(c)(3)
of the Exchange Act or the rules and regulations thereunder, including
Rule 15c3-1, or any provisions of the applicable rules of the NASD or of
any securities exchange to which you are subject or any restrictions
imposed upon you by the NASD or any such exchange;
(6) neither you nor any related person (as defined by the NASD) has (a)
purchased any warrants, options or other securities of the Company within
the preceding 12 months or (b) had any other dealings with the Company
within the preceding 12 months as to which documents or other information
is required to be furnished to the NASD, and, except as stated in the
Registration Statement, you have no knowledge of any private placement of
the Company's Securities within the preceding 18 months;
(7) you have not prepared nor had prepared for you any report or
memorandum for external use in connection with the proposed offering of
the Securities, and if the Registration Statement is on Form S-1, you have
not prepared any engineering, management or similar reports or memoranda
relating to broad aspects of the business, operations or products of the
Company within the past 12 months (except for reports solely comprised of
recommendations to buy, sell or hold the securities of the Company, unless
such recommendations have changed within the past six months). (If any
such report or memorandum has been prepared furnish to PWI (a) four copies
thereof and (b) a statement as to the actual or proposed use, identifying
(i) each class of persons (institutional mailing lists, retail clients,
etc.) who have received or will receive the report or memorandum, (ii) the
number of copies distributed to each such class and (iii) the period of
distribution.);
(8) if the Written Communication states that the Company is subject to
regulation under the Public Utility Holding Company Act of 1935 (the
"Holding Company Act"), you are not a "holding company", or an
"affiliate", or a "subsidiary company" of a "public utility company" or
"holding company", each as defined in the Holding Company Act; and
<PAGE>
(9) if the Written Communication states that the Company is subject to
regulation under the Holding Company Act, to the best of your knowledge,
you are not a party to any proceeding being conducted by the Securities
and Exchange Commission pursuant to any of the Acts administered by it,
which is required to be disclosed in the Registration Statement or
Prospectus or which would disqualify you from purchasing the Securities.
4,000,000 Shares*
of Beneficial Interest
DREYFUS HIGH YIELD STRATEGIES FUND
UNDERWRITING AGREEMENT
April __, 1998
PAINEWEBBER INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
SALOMON SMITH BARNEY
FAHNESTOCK & CO. INC.
INTERSTATE/JOHNSON LANE CORPORATION
as Representatives of the Several Underwriters
named in Schedule 1 hereto
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
Dreyfus High Yield Strategies Fund, a Massachusetts business
trust (the "Fund"), proposes to issue and sell to you and the other underwriters
named in Schedule 1 hereto (the "Underwriters"), for whom you are acting as
representatives (the "Representatives"), 4,000,000 of its shares of beneficial
interest (the "Firm Shares"), par value $.001 per share (the "Common Shares").
In addition, the Fund hereby grants to the Underwriters an option (the "Option")
to purchase up to an additional 600,000 of its Common Shares (the "Option
Shares") solely for the purpose of covering over-allotments. The Firm Shares and
the Option Shares are referred to collectively herein as the "Shares."
The Dreyfus Corporation ("Dreyfus"), a New York corporation,
will act as the Fund's investment manager and administrator pursuant to an
Investment Management and Administration Agreement by and between the Fund and
Dreyfus, dated as of April __, 1998 (the "Investment Advisory Agreement").
Mellon Bank, N.A. will act as the custodian (the "Custodian") of the Fund's cash
and portfolio assets pursuant to a custody agreement, dated as of April __, 1998
(the "Custody Agreement"). ChaseMellon Shareholder Services, LLC will act as the
Fund's dividend disbursing agent, transfer agent and registrar (the "Transfer
- -----------------
* Plus an option to purchase, in the aggregate, up to 600,000 additional Common
Shares to cover over-allotments.
<PAGE>
Agent") pursuant to a transfer agency agreement, dated April __, 1998 (the
"Transfer Agency Agreement"). PaineWebber Incorporated will provide the Fund and
its shareholders with certain shareholder services, pursuant to a shareholder
servicing agreement, dated April __, 1998 (the "Shareholder Servicing
Agreement"). [Add any other material agreements.]
The Fund and Dreyfus each hereby confirms as follows their
agreements with the Representatives and the several other Underwriters.
1. SALE AND PURCHASE; COMPENSATION.
-------------------------------
(a) The Fund will issue and sell to each Underwriter,
and each Underwriter will purchase from the Fund, the number of Firm Shares
opposite such Underwriter's name in Schedule 1 hereto, at the purchase price of
$15.00 per share of Common Shares.
(b) The Fund grants to the Underwriters the Option to
purchase all or any part of the Option Shares for the same consideration per
share as for the Firm Shares. The Option may be exercised only to cover
over-allotments in the sales of the Firm Shares by the Underwriters. The number
of Option Shares (adjusted by the Representatives to eliminate fractions) to be
purchased by each Underwriter will be the same percentage of the aggregate
number of Option Shares being sold as such Underwriter is obligated to purchase
of the Firm Shares. Such Option may be exercised in whole or in part, only to
cover over-allotments, at any time or from time to time on or before the 60th
day after the date of this Underwriting Agreement, upon written or telefacsimile
notice (the "Option Shares Notice") from the Representatives to the Fund no
later than 12:00 noon, New York City time, at least two and not more than five
business days before the date specified for closing in the Option Shares Notice
(the "Option Shares Closing Date"), setting forth the number of Option Shares to
be purchased and the time and date of such purchase. Upon delivery and receipt
of the Option Shares Notice, the Fund will issue and sell to each Underwriter,
and each Underwriter will purchase from the Fund, on the Option Shares Closing
Date, its portion of the number of Option Shares set forth in the Option Shares
Notice.
(c) The obligations of the Underwriters under this
Underwriting Agreement are several and not joint and are undertaken on the basis
of the representations and are subject to the conditions set forth in this
Underwriting Agreement.
(d) Dreyfus agrees to make the payments to the
Underwriters when and as required by Section 2 hereof.
2. PAYMENT AND DELIVERY. Delivery by the Fund of the Firm
Shares (the "Firm Shares Closing") to the Representatives for the accounts of
the Underwriters against payment of the purchase price by wire transfer of
Federal Funds or similar same day funds to the Fund for the Firm Shares, will
take place at the offices of ________________, or through the facilities of the
Depository Trust Company or another mutually agreeable facility, at 9:00 a.m.,
New York City time, on the third business day following the date of this
Underwriting Agreement, or at such time on such other date, not later than ten
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business days after the date of this Underwriting Agreement, as may be agreed on
by the Fund and the Representatives (the "Firm Shares Closing Date").
If and to the extent that the Option is exercised, delivery of
the Option Shares and payment by the Underwriters (in the manner specified
above) will take place at the offices or through the facilities specified above
for the Firm Shares Closing at the time and date (which may be the Firm Shares
Closing Date) specified in the Option Shares Notice. Any Option Shares Closing
Date may not be later than three business days following the exercise of the
related Option. The Firm Shares Closing Date and any Option Shares Closing Date
are called the "Closing Dates. "
Certificates evidencing Common Shares will be in definitive
form (or temporary form acceptable to the New York Stock Exchange), registered
in such names and in such denominations as the Representatives requests at least
two full business days before the Firm Shares Closing Date or, in the case of
Option Shares, on the day of notice of exercise of the Option as described in
Section 1(b), and will be made available to the Representatives for checking and
packaging, at a place in New York City designated by the Representatives, at
least one full business day before the relevant Closing Date.
Simultaneous with delivery to the Underwriters of and payment
by the Underwriters for (i) Firm Shares on the Firm Shares Closing Date and (ii)
Option Shares on the Option Shares Closing Date, Dreyfus will pay to the
Underwriters an amount equal to __ percent of the purchase price per Share for
each Share to be purchased by the Underwriters on such date by certified or
official bank check or checks payable in New York Clearing House (next day)
funds on such Firm Shares Closing Date or Option Shares Closing Date, as the
case may be, to the order of PaineWebber Incorporated.
3. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC OFFERING. The
Fund has filed with the Securities and Exchange Commission (the "Commission"),
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
the published rules and regulations adopted by the Commission under the
Securities Act (the "Securities Act Rules") and the Investment Company Act (the
"Investment Company Act Rules"), a Notification of Registration on Form N-8A
(the "Notification") pursuant to Section 8 of the Investment Company Act and a
registration statement on Form N-2 (File Nos. 333-48117 and 811-8703) relating
to the Shares (the "registration statement"), including a preliminary prospectus
(including any preliminary statement of additional information), and such
amendments to such registration statement as may have been required to the date
of this Underwriting Agreement. The preliminary prospectus is to be used in
connection with the offering and sale of the Shares. The term "Preliminary
Prospectus" as used herein means any preliminary prospectus included at any time
as a part of the registration statement and any preliminary prospectus
(including any preliminary statement of additional information) omitted
therefrom pursuant to the Securities Act Rules.
The Fund has furnished the Representatives copies of such
registration statement, each amendment to such registration statement filed by
3
<PAGE>
the Fund with the Commission and the Preliminary Prospectus filed by the Fund
with the Commission or used by the Fund. If the registration statement has not
become effective, a further amendment (the "Final Amendment") to such
registration statement, including the forms of final prospectus (including any
final statement of additional information), necessary to permit such
registration statement to become effective will promptly be filed by the Fund
with the Commission. If such registration statement has become effective and any
prospectus (including any statement of additional information) contained therein
omits certain information at the time of effectiveness pursuant to Rule 430A of
the Securities Act Rules, a final prospectus (the "Rule 430A Prospectus")
containing such omitted information will be filed by the Fund with the
Commission in accordance with Rule 497(h) of the Securities Act Rules. The
registration statement as amended at the time it becomes or became effective
(the "Effective Date"), including financial statements and all exhibits, and any
information deemed to be included by Rule 430A, is called the "Registration
Statement." The term "Prospectus" means the prospectus (including any statement
of additional information) in the form in which it is first filed with the
Commission pursuant to Rule 497(b), (h) or (j) of the Securities Act Rules, as
the case may be.
The Fund and Dreyfus understand that the Underwriters propose
to make a public offering of the Firm Shares, as described in the Prospectus, as
soon after the Effective Date (or, if later, after the date this Underwriting
Agreement is signed) as the Representatives deems advisable. The Fund and
Dreyfus confirm that the Underwriters and dealers have been authorized to
distribute the Preliminary Prospectus relating to the Shares included in the
initial filing of the registration statement and are authorized to distribute
the Prospectus and any amendments or supplements thereto.
4. REPRESENTATIONS.
---------------
(a) Each of the Fund and Dreyfus jointly and
severally represents to each Underwriter as follows:
(i) On (A) the Effective Date and the date
on which the Prospectus is first filed with the Commission
pursuant to Rule 497(b), (h) or (j) of the Securities Act
Rules, as the case may be, (B) the date on which any
post-effective amendment to the Registration Statement (except
any post-effective amendment which is filed with the
Commission after the later of (x) one year from the date of
this Underwriting Agreement or (y) the date on which the
distribution of the Shares is completed) became or becomes
effective or any amendment or supplement to the Prospectus was
or is filed with the Commission and (C) the Closing Dates, the
Registration Statement, the Prospectus and any such amendment
or supplement thereto and the Notification complied or will
comply in all material respects with the requirements of the
Securities Act, the Investment Company Act, the Securities Act
Rules and the Investment Company Act Rules, as the case may
be. On the Effective Date and on the date that any
post-effective amendment to the Registration Statement (except
any post-effective amendment which is filed with the
Commission after the later of (x) one year from the date of
this Underwriting Agreement or (y) the date on which the
4
<PAGE>
distribution of the Shares is completed) became or becomes
effective, neither the Registration Statement nor any such
amendment did or will contain any untrue statement of a
material fact or omit to state a material fact required to be
stated in it or necessary to make the statements in it not
misleading. At the Effective Date and, if applicable, the date
the Prospectus or any amendment or supplement to the
Prospectus was or is filed with the Commission and at the
Closing Dates, the Prospectus did not or will not, as the case
may be, contain any untrue statement of a material fact or
omit to state a material fact required to be stated in it or
necessary to make the statements in it, in light of the
circumstances under which they were made, not misleading. The
foregoing representations in this Section 4(a)(i) do not apply
to statements or omissions relating to the Underwriters made
in reliance on and in conformity with information furnished in
writing to the Fund by the Representatives expressly for use
in the Registration Statement, the Prospectus, or any
amendments or supplements thereto.
(ii) The Fund has been duly organized and is
validly existing as a Massachusetts business trust in good
standing under the laws of The Commonwealth of Massachusetts,
with full power and authority to conduct all the activities
conducted by it, to own or lease all assets owned (or to be
owned) or leased (or to be leased) by it and to conduct its
business as described in the Registration Statement and
Prospectus, and the Fund is duly licensed and qualified to do
business and in good standing as a foreign corporation or
otherwise in each jurisdiction in which its ownership or
leasing of property or its conducting of business requires
such qualification, except where the failure to be so
qualified or be in good standing would not have a material
adverse effect on the Fund, and the Fund owns, possesses or
has obtained and currently maintains all governmental
licenses, permits, consents, orders, approvals and other
authorizations, whether foreign or domestic, necessary to
carry on its business as contemplated in the Prospectus. The
Fund has no subsidiaries.
(iii) The capitalization of the Fund is as
set forth in the Registration Statement and the Prospectus.
The Common Shares of the Fund conform in all respects to the
description of them in the Prospectus. All the outstanding
Common Shares have been duly authorized and are validly
issued, fully paid and nonassessable. The Shares to be issued
and delivered to and paid for by the Underwriters in
accordance with this Underwriting Agreement against payment
therefor as provided by this Underwriting Agreement have been
duly authorized and when issued and delivered to the
Underwriters will have been validly issued and will be fully
paid and nonassessable. No person is entitled to any
preemptive or other similar rights with respect to the Shares.
(iv) The Fund is duly registered with the
Commission under the Investment Company Act as a
non-diversified, closed-end management investment company, and
all action under the Securities Act, the Investment Company
5
<PAGE>
Act, the Securities Act Rules and the Investment Company Act
Rules, as the case may be, necessary to make the public
offering and consummate the sale of the Shares as provided in
this Underwriting Agreement has or will have been taken by the
Fund.
(v) The Fund has full power and authority to
enter into each of this Underwriting Agreement, the Investment
Advisory Agreement, the Custody Agreement, the Transfer Agency
Agreement and the Shareholder Servicing Agreement
(collectively, the "Fund Agreements") and to perform all of
the terms and provisions hereof and thereof to be carried out
by it and (A) each Fund Agreement has been duly and validly
authorized, executed and delivered by the Fund, (B) each Fund
Agreement complies in all material respects with all
provisions of the Investment Company Act, the Investment
Advisers Act of 1940 (the "Advisers Act"), the Investment
Company Act Rules and the rules and regulations adopted by the
Commission under the Advisers Act (the "Advisers Act Rules"),
as the case may be, and (C) assuming due authorization,
execution and delivery by the other parties thereto, each Fund
Agreement constitutes the legal, valid and binding obligation
of the Fund enforceable in accordance with its terms, (1)
subject, as to enforcement, to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights
generally and to general equitable principles (regardless of
whether enforcement is sought in a proceeding in equity or at
law) and (2) as rights to indemnity thereunder may be limited
by federal or state securities laws.
(vi) None of (A) the execution and delivery
by the Fund of the Fund Agreements, (B) the issue and sale by
the Fund of the Shares as contemplated by this Underwriting
Agreement and (C) the performance by the Fund of its
obligations under the Fund Agreements or consummation by the
Fund of the other transactions contemplated by the Fund
Agreements conflicts with or will conflict with, or results or
will result in a breach of, the Declaration of Trust or the
By-laws of the Fund or any agreement or instrument to which
the Fund is a party or by which the Fund is bound, or any law,
rule or regulation, or order of any court, governmental
instrumentality, securities exchange or association or
arbitrator, whether foreign or domestic, applicable to the
Fund, other than state or foreign securities or "blue sky"
laws applicable in connection with the purchase and
distribution of the Shares by the Underwriters pursuant to
this Underwriting Agreement.
(vii) The Fund is not currently in breach
of, or in default under, any written agreement or instrument
to which it is a party or by which it or its property is bound
or affected.
(viii) No person has any right to the
registration of any securities of the Fund because of the
filing of the registration statement.
6
<PAGE>
(ix) No consent, approval, authorization or
order of any court or governmental agency or body or
securities exchange or association, whether foreign or
domestic, is required by the Fund for the consummation by the
Fund of the transactions to be performed by the Fund or the
performance by the Fund of all the terms and provisions to be
performed by or on behalf of it in each case as contemplated
in the Fund Agreements, except such as (A) have been obtained
under the Securities Act, the Investment Company Act, the
Advisers Act, the Securities Act Rules, the Investment Company
Act Rules, and the Advisers Act Rules, and (B) may be required
by the New York Stock Exchange or under state or foreign
securities or "blue sky" laws, in connection with the purchase
and distribution of the Shares by the Underwriters pursuant to
this Underwriting Agreement.
(x) The Shares are duly authorized for
listing, subject to official notice of issuance, on the New
York Stock Exchange and the Fund's Registration Statement on
Form 8-A, under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), has become effective.
(xi) KPIG Peat Marwick LLP, whose report
appears in the Prospectus, are independent public accountants
with respect to the Fund as required by the Securities Act,
the Investment Company Act, the Securities Act Rules and the
Investment Company Act Rules.
(xii) The statement of assets and
liabilities included in the Registration Statement and the
Prospectus presents fairly in all material respects, in
accordance with generally accepted accounting principles in
the United States applied on a consistent basis, the financial
position of the Fund as at the date indicated.
(xiii) The Fund will maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance
with management's general or specific authorization; (B)
transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for
assets; (C) access to assets is permitted only in accordance
with management's general or specific authorization; and (D)
the recorded accountability for assets is compared with
existing assets through an asset reconciliation procedure or
otherwise at reasonable intervals and appropriate action is
taken with respect to any differences.
(xiv) Since the date as of which information
is given in the Registration Statement and the Prospectus,
except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or
otherwise, business affairs or business prospects of the Fund,
7
<PAGE>
whether or not arising in the ordinary course of business, (B)
there have been no transactions entered into by the Fund other
than those in the ordinary course of its business and (C)
there has been no dividend or distribution of any kind
declared, paid or made on any class of its capital shares.
(xv) There is no action, suit or proceeding
before or by any court, commission, regulatory body,
administrative agency or other governmental agency or body,
foreign or domestic, now pending, or, to the knowledge of the
Fund, threatened against or affecting the Fund, which (A)
might result in any material adverse change in the condition,
financial or otherwise, business affairs or business prospects
of the Fund or might materially adversely affect the
properties or assets of the Fund or (B) is of a character
required to be described in the Registration Statement or the
Prospectus; and there are no contracts, franchises or other
documents that are of a character required to be described in,
or that are required to be filed as exhibits to, the
Registration Statement that have not been described or filed
as required.
(xvi) Except for stabilization transactions
conducted by the Underwriters, and except for Share
repurchases effected following the date on which the
distribution of the Shares is completed in accordance with the
policies of the Fund as set forth in the Prospectus, the Fund
has not taken and will not take, directly or indirectly, any
action designed or which might be reasonably expected to cause
or result in, or which will constitute, stabilization or
manipulation of the price of the Common Shares in violation of
federal securities laws.
(xvii) The Fund intends to direct the
investment of the proceeds of the offering of the Shares in
such a manner as to comply with the requirements of Subchapter
M of the Internal Revenue Code of 1986, as amended (the
"Code").
(xviii) To the knowledge of the Fund after
due inquiry, no advertising, sales literature or other
promotional materials (excluding broker kits, road show slides
or road show tapes) were authorized or prepared by or on
behalf of the Fund and Dreyfus or any representative thereof
for use in connection with the public offering or sale of the
Shares other than the definitive client brochure and the
definitive broker fact sheet (collectively, the "sales
materials"), drafts of which were filed by or on behalf of the
Fund with the National Association of Securities Dealers, Inc.
(the "NASD") on March 18, 1998; the sales materials complied
and comply in all material respects with the applicable
requirements of the Securities Act, the Securities Act Rules
and the rules and interpretations of the NASD; and no broker
kits, road show slides, road show tapes or sales materials
authorized or prepared by the Fund or authorized or prepared
on behalf of the Fund by Dreyfus or any representative thereof
for use in connection with the public offering or sale of the
Shares contained or contains any untrue statement of a
material fact or omitted or omits to state any material fact
required to be stated therein or necessary in order to make
the statements therein not misleading.
8
<PAGE>
(xix) There are no material restrictions,
limitations or regulations with respect to the ability of the
Fund to invest its assets as described in the Prospectus other
than as described therein.
(b) Dreyfus represents to each Underwriter as
follows:
(i) Dreyfus has been duly organized and is
validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation with full power and
authority to conduct all of the activities conducted by it, to
own or lease all of the assets owned or leased by it and to
conduct its business as described in the Registration
Statement and Prospectus, and Dreyfus is duly licensed and
qualified as a foreign corporation and in good standing in
each jurisdiction in which it is required to be so qualified,
except to the extent that failure to be so qualified or be in
good standing would not have a material adverse affect on
Dreyfus; and Dreyfus owns, possesses or has obtained and
currently maintains all governmental licenses, permits,
consents, orders, approvals and other authorizations, whether
foreign or domestic, necessary to carry on its business as
contemplated in the Registration Statement and the Prospectus.
(ii) Dreyfus is (A) duly registered as an
investment adviser under the Advisers Act and (B) not
prohibited by the Advisers Act, the Investment Company Act,
the Advisers Act Rules or the Investment Company Act Rules
from acting as the investment adviser for the Fund as
contemplated by the Investment Advisory Agreement, the
Registration Statement and the Prospectus.
(iii) Dreyfus has full power and authority
to enter into each of this Underwriting Agreement and the
Investment Advisory Agreement and to carry out all the terms
and provisions hereof and thereof to be carried out by it, and
each such agreement has been duly and validly authorized,
executed and delivered by Dreyfus; each of the Investment
Advisory Agreement and this Underwriting Agreement complies in
all material respects with all provisions of the Investment
Company Act, the Advisers Act, the Investment Company Act
Rules and the Advisers Act Rules; and assuming due
authorization, execution and delivery by the other parties
thereto, each of this Underwriting Agreement and the
Investment Advisory Agreement constitutes a legal, valid and
binding obligation of Dreyfus, enforceable in accordance with
its terms, (1) subject, as to enforcement, to applicable
bankruptcy, insolvency and similar laws affecting creditors'
rights generally and to general equitable principles
(regardless of whether enforcement is sought in a proceeding
in equity or at law) and (2) as rights to indemnity thereunder
may be limited by federal or state securities laws.
(iv) Neither (A) the execution and delivery
by Dreyfus of this Underwriting Agreement or the Investment
Advisory Agreement by Dreyfus nor (B) the consummation by
9
<PAGE>
Dreyfus of the transactions contemplated by, or the
performance of its obligations under such agreements conflicts
or will conflict with, or results or will result in a breach
of, the Articles of Incorporation or By-Laws of Dreyfus or any
agreement or instrument to which Dreyfus is a party or by
which Dreyfus is bound, or any law, rule or regulation, or
order of any court, governmental instrumentality, securities
exchange or association or arbitrator, whether foreign or
domestic, applicable to Dreyfus.
(v) No consent, approval, authorization or
order of any court, governmental agency or body or securities
exchange or association, whether foreign or domestic, is
required for the consummation of the transactions contemplated
in, or the performance by Dreyfus of its obligations under,
this Underwriting Agreement or the Investment Advisory
Agreement, as the case may be, except such as have been
obtained under the Investment Company Act, the Advisers Act,
the Securities Act, the Investment Company Act Rules, the
Advisers Act Rules and the Securities Act Rules.
(vi) The description of Dreyfus and its
business in the Registration Statement and the Prospectus
complies with the requirements of the Securities Act, the
Investment Company Act, the Securities Act Rules and the
Investment Company Act Rules and does not contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to
make the statements therein not misleading.
(vii) There is no action, suit or proceeding
before or by any court, commission, regulatory body,
administrative agency or other governmental agency or body,
foreign or domestic, now pending or, to the knowledge of
Dreyfus, threatened against or affecting Dreyfus of a nature
required to be disclosed in the Registration Statement or
Prospectus or that might result in any material adverse change
in the condition, financial or otherwise, business affairs or
business prospects of Dreyfus or the ability of Dreyfus to
fulfill its respective obligations under this Underwriting
Agreement or under the Investment Advisory Agreement.
(viii) Except for stabilization activities
conducted by the Underwriters, Dreyfus has not taken and will
not take, directly or indirectly, any action designed, or
which might reasonably be expected to cause or result in, or
which will constitute, stabilization or manipulation of the
price of the Common Shares.
5. AGREEMENTS OF THE PARTIES.
-------------------------
(a) If the registration statement relating to the
Shares has not yet become effective, the Fund will promptly file the Final
Amendment, if not previously filed, with the Commission, and will use its best
efforts to cause such registration statement to become effective and, as soon as
the Fund is advised, will advise the Representatives when the Registration
<PAGE>
Statement or any amendment thereto has become effective. If the Registration
Statement has become effective and the Prospectus contained therein omits
certain information at the time of effectiveness pursuant to Rule 430A of the
Securities Act Rules, the Fund will file a 430A Prospectus pursuant to Rule
497(h) of the Securities Act Rules as promptly as practicable, but no later than
the second business day following the earlier of the date of the determination
of the offering price of the Shares or the date the Prospectus is first used
after the Effective Date. If the Registration Statement has become effective and
the Prospectus contained therein does not so omit such information, the Fund
will file a Prospectus pursuant to Rule 497(b) or (j) of the Securities Act
Rules as promptly as practicable, but no later than the fifth business day
following the date of the later of the Effective Date or the commencement of the
public offering of the Shares after the Effective Date. In either case, the Fund
will provide the Representatives satisfactory evidence of the filing. The Fund
will not file with the Commission any Prospectus or any other amendment (except
any post-effective amendment which is filed with the Commission after the later
of (x) one year from the date of this Underwriting Agreement or (y) the date on
which distribution of the Shares is completed) or supplement to the Registration
Statement or the Prospectus unless a copy has first been submitted to the
Representatives a reasonable time before its filing and the Representatives has
not objected to it in writing within a reasonable time after receiving the copy.
(b) For the period of three years from the date
hereof, the Fund will advise the Representatives promptly (1) of the issuance by
the Commission of any order in respect of the Fund which relates to the Fund, or
any arrangements or proposed arrangements involving the Fund, (2) of the
initiation or threatening of any proceedings for, or receipt by the Fund of any
notice with respect to, the suspension of the qualification of the Shares for
sale in any jurisdiction or the issuance of any order by the Commission
suspending the effectiveness of the Registration Statement, (3) of receipt by
the Fund, or any representative or attorney of the Fund, of any other
communication from the Commission relating to the Fund, the Registration
Statement, the Notification, any preliminary prospectus, the Prospectus or to
the transactions contemplated by this Underwriting Agreement and (4) the
issuance by any court, regulatory body, administrative agency or other
governmental agency or body, whether foreign or domestic, of any order, ruling
or decree, or the threat to initiate any proceedings with respect thereto,
regarding the Fund or Dreyfus, which relates to the Fund or any arrangements or
proposed arrangements involving the Fund or Dreyfus. The Fund will make every
reasonable effort to prevent the issuance of any order suspending the
effectiveness of the Registration Statement and, if any such order is issued, to
obtain its lifting as soon as possible.
(c) If not delivered prior to the date of this
Underwriting Agreement, the Fund will deliver to the Representatives, without
charge, a signed copy of the registration statement and the Notification and of
any amendments (except any post-effective amendment which is filed with the
Commission after the later of (x) one year from the date of this Underwriting
Agreement or (y) the date on which the distribution of the Shares is completed)
to either the Registration Statement or the Notification (including all exhibits
filed with any such document) and as many conformed copies of the registration
statement and any amendments thereto (except any post-effective amendment which
is filed with the Commission after the later of (x) one year from the date of
this Underwriting Agreement or (y) the date on which the distribution of the
11
<PAGE>
Shares is completed) (excluding exhibits) as the Representatives may reasonably
request.
(d) During such period as a prospectus is required by
law to be delivered by an underwriter or a dealer, the Fund will deliver,
without charge, to the Representatives, the Underwriters and any dealers, at
such office or offices as the Representatives may designate, as many copies of
the Prospectus and as the Representatives may reasonably request, and, if any
event occurs during such period as a result of which it is necessary to amend or
supplement the Prospectus, in order to make the statements therein, in light of
the circumstances existing when such prospectus is delivered to a purchaser of
Shares, not misleading in any material respect, or if during such period it is
necessary to amend or supplement the prospectus to comply with the Securities
Act, the Investment Company Act, the Securities Act Rules or the Investment
Company Act Rules, the Fund promptly will prepare, submit to the
Representatives, file with the Commission and deliver, without charge, to the
Underwriters and to dealers (whose names and addresses the Representatives will
furnish to the Fund) to whom Shares may have been sold by the Underwriters, and
to other dealers on request, amendments or supplements to the Prospectus so that
the statements in such Prospectus, as so amended or supplemented, will not, in
light of the circumstances existing when such Prospectus is delivered to a
purchaser, be misleading in any material respect and will comply with the
Securities Act, the Investment Company Act, the Securities Act Rules and the
Investment Company Act Rules. Delivery by the Underwriters of any such
amendments or supplements to the Prospectus will not constitute a waiver of any
of the conditions in Section 6 hereof.
(e) The Fund will make generally available to holders
of the Fund's securities, as soon as practicable but in no event later than the
last day of the 18th full calendar month following the calendar quarter in which
the Effective Date falls, an earnings statement, if applicable, satisfying the
provisions of Section 11(a) of the Securities Act and, at the option of the
Fund, Rule 158 of the Securities Act Rules.
(f) The Fund will take such actions as the
Representatives reasonably request in order to qualify the Shares for offer and
sale under the securities or "blue sky" laws of such jurisdictions as the
Representatives reasonably designate; provided that the Fund shall not be
required in connection therewith or as a condition thereof to qualify as a
foreign corporation or to execute a general consent to service of process in any
jurisdiction.
(g) The Fund will pay, or reimburse if paid by the
Representatives, whether or not the transactions with respect to the Fund
contemplated by this Underwriting Agreement are consummated or this Underwriting
Agreement is terminated (irrespective of who the party terminating any such
agreement is or the reason therefor), all costs and expenses incident to the
performance of the obligations of the Fund under this Underwriting Agreement,
including but not limited to costs and expenses of or relating to (1) the
preparation, printing and filing of the registration statement and exhibits to
it (including this Underwriting Agreement and related underwriting agreements),
each Preliminary Prospectus, the Prospectus and all amendments and supplements
12
<PAGE>
thereto, (2) the issuance of the Shares and the preparation and delivery of
certificates for the Shares, (3) the registration or qualification of the Shares
for offer and sale under the securities or "blue sky" laws of the jurisdictions
referred to in the foregoing paragraph, including the fees and disbursements of
counsel for the Underwriters in that connection, and the preparation and
printing of preliminary and supplemental "blue sky" memoranda, (4) the
furnishing (including costs of design, production, shipping and mailing) to the
Underwriters and dealers of copies of each Preliminary Prospectus relating to
the Shares, the sales materials, the Prospectus, and all amendments or
supplements to the Prospectus, and of the other documents required by this
Section to be so furnished, (5) the filing requirements of the NASD in
connection with its review of the financing, including filing fees and the fees,
disbursements and other charges of counsel for the Underwriters in that
connection, (6) all transfer taxes, if any, with respect to the sale and
delivery of the Shares to the Underwriters, (7) the listing of the Shares on the
New York Stock Exchange, (8) the transfer agent for the Shares and (9) in
addition to the foregoing, an aggregate of $250,000 as partial reimbursement of
the costs and expenses of the Underwriters, which the Fund will pay by
permitting the Underwriters to deduct such amount from the proceeds payable to
the Fund at the earliest of the Closing Dates. Notwithstanding the foregoing
provisions of this Section 5(g), in the event that the transactions contemplated
by this Underwriting Agreement are not consummated, Dreyfus will pay, or
reimburse if paid by the Representatives, all of the costs and expenses incident
to the performance of the obligations of the Fund under this Underwriting
Agreement, including but not limited to the costs and expenses enumerated above
in this Section 5(g), except those set forth in Section 5(g)(9) hereof, and the
Fund shall have no liability therefore in excess of the net assets of the Fund
as of the date that such amount is finally determined to be payable.
Notwithstanding the foregoing, except as provided for in clause (9) of this
paragraph (g) and except as provided for in paragraph (h) of this Section 5, the
Underwriters agree to pay any expenses (including fees and disbursements of
counsel) incurred by the Underwriters in connection with their investigation,
preparing to market and marketing of the Shares.
(h) If this Underwriting Agreement is terminated
pursuant to any of its provisions, except as otherwise provided herein, no party
will be under any liability to any other party, except that (1) if this
Underwriting Agreement is terminated by (x) the Fund or Dreyfus pursuant to any
of the provisions hereof (otherwise than pursuant to Section 9 hereof) or (y) by
the Representatives or the Underwriters because of any inability, failure or
refusal on the part of the Fund or Dreyfus to comply with its terms or because
any of the conditions in Section 6 are not satisfied, the Fund and Dreyfus,
jointly and severally, will reimburse the Underwriters for all out-of-pocket
expenses (including the reasonable fees, disbursements and other charges of
their counsel) reasonably incurred by them in connection with the proposed
purchase and sale of the Shares and (2) no Underwriter who has failed or refused
to purchase the Shares agreed to be purchased by it under this Underwriting
Agreement, in breach of its obligations pursuant to this Underwriting Agreement,
will be relieved of liability to the Fund and Dreyfus and the other Underwriters
for damages occasioned by its default.
(i) Without the prior written consent of the
Representatives, the Fund will not offer, sell or register with the Commission,
or announce an offering of, any equity securities of the Fund, within 180 days
after the Effective Date, except for the Shares as described in the Prospectus
and any issuances of Common Shares pursuant to the dividend reinvestment plan
established by the Fund.
13
<PAGE>
(j) The Fund will use its best efforts to list the
Shares on the New York Stock Exchange and comply with the rules and regulations
of such exchange.
(k) The Fund will direct the investment of the net
proceeds of the offering of the Shares in such a manner as to comply with the
investment objective and policies of the Fund as described in the Prospectus.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The
obligations of the Underwriters to purchase the Shares are subject to the
accuracy on the date of this Underwriting Agreement, and on the Closing Dates,
of the representations of the Fund and Dreyfus in this Underwriting Agreement,
to the accuracy and completeness of all statements made by the Fund or Dreyfus
or any of their respective officers in any certificate delivered to the
Representatives or their counsel pursuant to this Underwriting Agreement, to
performance by the Fund and Dreyfus of their respective obligations under this
Underwriting Agreement and to each of the following additional conditions:
(a) The registration statement must have become
effective by 5:30 p.m., New York City time, on the date of this Underwriting
Agreement or such later date and time as the Representatives consents to in
writing. The Prospectus must have been filed in accordance with Rule 497(b), (h)
or (j), as the case may be, of the Securities Act Rules.
(b) No order suspending the effectiveness of the
Registration Statement may be in effect and no proceedings for such purpose may
be pending before or, to the knowledge of counsel to the Underwriters,
threatened by the Commission, and any requests for additional information on the
part of the Commission (to be included in the Registration Statement or the
Prospectus or otherwise) must be complied with or waived to the reasonable
satisfaction of the Representatives.
(c) Since the dates as of which information is given
in the Registration Statement and the Prospectus, (1) there must not have been
any material change in the Common Shares or liabilities of the Fund except as
set forth in or contemplated by the Prospectus; (2) there must not have been any
material adverse change in the general affairs, prospects, management, business,
financial condition or results of operations of the Fund or Dreyfus whether or
not arising from transactions in the ordinary course of business as set forth in
or contemplated by the Prospectus; (3) the Fund must not have sustained any
material loss or interference with its business from any court or from
legislative or other governmental action, order or decree, whether foreign or
domestic, or from any other occurrence not described in the Registration
Statement and Prospectus; and (4) there must not have occurred any event that
makes untrue or incorrect in any material respect any statement or information
contained in the Registration Statement or Prospectus or that is not reflected
in the Registration Statement or Prospectus but should be reflected therein in
order to make the statements or information therein (in the case of the
Prospectus, in light of the circumstances in which they were made) not
misleading in any material respect; if, in the judgment of the Representatives,
any such development referred to in clause (1), (2), (3) or (4) of this
paragraph (c) makes it impracticable or inadvisable to consummate the sale and
14
<PAGE>
delivery of the Shares pursuant to this Underwriting Agreement by the
Underwriters, at the initial public offering price of the Shares.
(d) The Representatives must have received on each
Closing Date a certificate, dated such date, of a President or Vice President,
or Vice Chairman, and the chief financial or accounting officer of each of the
Fund and Dreyfus certifying that (1) the signers have carefully examined the
Registration Statement, the Prospectus, and this Underwriting Agreement, (2) the
representations of the Fund (with respect to the certificates from such Fund
officers) and the representations of Dreyfus (with respect to the certificates
from such officers of Dreyfus) in this Underwriting Agreement are accurate on
and as of the date of the certificate, (3) there has not been any material
adverse change in the general affairs, prospects, management, business,
financial condition or results of operations of the Fund (with respect to the
certificates from such Fund officers) or Dreyfus (with respect to the
certificates from such officers of Dreyfus), which change would materially and
adversely affect the ability of Dreyfus to fulfill its obligations under this
Underwriting Agreement or the Investment Advisory Agreement, whether or not
arising from transactions in the ordinary course of business, (4) with respect
to the Fund only, to the knowledge of such officers after reasonable
investigation, no order suspending the effectiveness of the Registration
Statement, prohibiting the sale of any of the Shares or having a material
adverse effect on the Fund has been issued and no proceedings for any such
purpose are pending before or threatened by the Commission or any other
regulatory body, whether foreign or domestic, (5) to the knowledge of the
officers of Dreyfus, after reasonable investigation, no order having an adverse
effect on the ability of Dreyfus to fulfill its obligations under this
Underwriting Agreement or the Investment Advisory Agreement, as the case may be,
has been issued and no proceedings for any such purpose are pending before or
threatened by the Commission or any other regulatory body, whether foreign or
domestic, and (6) each of the Fund (with respect to the certificates from such
Fund officers) and Dreyfus (with respect to the certificates from such officers
of Dreyfus) has performed all of its respective agreements that this
Underwriting Agreement requires it to perform by such Closing Date.
(e) The Representatives must receive on each Closing
Date the opinions dated such Closing Date substantially in the form of Annexes A
and B to this Underwriting Agreement from the counsel identified in each such
Annex.
(f) The Representatives must receive on each Closing
Date from Skadden, Arps, Slate, Meagher & Flom LLP or its affiliates, their
counsel, an opinion dated such Closing Date with respect to the Fund, the
Shares, the Registration Statement and the Prospectus, this Underwriting
Agreement and the form and sufficiency of all proceedings taken in connection
with the sale and delivery of the Shares. Such opinion and proceedings shall
fulfill the requirements of this Section 6(f) only if such opinion and
proceedings are satisfactory in all respects to the Representatives. The Fund
and Dreyfus shall have furnished to such counsel such documents as counsel may
reasonably request for the purpose of enabling them to render such opinion.
(g) The Representatives must receive on the date this
Underwriting Agreement is signed and delivered by the Representatives a signed
15
<PAGE>
letter, dated such date, substantially in the form of Annex C to this
Underwriting Agreement from the firm of accountants designated in such Annex.
The Representatives also must receive on each Closing Date a signed letter from
such accountants, dated such Closing Date, confirming on the basis of a review
in accordance with the procedures set forth in their earlier letter that nothing
has come to their attention during the period from a date not more than five
business days before the date of this Underwriting Agreement, specified in the
letter, to a date not more than five business days before such Closing Date,
that would require any change in their letter referred to in the foregoing
sentence.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Underwriting Agreement will comply only if they are
in form and scope reasonably satisfactory to counsel for the Representatives,
provided that any such documents, forms of which are annexed hereto, shall be
deemed satisfactory to such counsel if substantially in such form.
7. INDEMNIFICATION AND CONTRIBUTION.
--------------------------------
(a) Each of the Fund and Dreyfus, jointly and
severally, will indemnify and hold harmless each Underwriter, the directors,
officers, employees and agents of such Underwriter and each person, if any, who
controls such Underwriter within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act from and against any and all losses, claims,
liabilities, expenses and damages, joint or several (including, but not limited
to, any and all investigative, legal and other expenses reasonably incurred in
connection with, and any and all amounts paid in settlement of, any action, suit
or proceeding between any of the indemnified parties and any indemnifying
parties or between any indemnified party and any third party, or otherwise, or
any claim asserted), to which such Underwriter or any such person, or any of
them, may become subject under the Securities Act, the Exchange Act, the
Investment Company Act, the Advisers Act or other federal or state statutory law
or regulation, at common law or otherwise, whether foreign or domestic, insofar
as such losses, claims, liabilities, expenses or damages arise out of or are
based on (i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, the Preliminary Prospectus, the
Prospectus or the sales materials, or any amendment or supplement thereto, or in
any documents filed under the Exchange Act and deemed to be incorporated by
reference into the Registration Statement, the Preliminary Prospectus, the
Prospectus, or in any application or other document executed by or on behalf of
the Fund or based on written information furnished by or on behalf of the Fund
filed in any jurisdiction in order to qualify the Shares under the securities
laws thereof or filed with the Commission, (ii) the omission or alleged omission
to state, in any or all such documents, a material fact required to be stated
therein or necessary to make the statements therein not misleading or (iii) any
act or failure to act or any alleged act or failure to act by such Underwriter
in connection with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, liability, expense or damage arising out of or based upon matters
covered by clause (i) or (ii) above (provided, however, that neither the Fund
nor Dreyfus shall be liable under this clause (iii) to the extent it is finally
judicially determined by a court of competent jurisdiction that such loss,
claim, liability, expense or damage resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its gross negligence or willful misconduct); provided that neither the Fund nor
16
<PAGE>
Dreyfus will be liable to the extent that such losses, claims, liabilities,
expenses or damages are based on an untrue statement or omission or alleged
untrue statement or omission made in reliance on and in conformity with
information relating to such Underwriter furnished in writing to the Fund by
such Underwriter expressly for inclusion in the Registration Statement, the
Preliminary Prospectus or the Prospectus. This indemnity agreement will be in
addition to any liability that the Fund or Dreyfus might otherwise have.
(b) Each Underwriter will indemnify and hold harmless
the Fund and Dreyfus, each person, if any, who controls the Fund or Dreyfus
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, each trustee of the Fund and each officer of the Fund who signs
the Registration Statement to the same extent as the foregoing indemnity from
the Fund or Dreyfus to such Underwriter, but only insofar as losses, claims,
liabilities, expenses or damages arise out of or are based on any untrue
statement or omission or alleged untrue statement or omission made in reliance
on and in conformity with information relating to such Underwriter furnished in
writing to the Fund by such Underwriter expressly for use in the Registration
Statement, the Preliminary Prospectus or Prospectus. This indemnity will be in
addition to any liability that such Underwriter might otherwise have; provided,
however, that in no case shall such Underwriter be liable or responsible for any
amount in excess of the fees and commissions received by the Underwriter
(whether from the Fund or otherwise).
(c) Any party that proposes to assert the right to be
indemnified under this Section 7 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 7, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission to so notify such indemnifying party
will not relieve it from any liability that it may have to any indemnified party
under the foregoing provision of this Section 7 unless, and only to the extent
that, such omission results in the forfeiture of substantive rights or defenses
by the indemnifying party. If any such action is brought against any indemnified
party and it notifies the indemnifying party of its commencement, the
indemnifying party will be entitled to participate in and, to the extent that it
elects by delivering written notice to the indemnified party promptly after
receiving notice of the commencement of the action from the indemnified party,
jointly with any other indemnifying party similarly notified, to assume the
defense of the action, with counsel satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense. The indemnified party will
have the right to employ its own counsel in any such action, but the fees,
disbursements and other charges of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded (based on the advice of counsel) that there may
be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party (3) a
conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel to assume the defense of such action within a
18
<PAGE>
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees disbursements and other charges of
counsel will be at the expense of the indemnifying party or parties. All such
fees, disbursements and other charges will be reimbursed by the indemnifying
party promptly as they are incurred. It is understood that the indemnifying
party or parties shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm admitted to
practice in such jurisdiction at any one time for all such indemnified party or
parties. An indemnifying party will not be liable for any settlement of any
action or claim effected without its written consent (which consent will not be
unreasonably withheld). No indemnifying party shall, without the prior written
consent of each indemnified party, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action or proceeding
relating to the matters contemplated by this Section 7 (whether or not any
indemnified party is a party thereto), unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising or that may arise out of such claim, action or proceeding.
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in this
Section 7 is applicable in accordance with its terms but for any reason is held
to be unavailable from the Fund, Dreyfus or the Underwriters, the Fund, Dreyfus
and the Underwriters will contribute to the total losses, claims, liabilities,
expenses and damages (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claim asserted, but after deducting any
contribution received by the Fund and Dreyfus from persons other than the
Underwriters, such as persons who control the Fund or Dreyfus within the meaning
of the Securities Act or the Exchange Act, officers of the Fund who signed the
Registration Statement and trustees of the Fund, who may also be liable for
contribution) to which the Fund, Dreyfus and the Underwriters may be subject in
such proportion as shall be appropriate to reflect the relative benefits
received by the Fund and Dreyfus on the one hand and the Underwriters on the
other. The relative benefits received by the Fund and Dreyfus (treated jointly
for this purpose as one person) on the one hand and the Underwriters on the
other hand shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Fund bear
to the total discounts and commissions received by the Underwriters (whether
from the Fund or otherwise). If, but only if, the allocation provided by the
foregoing sentence is not permitted by applicable law, the allocation of
contribution shall be made in such proportion as is appropriate to reflect not
only such relative benefits referred to in the foregoing sentence but also the
relative fault of the Fund and Dreyfus (treated jointly for this purpose as one
18
<PAGE>
person) on the one hand and the Underwriters on the other hand in connection
with respect to the statements or omissions or alleged statements or omissions
that resulted in the losses, claims, liabilities, expenses or damages, joint or
several (including any investigative, legal or other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted), for which contribution is sought.
Such relative fault of the parties shall be determined by reference to whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Fund, Dreyfus or the Underwriters, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission and any other equitable considerations appropriate in the
circumstances. The Fund, Dreyfus and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 7(d) were to be
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss, claim,
liability, expense or damage, or action in respect thereof, referred to above in
this Section 7(d) shall be deemed to include, for purposes of this Section 7(d)
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding any other provisions of this Section 7(d), no Underwriter
(except as may be provided in the Master Agreement Among Underwriters dated as
of June 11, 1984) shall be required to contribute any amount in excess of the
underwriting discounts or commissions received by it (whether from the Fund or
otherwise) and no person found guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7(d), any person who controls a
party to this Agreement within the meaning of the Securities Act will have the
same rights to contribution as that party, and each trustee of the Fund and each
officer of the Fund who signed the Registration Statement will have the same
rights to contribution as the Fund, subject in each case to the provisions
hereof. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action against such party in respect of which a
claim for contribution may be made under this Section 7(d), notify such party or
parties from whom contribution may be sought, but the omission so to notify will
not relieve the party or parties from whom contribution may be sought from any
other obligation it or they may have under this Section 7(d). Except for a
settlement entered into pursuant to the last sentence of Section 7(c) hereof, no
party will be liable for contribution with respect to any action or claim
settled without its written consent (which consent shall not be unreasonably
withheld).
(e) Notwithstanding any other provisions in this
Section 7, no party shall be entitled to indemnification or contribution under
this Agreement against any loss, claim, liability, expense or damage arising by
reason of such person's willful misfeasance, bad faith or gross negligence in
the performance of its duties hereunder, or by reason of such person's reckless
disregard of such person's obligations and duties hereunder.
(f) The Fund and Dreyfus acknowledge that the (i)
statements with respect to stabilization on the second page of, and the
information in the third paragraph under the caption "Underwriting" in, the
Preliminary Prospectus and the Prospectus (insofar as such information relates
to the concession to dealers and the discount to certain other dealers)
constitute the only information furnished in writing to the Fund by the
Representatives on behalf of the Underwriters expressly for use in such
documents.
19
<PAGE>
8. TERMINATION. This Underwriting Agreement may be terminated
by the Representatives by notifying the Fund at any time:
(a) before the later of the effectiveness of the
Registration Statement and the time when any of the Shares are first generally
offered pursuant to this Underwriting Agreement by the Representatives to
dealers by letter or telegram;
(b) at or before any Closing Date if, in the sole
judgment of the Representatives, payment for and delivery of any Shares is
rendered impracticable or inadvisable because (1) trading in the equity
securities of the Fund is suspended by the Commission or by the principal
exchange that lists the Shares, (2) additional material governmental
restrictions, not in force on the date of this Underwriting Agreement, whether
foreign or domestic, have been imposed upon trading in securities or trading has
been suspended on any U.S. securities exchange, (3) a general banking moratorium
has been established by U.S. federal or New York authorities or (4) 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 of the Shares;
or
(c) at or before any Closing Date, if any of the
conditions specified in Section 6 have not been fulfilled when and as required
by this Underwriting Agreement.
9. SUBSTITUTION OF UNDERWRITERS. If one or more of the
Underwriters fails (other than for a reason sufficient to justify the
termination of this Underwriting Agreement) to purchase on any Closing Date the
Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Representatives may find one or more substitute underwriters
to purchase such Shares or make such other arrangements as the Representatives
deems advisable, or one or more of the remaining Underwriters may agree to
purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this Underwriting
Agreement. If no such arrangements have been made within 36 hours after such
Closing Date, and
(a) the number of Shares to be purchased by the
defaulting Underwriters on such Closing Date does not exceed 10% of the Shares
that the Underwriters are obligated to purchase on such Closing Date, each of
the nondefaulting Underwriters will be obligated to purchase such Shares on the
terms set forth in this Underwriting Agreement in proportion to their respective
obligations under this Underwriting Agreement, or
(b) the number of Shares to be purchased by the
defaulting Underwriters on such Closing Date exceeds 10% of the Shares to be
purchased by all the Underwriters on such Closing Date, the Fund will be
entitled to an additional period of 24 hours within which to find one or more
substitute underwriters reasonably satisfactory to the Representatives to
purchase such Shares on the terms set forth in this Underwriting Agreement.
In any such case, either the Representatives or the Fund will
have the right to postpone the applicable Closing Date for not more than five
business days in order that necessary changes and arrangements (including any
necessary amendments or supplements to the Registration Statement or the
20
<PAGE>
Prospectus) may be effected by the Representatives and the Fund. If the number
of Shares to be purchased on such Closing Date by such defaulting Underwriter or
Underwriters exceeds 10% of the Shares that the Underwriters are obligated to
purchase on such Closing Date, and none of the nondefaulting Underwriters or the
Fund makes arrangements pursuant to this Section within the period stated for
the purchase of the Shares that the defaulting Underwriters agreed to purchase,
this Underwriting Agreement will terminate without liability on the part of any
nondefaulting Underwriter, the Fund or Dreyfus, except as provided in Sections
5(g) and 7 hereof. This Section will not affect the liability of any defaulting
Underwriter to the Fund or the nondefaulting Underwriters arising out of such
default. A substitute underwriter will become a Underwriter for all purposes of
this Underwriting Agreement.
10. MISCELLANEOUS.
(a) The reimbursement, indemnification and
contribution agreements in Sections 5(g) and 7 hereof and the representations of
the Fund, Dreyfus and the Underwriters in this Underwriting Agreement will
remain in full force and effect regardless of any termination of this
Underwriting Agreement. The reimbursement, indemnification and contribution
agreements in Sections 5(g) and 7 hereof and the representations and agreements
of the Fund, Dreyfus and the Underwriters in this Underwriting Agreement shall
survive the Closing Dates and shall remain in full force and effect regardless
of any investigation made by or on behalf of any Underwriter, the Fund, Dreyfus
or any controlling person and delivery of and payment for the Shares.
(b) This Underwriting Agreement is for the benefit of
the Underwriters, the Fund, Dreyfus and their successors and assigns, and, to
the extent expressed in this Underwriting Agreement, for the benefit of persons
controlling any of the Underwriters, the Fund, Dreyfus and directors and
officers of the Fund and Dreyfus, and their respective successors and assigns,
and no other person, partnership, association or corporation will acquire or
have any right under or by virtue of this Underwriting Agreement. The term
"successors and assigns" does not include any purchaser of the Shares from any
Underwriter merely because of such purchase.
(c) All notices and communications under this
Underwriting Agreement will be in writing, effective only on receipt and mailed
or delivered, by messenger, facsimile transmission or otherwise, to the
Representatives in care of PaineWebber Incorporated, Attn: Financial
Institutions Group, 1285 Avenue of the Americas, New York, New York 10019, to
the Fund at 200 Park Avenue, New York, New York 10166, and to Dreyfus at 200
Park Avenue, New York, New York 10166.
(d) Any action required or permitted to be taken by
the Representatives under this Underwriting Agreement may be taken by them
jointly through PaineWebber Incorporated.
(e) This Underwriting Agreement may be signed in
multiple counterparts that taken as a whole constitute one agreement.
21
<PAGE>
(f) This Underwriting Agreement will be governed by
and construed in accordance with the laws of the State of New York without
reference to choice of law principles thereof.
Please confirm that the foregoing correctly sets forth the
agreement between us.
Very truly yours,
Dreyfus High Yield Strategies Fund
By:
-----------------------------------
Title:
Dreyfus Corporation
By:
-----------------------------------
Title:
Confirmed:
PaineWebber Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Smith Barney
Fahnestock & Co. Inc
Interstate/Johnson Lane Corporation
As Representatives of the Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
By: PaineWebber Incorporated
By:
----------------------------------
Name:
Title:
Acting on behalf of itself
and the Underwriters
named in Schedule 1
<PAGE>
SCHEDULE 1
Number of Firm Shares
Name to be Purchased
PaineWebber Incorporated ...................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Salomon Smith Barney .......................
Fahnestock & Co. Inc........................
Interstate/Johnson Lane Corporation ........
Total ...................................
======================
23
<PAGE>
FORM OF OPINION OF
KIRKPATRICK & LOCKHART LLC REGARDING THE FUND
1. The Registration Statement and all post-effective
amendments, if any, are effective under the Securities Act and no stop order
with respect thereto has been issued and no proceeding for that purpose has been
instituted or, to the best of our knowledge, is threatened by the Commission.
Any filing of the Prospectus or any supplements thereto required under Rule 497
of the Securities Act Rules prior to the date hereof have been made in the
manner and within the time required by such rule.
2. The Fund has been duly organized and is validly existing as
a Massachusetts business trust in good standing under the laws of the
Commonwealth of Massachusetts, with full power and authority to conduct all the
activities conducted by it, to own or lease all assets owned (or to be owned) or
leased (or to be leased) by it and to conduct its business as described in the
Registration Statement and Prospectus, and the Fund is duly licensed and
qualified to do business and in good standing as a foreign corporation or
otherwise in each jurisdiction in which its ownership or leasing of property or
its conducting of business requires such qualification, and the Fund owns,
possesses or has obtained and currently maintains all governmental licenses,
permits, consents, orders, approvals and other authorizations, whether foreign
or domestic, necessary to carry on its business as contemplated in the
Prospectus. The Fund has no subsidiaries.
3. The capitalization of the Fund is as set forth in the
Registration Statement and the Prospectus. The Common Shares of the Fund conform
in all respects to the description of them in the Prospectus. All the
outstanding Common Shares have been duly authorized and are validly issued,
fully paid and nonassessable. The Shares to be issued and delivered to and paid
for by the Underwriters in accordance with the Underwriting Agreement against
payment therefor as provided by the Underwriting Agreement have been duly
authorized and when issued and delivered to the Underwriters will have been
validly issued and will be fully paid and nonassessable. No person is entitled
to any preemptive or other similar rights with respect to the Shares.
4. The Fund is duly registered with the Commission under the
Investment Company Act as a non-diversified, closed-end management investment
company and all action under the Securities Act, the Investment Company Act, the
Securities Act Rules and the Investment Company Act Rules, as the case may be,
necessary to make the public offering and consummate the sale of the Shares as
provided in the Underwriting Agreement has or will have been taken by the Fund.
5. The Fund has full power and authority to enter into each of
the Underwriting Agreement, the Investment Advisory Agreement, the Custody
A-1
<PAGE>
Agreement, the Transfer Agency Agreement and the Shareholder Servicing Agreement
(collectively, the "Fund Agreements") and to perform all of the terms and
provisions thereof to be carried out by it and (A) each Fund Agreement has been
duly and validly authorized, executed and delivered by the Fund, (B) each Fund
Agreement complies in all material respects with all provisions of the
Investment Company Act, the Advisers Act, the Investment Company Act Rules and
the Advisers Act Rules, as the case may be, and (C) assuming due authorization,
execution and delivery by the other parties thereto, each Fund Agreement
constitutes the legal, valid and binding obligation of the Fund enforceable in
accordance with its terms, (1) subject, as to enforcement, to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and to general equitable principles (regardless of whether enforcement is sought
in a proceeding in equity or at law) and (2) as rights to indemnity thereunder
may be limited by federal or state securities laws.
6. None of (A) the execution and delivery by the Fund of the
Fund Agreements, (B) the issue and sale by the Fund of the Shares as
contemplated by the Underwriting Agreement and (C) the performance by the Fund
of its obligations under the Fund Agreements or consummation by the Fund of the
other transactions contemplated by the Fund Agreements conflicts with or will
conflict with, or results or will result in a breach of, the Declaration of
Trust or the By-laws of the Fund or any agreement or instrument to which the
Fund is a party or by which the Fund is bound, or any law, rule or regulation,
or order of any court, governmental instrumentality, securities exchange or
association or arbitrator, whether foreign or domestic, applicable to the Fund,
except that we express no opinion as to the securities or "blue sky" laws
applicable in connection with the purchase and distribution of the Shares by the
Underwriters pursuant to the Underwriting Agreement.
7. The Fund is not currently in breach of, or in default
under, any written agreement or instrument to which it is a party or by which it
or its property is bound or affected.
8. No consent, approval, authorization or order of any court
or governmental agency or body or securities exchange or association, whether
foreign or domestic, is required by the Fund for the consummation by the Fund of
the transactions to be performed by the Fund or the performance by the Fund of
all the terms and provisions to be performed by or on behalf of it in each case
as contemplated in the Fund Agreements, except such as (A) have been obtained
under the Securities Act, the Investment Company Act, the Advisers Act, the
Securities Act Rules, the Investment Company Act Rules and the Advisers Act
Rules and (B) may be required by the New York Stock Exchange or under state
securities or "blue sky" laws in connection with the purchase and distribution
of the Shares by the Underwriters pursuant to the Underwriting Agreement.
9. The Shares have been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, and the Fund's
Registration Statement on Form 8-A under the 1940 Act is effective.
10. The form of the certificates for the Shares conform to the
requirements of Massachusetts law.
A-2
<PAGE>
11. There is no action, suit or proceeding before or by any
court, commission, regulatory body, administrative agency or other governmental
agency or body, foreign or domestic, now pending or, to our knowledge,
threatened against or affecting the Fund, which is required to be disclosed in
the Prospectus that is not disclosed in the Prospectus, and there are no
contracts, franchises or other documents that are of a character required to be
described in, or that are required to be filed as exhibits to, the Registration
Statement that have not been described or filed as required.
12. The Fund does not require any tax or other rulings to
enable it to qualify as a regulated investment company under Subchapter M of the
Code.
13. The section in the Prospectus entitled "Taxation" is a
fair summary of the principal United States federal income tax rules applicable
to the Fund and to the purchase, ownership and disposition of the Shares.
14. The Registration Statement (except the financial
statements and schedules and other financial data included therein as to which
we express no view), at the time it became effective, and the Prospectus (except
as aforesaid), as of the date thereof, complied as to form in all material
respects to the requirements of the Securities Act, the Investment Company Act
and the rules and regulations of the Commission thereunder.
In rendering our opinion, we have relied, as to factual
matters, upon the attached written certificates and statements of officers of
the Fund.
In connection with the registration of the Shares, we have
advised the Fund as to the requirements of the Securities Act, the Investment
Company Act and the applicable rules and regulations of the Commission
thereunder and have rendered other legal advice and assistance to the Fund in
the course of its preparation of the registration Statement and the Prospectus.
Rendering such assistance involved, among other things, discussions and
inquiries concerning various legal and related subjects and reviews of certain
corporate records, documents and proceedings. We also participated in
conferences with representatives of the Fund and its accountants at which the
contents of the registration and Prospectus and related matters were discussed.
With your permission, we have not undertaken, except as otherwise indicated
herein, to determine independently, and do not assume any responsibility for,
the accuracy, completeness or fairness of the statements in the Registration
Statement or Prospectus. On the basis of the information which was developed in
the course of the performance of the services referred to above, no information
has come to our attention that would lead us to believe that the Registration
Statement, at the time it became effective, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus, as of its date and as of such Closing Date, contained or contains an
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that any amendment
or supplement to the Prospectus, as of its respective date, and as of such
Closing Date, contained any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements in the
A-3
<PAGE>
Prospectus, in the light of the circumstances under which they were made, not
misleading (except the financial statements, schedules and other financial data
included therein, as to which we express no view).
A-4
<PAGE>
APPENDIX B
FORM OF OPINION OF
MARK JACOBS REGARDING DREYFUS
1. Dreyfus has been duly organized and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation with full power and authority to conduct all of the activities
conducted by it, to own or lease all of the assets owned or leased by it and to
conduct its business as described in the Registration Statement and Prospectus,
and Dreyfus is duly licensed and qualified as a foreign corporation and in good
standing in each other jurisdiction in which it is required to be so qualified
and Dreyfus owns, possesses or has obtained and currently maintains all
governmental licenses, permits, consents, orders, approvals and other
authorizations, whether foreign or domestic, necessary for Dreyfus to carry on
its business as contemplated in the Registration Statement and the Prospectus.
2. Dreyfus is duly registered as an investment adviser under
the Advisers Act and is not prohibited by the Advisers Act, the Investment
Company Act, the Advisers Act Rules or the Investment Company Act Rules from
acting as investment adviser for the Fund as contemplated by the Investment
Advisory Agreement, the Registration Statement and the Prospectus.
3. Dreyfus has full power and authority to enter into each of
the Underwriting Agreement and the Investment Advisory Agreement and to carry
out all the terms and provisions thereof to be carried out by it, and each such
agreement has been duly and validly authorized, executed and delivered by
Dreyfus; each of the Investment Advisory Agreement and the Underwriting
Agreement complies in all material respects with all provisions of the
Investment Company Act, the Advisers Act, the Investment Company Act Rules and
the Advisers Act Rules; and assuming due authorization, execution and delivery
by the other parties thereto, each of the Underwriting Agreement and the
Investment Advisory Agreement constitutes a legal, valid and binding obligation
of Dreyfus, enforceable in accordance with its terms, (1) subject, as to
enforcement, to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and to general equitable principles (regardless of
whether enforcement is sought in a proceeding in equity or at law) and (2) as
rights to indemnity thereunder may be limited by federal or state securities
laws.
4. Neither (A) the execution and delivery by Dreyfus of the
Underwriting Agreement or the Investment Advisory Agreement by Dreyfus nor (B)
the consummation by Dreyfus of the transactions contemplated by, or the
performance of its obligations under such agreements conflicts or will conflict
with, or results or will result in a breach of, the Articles of Incorporation or
By-Laws of Dreyfus or any agreement or instrument to which Dreyfus is a party or
by which Dreyfus is bound, or any law, rule or regulation, or order of any
court, governmental instrumentality, securities exchange or association or
arbitrator, whether foreign or domestic, applicable to Dreyfus.
B-1
<PAGE>
5. No consent, approval, authorization or order of any court,
governmental agency or body or securities exchange or association, whether
foreign or domestic, is required for the consummation of the transactions
contemplated in, or the performance by Dreyfus of its obligations under, the
Underwriting Agreement or the Investment Advisory Agreement, as the case may be,
except such as have been obtained under the Investment Company Act, the Advisers
Act, the Securities Act, the Investment Company Act Rules, the Advisers Act
Rules and the Securities Act Rules.
6. The description of Dreyfus and its business in the
Registration Statement and the Prospectus complies with the requirements of the
Securities Act, the Investment Company Act, the Securities Act Rules and the
Investment Company Act Rules and does not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading.
7. There is no action, suit or proceeding before or by any
court, commission, regulatory body, administrative agency or other governmental
agency or body, foreign or domestic, now pending or, to our knowledge,
threatened against or affecting Dreyfus of a nature required to be disclosed in
the Registration Statement or Prospectus or that might result in any material
adverse change in the condition, financial or otherwise, business affairs or
business prospects of Dreyfus or the ability of Dreyfus to fulfill its
respective obligations under the Underwriting Agreement or under the Investment
Advisory Agreement.
8. The Registration Statement (except the financial statements
and schedules and other financial data included therein as to which we express
no view), at the time it became effective, and the Prospectus (except as
aforesaid), as of the date thereof, appeared on their face to be appropriately
responsive in all material respects to the requirements of the Securities Act,
the Investment Company Act and the rules and regulations of the Commission
thereunder.
In rendering our opinion, we have relied, as to factual
matters, upon the attached written certificates and statements of officers of
Dreyfus.
In connection with the registration of the Shares, we have
advised Dreyfus as to the requirements of the Securities Act, the Investment
Company Act and the applicable rules and regulations of the Commission
thereunder and have rendered other legal advice and assistance to Dreyfus in the
course of the preparation of the registration Statement and the Prospectus.
Rendering such assistance involved, among other things, discussions and
inquiries concerning various legal and related subjects and reviews of certain
corporate records, documents and proceedings. We also participated in
conferences with representatives of the Fund and its accountants and Dreyfus at
which the contents of the registration and Prospectus and related matters were
discussed. With your permission, we have not undertaken, except as otherwise
indicated herein, to determine independently, and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements in
the Registration Statement or Prospectus. On the basis of the information which
was developed in the course of the performance of the services referred to
above, no information has come to our attention that would lead us to believe
that the Registration Statement, at the time it became effective, contained any
untrue statement of a material fact or omitted to state a material fact required
B-2
<PAGE>
to be stated therein or necessary to make the statements therein not misleading,
or that the Prospectus, as of its date and as of such Closing Date, contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading or that any
amendment or supplement to the Prospectus, as of its respective date, and as of
such Closing Date, contained any untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make the statements in
the Prospectus, in the light of the circumstances under which they were made,
not misleading (except the financial statements, schedules and other financial
data included therein, as to which we express no view).
B-3
<PAGE>
ANNEX C
FORM OF ACCOUNTANT'S LETTER
April __, 1998
Ladies and Gentlemen:
We have audited the statement of assets and liabilities of
Dreyfus High Yield Strategies Fund (the "Fund") as of April _, 1998 included in
the Registration Statement on Form N-2 filed by the Fund under the Securities
Act of 1933 (the "Act") (File No. 333-_____) and under the Investment Company
Act of 1940 (the "1940 Act") (File No. 811-_____); such statement and our report
with respect to such statement are included in the Registration Statement; we
are independent public accountants with respect to the Fund within the meaning
of the Act and the applicable rules and regulations thereunder.
1. In our opinion, the statement of assets and liabilities
included in the Registration Statement and audited by us complies as to form in
all respects with the applicable accounting requirements of the Act, the 1940
Act and the respective rules and regulations thereunder.
2. For purposes of this letter we have read the minutes of all
meetings of the Shareholders, the Board of Trustees and all Committees of the
Board of Trustees of the Fund as set forth in the minute books at the offices of
the Fund, officials of the Fund having advised us that the minutes of all such
meetings through ________________ ___, 1998, were set forth therein.
3. Fund officials have advised us that no financial statements
as of any date subsequent to _______________ ___, 1998, are available. We have
made inquiries of certain officials of the Fund who have responsibility for
financial and accounting matters regarding whether there was any change at
______________ ___, 1998, in the capital shares or net assets of the Fund as
compared with amounts shown in the ______________ ___, 1998 statement of assets
and liabilities included in the Registration Statement, except for changes that
the Registration Statement discloses have occurred or may occur. On the basis of
our inquiries and our reading of the minutes as described in Paragraph 3,
nothing came to our attention that caused us to believe that there were any such
changes.
The foregoing procedures do not constitute an audit made in
accordance with generally accepted auditing standards. Accordingly, we make no
representations as to the sufficiency of the foregoing procedures for your
purposes.
4. This letter is solely for the information of the addressees
and to assist the underwriters in conducting and documenting their investigation
C-1
<PAGE>
of the affairs of the Fund in connection with the offering of the securities
covered by the Registration Statement, and is not to be used, circulated, quoted
or otherwise referred to within or without the underwriting group for any other
purpose, including but not limited to the registration, purchase or sale of
securities, nor is it to be filed with or referred to in whole or in part in the
Registration Statement or any other document, except that reference may be made
to it in the underwriting agreement or in any list of closing documents
pertaining to the offering of the securities covered by the Registration
Statement.
Very truly yours,
--------------------------
C-2
AMENDED AND RESTATED MASTER SELECTED DEALER AGREEMENT
June 11, 1984
PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Gentlemen:
1. GENERAL. We understand that PaineWebber Incorporated ("PW") is
entering into this Agreement with us and other firms who may be offered the
right to purchase as principal a portion of securities being distributed to the
public. The terms and conditions of this Agreement shall be applicable to any
public offering of securities ("Securities") wherein PW (acting for its own
account or for the account of any underwriting or similar group or syndicate) is
responsible for managing or otherwise implementing the sale of the Securities to
selected dealers ("Selected Dealers") and has expressly informed us that such
terms and conditions shall be applicable. Any such offering of Securities to us
as a Selected Dealer is hereinafter called an "Offering". In the case of any
Offering in which you are acting for the account of any underwriting or similar
group or syndicate ("Underwriters"), the terms and conditions of this Agreement
shall be for the benefit of, and binding upon, such Underwriters, including, in
the case of any Offering in which you are acting with others as representatives
of Underwriters, such other representatives. The term "preliminary prospectus"
means, in the case of an Offering registered under the Securities Act of 1933
(the "Securities Act"), any preliminary prospectus relating to an Offering of
Securities or any preliminary prospectus supplement together with a prospectus
relating to an Offering of Securities and, in the case of an Offering not
registered under the Securities Act, any preliminary offering circular relating
to an Offering of Securities or any preliminary offering circular supplement
together with an offering circular relating to an Offering of Securities; the
term "Prospectus" means in the case of an Offering registered under the
Securities Act of 1933 (the "Securities Act"), the prospectus, together with the
final prospectus supplement, if any, relating to such Offering of Securities,
filed pursuant to Rule 424(b) or Rule 424(c) under the Securities Act and, in
the case of an Offering not registered under the Securities Act, the final
offering circular, including any supplements, relating to such Offering of
Securities.
2. CONDITIONS OF OFFERING; ACCEPTANCE AND PURCHASE. Any Offering will be
subject to delivery of the Securities and their acceptance by you and any other
Underwriters may be subject to the approval of all legal matters by counsel and
the satisfaction of other conditions, and may be made on the basis of
reservation of Securities or an allotment against subscription. You will advise
us by telegram, telex or other form of written communication ("Written
Communication") of the particular method and supplementary terms and conditions
(including, without limitation, the information as to prices and offering date
referred to in Section 3(b)) of any Offering in which we are invited to
participate. To the extent such supplementary terms and conditions are
<PAGE>
inconsistent with any provision herein, such terms and conditions shall
supersede any such provision. Unless otherwise indicated in any such Written
Communication, acceptances and other communications by us with respect to any
Offering should be sent to PaineWebber Incorporated, 1285 Avenue of the
Americas, New York, New York 10019. You reserve the right to reject any
acceptance in whole or in part. Payment for Securities purchased by us is to be
made at such office as you may designate, at the public offering price, or, if
you shall so advise us, at such price less the concession to dealers or at the
price set forth or indicated in a Written Communication, on such date as you
shall determine, on one day's prior notice to us, by certified or official bank
check in New York Clearing House funds payable to the order of PaineWebber
Incorporated, against delivery of certificates evidencing such Securities. If
payment is made for Securities purchased by us at the public offering price, the
concession to which we shall be entitled will be paid to us upon termination of
the provisions of Section 3(b) with respect to such Securities.
Unless we promptly give you written instructions otherwise, if
transactions in the Securities may be settled through the facilities of The
Depository Trust Company, payment for and delivery of Securities purchased by us
will be made through such facilities if we are a member, or if we are not a
member, settlement may be made through our ordinary correspondent who is a
member.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. (a) PROSPECTUSES. You
shall provide us with such number of copies of each preliminary prospectus, the
Prospectus and any supplement thereto relating to each Offering as we may
reasonably request. If the Securities will be registered under the Securities
Act, we represent that we are familiar with Rule 15c2-8 under the Exchange Act
relating to the distribution of preliminary and final prospectuses and agree
that we will comply therewith; we agree to keep an accurate record of our
distribution (including dates, number of copies and persons to whom sent) of
copies of the Prospectus or any preliminary prospectus (or any amendment or
supplement to any thereof), and promptly upon request by you, to bring all
subsequent changes to the attention of anyone to whom such material shall have
been furnished; and we agree to furnish to persons who receive a confirmation of
sale a copy of the Prospectus filed pursuant to Rule 424(b) or Rule 424(c) under
the Securities Act. If the Securities will not be registered under the
Securities Act, we agree that we will deliver all preliminary and final offering
circulars required for compliance with the applicable laws and regulations
governing the use and distribution of the offering circulars by underwriters,
and, to the extent consistent with such laws and regulations, we confirm that we
have delivered and agree that we will deliver all preliminary and final offering
circulars which would be required if the provisions of Rule 15c2-8 under the
Exchange Act applied to this offering. We agree that in purchasing Securities in
an Offering we will rely upon no statements whatsoever, written or oral, other
than the statements in the Prospectus delivered to us by you. We will not be
authorized by the issuer or other seller of Securities offered pursuant to a
Prospectus or by any Underwriters to give any information or to make any
representation not contained in the Prospectus in connection with the sale of
such Securities.
(b) OFFER AND SALE OF THE PUBLIC. With respect to any Offering of
Securities, you will inform us by a Written Communication of the public offering
2
<PAGE>
price, the selling concession, the reallowance (if any) to dealers and the time
when we may commence selling Securities to the public. After such public
offering has commenced, you may change the public offering price, the selling
concession and the reallowance to dealers. With respect to each Offering of
Securities, until the provisions of this Section 3(b) shall be terminated
pursuant to Section 4, we agree to offer Securities to the public only at the
public offering price, except that if a reallowance is in effect, a reallowance
from the public offering price not in excess of such reallowance may be allowed
as consideration for services rendered in distribution to dealers who are
actually engaged in the investment banking or securities business, who execute
the written agreement prescribed by Section 24(c) of Article III of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc. (the
"NASD"), and who are either members in good standing of the NASD or foreign
brokers or dealers not eligible for membership in the NASD who represent to us
that they will promptly reoffer such Securities at the public offering price and
will abide by the conditions with respect to foreign brokers and dealers set
forth in Section 3(e).
(c) STABILIZATION AND OVER-ALLOTMENT. You may, with respect to any
Offering, be authorized to over-allot in arranging sales to Selected Dealers, to
purchase and sell Securities, any other securities of the issuer of the
Securities of the same class and series and any other securities of such issuer
that you may designate for long or short account and to stabilize or maintain
the market price of the Securities. We agree to advise you from time to time
upon request, prior to the termination of the provisions of Section 3(b) with
respect to any Offering, of the amount of Securities purchased by us hereunder
remaining unsold and we will, upon your request, sell to you, for the accounts
of the Underwriters, such amount of Securities as you may designate, at the
public offering price thereof less an amount to be determined by you not in
excess of the concession to dealers. In the event that prior to the later of (i)
the termination of the provisions of Section 3(b) with respect to any Offering,
or (ii) the covering by you of any short position created by you in connection
with such Offering for your account or the account of one or more Underwriters,
you purchase or contract to purchase for the account of any of the Underwriters,
in the open market or otherwise, any Securities theretofore delivered to us, you
reserve the right to withhold the above-mentioned concession to dealers on such
Securities if sold to us at the public offering price, or if such concession has
been allowed to us through our purchase at a net price, we agree to repay such
concession upon your demand, plus in each case any taxes on redelivery,
commissions, accrued interest and dividends paid in connection with such
purchase or contract to purchase.
(d) OPEN MARKET TRANSACTIONS. We agree not to bid for, purchase, attempt
to purchase, or sell, directly or indirectly, any Securities, any other
securities of the issuer of the Securities of the same class and series or any
other securities of such issuer as you may designate, except as brokers pursuant
to unsolicited orders and as otherwise provided in this Agreement. If the
Securities are common stock or securities convertible into common stock, we
agree not to effect, or attempt to induce others to effect, directly or
indirectly, any transactions in or relating to put or call options on any stock
of such issuer, except to the extent permitted by Rule 10b-6 under the Exchange
Act as interpreted by the Securities and Exchange Commission. An opening
uncovered writing transaction in options to acquire Securities for our account
or for the account of any customer shall be deemed, for purposes of the
3
<PAGE>
preceding sentence, to be a transaction effected by us in or relating to put or
call options on stock of the Company not permitted by Rule 10b-6. The term
"opening uncovered writing transaction" means an opening sale transaction where
the seller intends to become a writer of an option to purchase stock which it
does not own or have the right to acquire upon exercise of conversion or option
rights.
(e) NASD. We represent that we are actually engaged in the investment
banking or securities business and we are either a member in good standing of
the NASD, or, if not such a member, a foreign dealer not eligible for
membership. If we are such a member we agree that in making sales of the
Securities we will comply with all applicable rules of the NASD, including,
without limitation, the NASD's Interpretation with Respect to Fee-Riding and
Withholding and Section 24 of Article III of the Rules of Fair Practice. If we
are such a foreign dealer, we agree not to offer or sell any Securities in the
United States of America except through you and in making sales of Securities
outside the United States of America we agree to comply as though we were a
member with such Interpretation and Sections 8.24 and 36 of Article III of the
NASD's Rules of Fair Practice and to comply with Section 25 of such Article III
as it applies to a nonmember broker or dealer in a foreign country.
(f) RELATIONSHIP AMONG UNDERWRITERS AND SELECTED DEALERS. You may buy
Securities from or sell Securities to any Underwriter or Selected Dealer and,
with your consent, the Underwriters (if any) and the Selected Dealers may
purchase Securities from and sell Securities to each other at the public
offering price less all or any part of the concession. We are not authorized to
act as agent for you or any Underwriter or the issuer or other seller of any
Securities in offering Securities to the public or otherwise. Nothing contained
herein or in any Written Communication from you shall constitute the Selected
Dealers partners with you or any Underwriter or with one another. Neither you
nor any Underwriter shall be under any obligation to us except for obligations
assumed hereby or in any Written Communication from you in connection with any
Offering. In connection with any Offering, we agree to pay our proportionate
share of any claim, demand or liability asserted against us, and the other
Selected Dealers or any of them, or against you or the Underwriters, if any,
based on any claim that such Selected Dealers or any of them constitute an
association, unincorporated business or other separate entity, including in each
case our proportionate share of any expense incurred in defending against any
such claim, demand or liability.
(g) BLUE SKY LAWS. Upon application to you, you will inform us as to the
jurisdictions in which you believe the Securities have been qualified for sale
under the respective securities of "blue sky" laws of such jurisdictions. We
understand and agree that compliance with the securities or "blue sky" laws in
each jurisdiction in which we shall offer or sell any of the Securities shall be
our sole responsibility and that you assume no responsibility or obligations as
to the eligibility of the Securities for sale or our right to sell the
Securities in any jurisdiction.
(h) COMPLIANCE WITH LAW. We agree that in selling Securities pursuant to
any Offering (which agreement shall also be for the benefit of the issuer or
other seller of such Securities) we will comply with the applicable provisions
of the Securities Act and the Exchange Act, the applicable rules and regulations
4
<PAGE>
of the Securities and Exchange Commission thereunder, the applicable rules and
regulations of the NASD and the applicable rules and regulations of any
securities exchange having jurisdiction over the Offering. You shall have full
authority to take such action as you may deem advisable in respect of all
matters pertaining to any Offering. Neither you nor any Underwriter shall be
under any liability to us, except for lack of good faith and for obligations
expressly assumed by you in this Agreement; PROVIDED, however, that nothing in
this sentence shall be deemed to relieve you from any liability imposed by the
Securities Act.
4. TERMINATION; SUPPLEMENTS AND AMENDMENTS. This agreement may be
terminated by either party hereto upon five business days' written notice to the
other party; PROVIDED that with respect to any Offering for which a Written
Communication was sent and accepted prior to such notice, this Agreement as it
applies to such Offering shall remain in full force and effect and shall
terminate with respect to such Offering in accordance with the last sentence of
this Section. This Agreement may be supplemented or amended by you by written
notice thereof to us, and any such supplement or amendment to this Agreement
shall be effective with respect to any Offering to which this Agreement applies
after the date of such supplement or amendment. Each reference to "this
Agreement" herein shall, as appropriate, be to this Agreement as so amended and
supplemented. The terms and conditions set forth in Sections 3(b) and (d) with
regard to any Offering will terminate at the close of business on the thirtieth
day after the date of the initial public offering of the Securities to which
such Offering relates, but such terms and conditions, upon notice to us, may be
terminated by you at any time.
5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on, and inure
to the benefit of, the parties hereto and other persons specified or indicated
in Section 1, and the respective successors and assigns of each of them.
6. GOVERNING LAW. This Agreement and the terms and conditions set forth
herein with respect to any Offering together with such supplementary terms and
conditions with respect to such Offering as may be contained in any Written
Communication from you to us in connection therewith shall be governed by, and
construed in accordance with, the laws of the State of New York.
By signing this Agreement we confirm that our subscription to, or our
acceptance of any reservation of, any Securities pursuant to an Offering shall
constitute (i) acceptance of and agreement to other terms and conditions of this
Agreement (as supplemented and amended pursuant to Section 4) together with and
subject to any supplementary terms and conditions contained in any Written
Communication from you in connection with such Offering, all of which shall
constitute a binding agreement between us and you, individually or as
representative of any Underwriters, (ii) confirmation that our representations
and warranties set forth in Section 3 are true and correct at that time and
(iii) confirmation that our agreements set forth in Sections 2 and 3 have been
and will be fully performed by us to the extent and at the times required
thereby.
5
<PAGE>
Very truly yours,
-----------------------------------------
(Name of Firm)
by
--------------------------------------
Confirmed, as of the date first above written.
PAINEWEBBER INCORPORATED.
by
-------------------------------------
Vice President
THE DREYFUS HIGH YIELD STRATEGIES FUND TRUST
CUSTODY AGREEMENT
AGREEMENT dated as of ________________ between THE DREYFUS HIGH YIELD
STRATEGIES FUND, a business trust organized under the laws of The Commonwealth
of Massachusetts having its principal office and place of business at 200 Park
Avenue, New York, NY 10166 (the "Fund"), and MELLON BANK, N.A., a national
banking association with its principal place of business at One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258 (the "Custodian").
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
1. DEFINITIONS.
------------
Whenever used in this Agreement or in any Schedules or Appendices to
this Agreement, the following words and phrases, unless the context otherwise
requires, shall have the following meanings:
(a) "Authorized Persons" shall be deemed to include the Chairman of the
Board of Trustees, the President, and any Vice President, the Secretary, the
Treasurer or any other person, whether or not any such person is an officer or
employee of the Fund, duly authorized by the Board of Trustees of the Fund to
give Oral Instructions and Written Instructions on behalf of the Fund and listed
in the certification annexed hereto as Appendix A or such other certification as
may be received by the Custodian from time to time.
(b) "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency Securities, its successor
or successors and its nominee or nominees.
(c) "Certificate" shall mean any notice, instruction or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian, which is actually received by the Custodian and signed on behalf
of the Fund by any two Authorized Persons or any two officers thereof.
(d) Master Trust Agreement shall mean the Master Trust Agreement of the
Fund, as the same may be amended from time to time.
(e) "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission under
Section 17(a) of the Securities Exchange Act of 1934, as amended, its successor
or successors and its nominee or nominees, in which the Custodian is hereby
specifically authorized to make deposits. The term "Depository" shall further
<PAGE>
mean and include any other person to be named in a Certificate authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees.
(f) "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to interest and principal
by the Government of the United States or agencies or instrumentalities thereof,
commercial paper, bank certificates of deposit, bankers' acceptances and
short-term corporate obligations, where the purchase or sale of such securities
normally requires settlement in federal funds on the same day as such purchase
or sale, and repurchase and reverse repurchase agreements with respect to any of
the foregoing types of securities.
(g) "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from a person reasonably believed by the Custodian to
be an Authorized Person.
(h) "Prospectus" shall mean the Fund's current prospectus(es) and
statement of additional information relating to the distribution of the Fund's
shares under the Securities Act of 1933, as amended.
(i) "Shares" refers to shares of beneficial interest, $15.00 per value
per share, of the Fund.
(j) "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and other
securities, commodities interests and investments from time to time owned by the
Fund.
(k) "Transfer Agent" shall mean the person which performs as the
transfer agent, dividend disbursing agent and shareholder servicing agent
functions for the Fund.
(l) "Written Instructions" shall mean a written communication actually
received by the Custodian from a person reasonably believed by the Custodian to
be an Authorized Person by any system whereby the receiver of such communication
is able to verify through codes or otherwise with a reasonable degree of
certainty the authenticity of the sender of such communication.
(m) The "1940 Act" refers to the Investment Company Act of 1940, and
the Rules and Regulations thereunder, all as amended from time to time.
2. APPOINTMENT OF CUSTODIAN.
-------------------------
(a) The Fund hereby constitutes and appoints the Custodian as custodian
of all the Securities and monies at the time owned by or in the possession of
the Fund during the period of this Agreement.
2
<PAGE>
(b) The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
3. COMPENSATION.
-------------
4. CUSTODY OF CASH AND SECURITIES.
-------------------------------
(a) RECEIPT AND HOLDING OF ASSETS.
------------------------------
The Fund will deliver or cause to be delivered to the Custodian all
Securities and monies owned by the Fund at any time during the period of this
Agreement. The Custodian will not be responsible for such Securities and monies
until actually received by it. The Fund shall instruct the Custodian from time
to time in its sole discretion, by means of Written Instructions, or, in
connection with the purchase or sale of Money Market Securities, by means of
Oral Instructions or Written Instructions, as to the manner in which and in what
amounts Securities and monies are to be deposited on behalf of the Fund in the
Book-Entry System or the Depository; provided, however, that prior to the
deposit of Securities of the Fund in the Book-Entry System or the Depository,
including a deposit in connection with the settlement of a purchase or sale, the
Custodian shall have received a Certificate specifically approving such deposits
by the Custodian in the Book-Entry System or the Depository. Securities and
monies of the Fund deposited in the Book-Entry System or the Depository will be
represented in accounts which include only assets held by the Custodian for
customers, including but not limited to accounts which the Custodian acts in a
fiduciary or representative capacity.
(b) ACCOUNTS AND DISBURSEMENTS. The Custodian shall establish and
maintain a separate account for the Fund and shall credit to the separate
account all monies received by it for the account of the Fund and shall disburse
the same only:
1. In payment for Securities purchased for the Fund, as
provided in Section 5 hereof;
2. In payment of dividends or distributions with respect to the
Shares of the Fund, as provided in Section 7 hereof;
3. In payment of original issue or other taxes with respect to
the Shares of the Fund, as provided in Section 8 hereof;
4. In payment for Shares which have been redeemed by the Fund,
as provided in Section 8 hereof;
5. Pursuant to Written Instructions, or with respect to Money
Market Securities, Oral Instructions or Written
Instructions, setting forth the name and address of the
3
<PAGE>
person to whom the payment is to be made, the amount to be
paid and the purpose for which payment is to be made; or
6. In payment of fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to the Fund, as
provided in Section 3 and section 12(h) hereof.
(c) CONFIRMATION AND STATEMENTS. Promptly after the close of business
on each day, the Custodian shall furnish the Fund with confirmations and a
summary of all transfers to or from the account of the Fund during said day.
Where securities purchased by the Fund are in a fungible bulk of securities
registered in the name of the Custodian (or its nominee) or shown on the
Custodian's account on the books of the Depository or the Book-Entry System, the
Custodian shall by book entry or otherwise identify the quantity of those
securities belonging to the Fund. At least monthly, the Custodian shall furnish
the Fund with a detailed statement of the Securities and monies held for the
Fund under this Agreement.
(d) REGISTRATION OF SECURITIES AND PHYSICAL SEPARATION. All Securities
held for the Fund which are issued or issuable only in bearer form, except such
Securities as are held in the Book-Entry System, shall be held by the Custodian
in that form; all other Securities held for the Fund may be registered in the
name of the Fund, in the name of any duly appointed registered nominee of the
Custodian as the Custodian may from time to time determine, or in the name of
the Book-Entry System or the Depository or their successor or successors, or
their nominee or nominees. The Fund reserves the right to instruct the Custodian
as to the method of registration and safekeeping of the Securities. The Fund
agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or the
Depository, any Securities which it may hold for the account of the Fund and
which may from time to time be registered in the name of the Fund. The Custodian
shall hold all such Securities specifically allocated to the Fund which are not
held in the Book-Entry System or the Depository in a separate account for the
Fund in the name of the Fund physically segregated at all times from those of
any other person or persons.
(e) SEGREGATED ACCOUNTS. Upon receipt of a Written Instruction the
Custodian will establish segregated accounts on behalf of the Fund to hold
liquid or other assets as it shall be directed by a Written Instruction and
shall increase or decrease the assets in such Segregated Accounts only as it
shall be directed by subsequent Written Instruction.
(f) COLLECTION OF INCOME AND OTHER MATTERS AFFECTING SECURITIES. Unless
otherwise instructed to the contrary by a Written Instruction, the Custodian by
itself, or through the use of the Book-Entry System or the Depository with
respect to Securities therein deposited, shall with respect to all Securities
held for the Fund in accordance with this Agreement:
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1. Collect all income due or payable;
2. Present for payment and collect the amount payable
upon all Securities which may mature or be called,
redeemed or retired, or otherwise become payable.
Notwithstanding the foregoing, the Custodian shall
have no responsibility to the Fund for monitoring or
ascertaining any call, redemption or retirement dates
with respect to put bonds which are owned by the Fund
and held by the Custodian or its nominees. Nor shall
the Custodian have any responsibility or liability to
the Fund for any loss by the Fund for any missed
payments or other defaults resulting therefrom;
unless the Custodian received timely notification
from the Fund specifying the time, place and manner
for the presentment of any such put bond owned by the
Fund and held by the Custodian or its nominee. The
Custodian shall not be responsible and assumes no
liability to the Fund for the accuracy or
completeness of any notification the Custodian may
furnish to the Fund with respect to put bonds;
3. Surrender Securities and temporary form for
definitive Securities;
4. Execute any necessary declarations or certificates of
ownership under the Federal income tax laws or the
laws or regulations of any other taxing authority now
or hereafter in effect; and
5. Hold directly, or through the Book-Entry System or
the Depository with respect to Securities therein
deposited, for the account of the Fund all rights and
similar Securities issued with respect to any
Securities held by the Custodian hereunder for the
Fund.
(g) DELIVERY OF SECURITIES AND EVIDENCE OF AUTHORITY. Upon receipt of a
Written Instruction and not otherwise, except for subparagraphs 5, 6, 7 and 8 of
this section 4(g) which may be effected by Oral or Written Instructions, the
Custodian, directly or through the use of the Book-Entry System or the
Depository, shall:
1. Execute and deliver or cause to be executed and
delivered to such persons as may be designated in
such Written Instructions, proxies, consents,
authorizations, and any other instruments whereby the
authority of the Fund as owner of any Securities may
be exercised;
2. Deliver or cause to be delivered any Securities held
for the Fund in exchange for other Securities or cash
issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or
capitalization of any corporation, or the exercise of
any conversion privilege;
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<PAGE>
3. Deliver or cause to be delivered any Securities held
for the Fund to any protective committee,
reorganization committee or other person in
connection with the reorganization, refinancing,
merger, consolidation or recapitalization or sale of
assets of any corporation, and receive and hold under
the terms of this Agreement in the separate account
for the Fund such certificates of deposit, interim
receipts or other instruments or documents as may be
issued to it to evidence such delivery;
4. Make or cause to be made such transfers or exchanges
of the assets specifically allocated to the separate
account of the Fund and take such other steps as
shall be stated in Written Instructions to be for the
purpose of effectuating any duly authorized plan of
liquidation, reorganization, merger, consolidation or
recapitalization of the Fund;
5. Deliver Securities upon sale of such Securities for
the account of the Fund pursuant to Section 5;
6. Deliver Securities upon the receipt of payment in
connection with any repurchase agreement related to
such Securities entered into by the Fund;
7. Deliver Securities owned by the Fund to the issuer
thereof or its agent when such Securities are called,
redeemed, retired or otherwise become payable;
provided, however, that in any such case the cash or
other consideration is to be delivered to the
Custodian. Notwithstanding the foregoing, the
Custodian shall have no responsibility to the Fund
for monitoring or ascertaining any call, redemption
or retirement dates with respect to the put bonds
which are owned by the Fund and held by the Custodian
or its nominee. Nor shall the Custodian have any
responsibility or liability to the Fund for any loss
by the Fund for any missed payment or other default
resulting therefrom; unless the Custodian received
timely notification from the Fund specifying the
time, place and manner for the presentment of any
such put bond owned by the Fund and held by the
Custodian or its nominee. The Custodian shall not be
responsible and assumes no liability to the Fund for
the accuracy or completeness of any notification the
Custodian may furnish to the Fund with respect to put
bonds;
8. Deliver Securities for delivery in connection with
any loans of securities made by the Fund but only
against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund which
may be in the form of cash or obligations issued by
the United States government, its agencies or
instrumentalities;
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9. Deliver Securities for delivery as security in
connection with any borrowings by the Fund requiring
a pledge of Fund assets, but only against receipt of
amounts borrowed;
10. Deliver Securities upon receipt of Written
Instructions from the Fund for delivery to the
Transfer Agent or to the holders of Shares in
connection with distributions in kind, as may be
described from time to time in the Fund's Prospectus,
in satisfaction of requests by holders of Shares for
repurchase or redemption;
11. Deliver Securities as collateral in connection with
short sales by the Fund of common stock for which the
Fund owns the stock or owns preferred stocks or debt
securities convertible or exchangeable, without
payment or further consideration, into shares of the
common stock sold short;
12. Deliver Securities for any purpose expressly
permitted by and in accordance with procedures
described in the Fund's Prospectus; and
13. Deliver Securities for any other proper business
purpose, but only upon receipt of, in addition to
Written Instructions, a certified copy of a
resolution of the Board of Trustees signed by an
Authorized Person and certified by the Secretary of
the Fund, specifying the Securities to be delivered,
setting forth the purpose for which such delivery is
to be made, declaring such purpose to be a proper
business purpose, and naming the person or persons to
whom delivery of such Securities shall be made.
(h) ENDORSEMENT AND COLLECTION OF CHECKS, ETC. The Custodian is hereby
authorized to endorse and collect all checks, drafts or other orders for the
payment of money received by the Custodian for the account of the Fund.
5. PURCHASE AND SALE OF INVESTMENTS OF THE FUND.
---------------------------------------------
(a) Promptly after each purchase of Securities for the Fund, the Fund
shall deliver to the Custodian (i) with respect to each purchase of Securities
which are not Money Market Securities, a Written Instruction, and (ii) with
respect to each purchase of Money Market Securities, either a Written
Instruction or Oral Instruction, in either case specifying with respect to each
purchase: (1) the name of the issuer and the title of the Securities; (2) the
number of shares or the principal amount purchased and accrued interest, if any;
(3) the date of purchase and settlement; (4) the purchase price per unit; (5)
the total amount payable upon such purchase; (6) the name of the person from
whom or the broker through whom the purchase was made, if any; (7) whether or
not such purchase is to be settled through the Book-Entry System or the
Depository; and (8) whether the Securities purchased are to be deposited in the
Book-Entry System or the Depository. The Custodian shall receive the Securities
purchased by or for the Fund and upon receipt of Securities shall pay out of the
monies held for the account of the Fund the total amount payable upon such
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<PAGE>
purchase, provided that the same conforms to the total amount payable as set
forth in such Written or Oral Instruction.
(b) Promptly after each sale of Securities of the Fund, the Fund shall
deliver to the Custodian (i) with respect to each sale of Securities which are
not Money Market Securities, a Written Instruction, and (ii) with respect to
each sale of Money Market Securities, either Written Instructions or Oral
Instructions, in either case specifying with respect to such sale: (1) the name
of the issuer and the title of the Securities; (2) the number of shares or
principal amount sold, and accrued interest, if any; (3) the date of sale; (4)
the sale price per unit; (5) the total amount payable to the Fund upon such
sale; (6) the name of the broker through whom or the person to whom the sale was
made; and (7) whether or not such sale is to be settled through the Book-Entry
System or the Depository. The Custodian shall deliver or cause to be delivered
the Securities to the broker or other person designated by the Fund upon receipt
of the total amount payable to the Fund upon such sale, provided that the same
conforms to the total amount payable to the Fund as set forth in such Written or
Oral instruction. Subject to the foregoing, the Custodian may accept payment in
such form as shall be satisfactory to it, and may deliver Securities and arrange
for payment in accordance with the customs prevailing among dealers in
Securities.
6. LENDING OF SECURITIES.
----------------------
If the Fund is permitted by the terms of the Master Trust Agreement and
as disclosed in its Prospectus to lend Securities, within 24 hours after each
loan of Securities, the Fund shall deliver to the Custodian a Written
Instruction specifying with respect to each such loan: (a) the name of the
issuer and the title of the Securities; (b) the number of shares or the
principal amount loaned; (c) the date of loan and delivery; (d) the total amount
to be delivered to the Custodian, and specifically allocated against the loan of
the Securities, including the amount of cash collateral and the premium, if any,
separately identified; (e) the name of the broker, dealer or financial
institution to which the loan was made; and (f) whether the Securities loaned
are to be delivered through the Book-Entry System or the Depository.
Promptly after each termination of a loan of Securities, the Fund shall
deliver to the Custodian a Written Instruction specifying with respect to each
such loan termination and return of Securities: (a) the name of the issuer and
the title of the Securities to be returned; (b) the number of shares or the
principal amount to be returned; (c) the date of termination; (d) the total
amount to be delivered by the Custodian (including the cash collateral for such
Securities minus any offsetting credits as described in said Written
Instruction); (e) the name of the broker, dealer or financial institution from
which the Securities will be returned; and (f) whether such return is to be
effected through the Book-Entry System or the Depository. The Custodian shall
receive all Securities returned from the broker, dealer or financial institution
to which such Securities were loaned and upon receipt thereof shall pay the
total amount payable upon such return of Securities as set forth in the Written
Instruction. Securities returned to the Custodian shall be held as they were
prior to such loan.
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<PAGE>
7. PAYMENT OF DIVIDENDS OR DISTRIBUTIONS.
--------------------------------------
(a) The Fund shall furnish to the Custodian the vote of the Board of
Trustees of the Fund certified by the Secretary (i) authorizing the declaration
of distributions on a specified periodic basis and authorizing the Custodian to
rely on Oral or Written Instructions specifying the date of the declaration of
such distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount payable per
Share to the shareholders of record as of the record date and the total amount
payable to the Transfer Agent on the payment date, or (ii) setting forth the
date of declaration of any distribution by the Fund, the date of payment
thereof, the record date as of which shareholders entitled to payment shall be
determined, the amount payable per share to the shareholders of record as of the
record date and the total amount payable to the Transfer Agent on the payment
date.
(b) Upon the payment date specified in such vote, Oral Instructions, or
Written Instructions, as the case may be, the Custodian shall pay out the total
amount payable to the Transfer Agent of the Fund.
8. SALE AND REDEMPTION OF SHARES OF THE FUND.
------------------------------------------
(a) Whenever the Fund shall sell any Shares, the Fund shall deliver or
cause to be delivered to the Custodian a Written Instruction duly specifying:
1. The number of Shares sold, trade date, and price; and
2. The amount of money to be received by the Custodian for the
sale of such Shares.
The Custodian understands and agrees that Written Instructions may be
furnished subsequent to the purchase of Shares and that the information
contained therein will be derived from the sales of Shares as reported to the
Fund by the Transfer Agent.
(b) Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account of the Fund.
(c) Upon issuance of any Shares in accordance with the foregoing
provisions of this Section 8, the Custodian shall pay all original issue or
other taxes required to be paid in connection with such issuance upon the
receipt of a Written Instruction specifying the amount to be paid.
(d) Except as provided hereafter, whenever Any Shares are redeemed, the
Fund shall cause the Transfer Agent to promptly furnish to the Custodian Written
Instructions, specifying:
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<PAGE>
1. The number of Shares redeemed; and
2. The amount to be paid for the Shares redeemed.
The Custodian further understands that the information contained in
such Written Instructions will be derived from the redemption of Shares as
reported to the Fund by the Transfer Agent.
(e) Upon receipt from the Transfer Agent of advice setting forth the
number of Shares received by the Transfer Agent for redemption and that such
Shares are valid and in good form for redemption, the Custodian shall make
payment to the Transfer Agent of the total amount specified in a Written
Instruction issued pursuant to paragraph (d) of this Section 8.
(f) Notwithstanding the above provisions regarding the redemption of
Shares, whenever such Shares are redeemed pursuant to any check redemption
privilege which may from time to time be offered by the Fund, the Custodian,
unless otherwise instructed by a Written Instruction shall, upon receipt of
advice from the Fund or its agent stating that the redemption is in good form
for redemption in accordance with the check redemption procedure, honor the
check presented as part of such check redemption privilege out of the monies
specifically allocated to the Fund in such advice for such purpose.
9. INDEBTEDNESS.
-------------
(a) The Fund will cause to be delivered to the Custodian by any bank
(excluding the Custodian) from which the Fund borrows money for temporary
administrative or emergency purposes using Securities as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian Written Instructions stating with respect to each such borrowing:
(1) the name of the bank; (2) the amount and terms of the borrowing, which may
be set forth by incorporating by reference an attached promissory note, duly
endorsed by the Fund, or other loan agreement; (3) the time and date, if known,
on which the loan is to be entered into (the "borrowing date"); (4) the date on
which the loan becomes due and payable; (5) the total amount payable to the Fund
on the borrowing date; (6) the market value of Securities to be delivered as
collateral for such loan, including the name of the issuer, the title and the
number of shares or the principal amount of any particular Securities; (7)
whether the Custodian is to deliver such collateral through the Book-Entry
System or the Depository; and (8) a statement that such loan is in conformance
with the 1940 Act and the Fund's Prospectus.
(b) Upon receipt of the Written Instruction referred to in Subparagraph
(a) above, the Custodian shall deliver on the borrowing date the specified
collateral and the executed promissory note, if any, against delivery by the
lending bank of the total amount of the loan payable, provided that the same
conforms to the total amount payable as set forth in the Written Instruction.
The Custodian may, at the option of the lending bank, keep such collateral in
its possession, but such collateral shall be subject to all rights therein given
the lending bank by virtue of any promissory note or loan agreement. The
Custodian shall deliver as additional collateral in the manner directed by the
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<PAGE>
Fund from time to time such Securities as may be specified in Written
Instruction to collateralize further any transaction described in this Section
9. The Fund shall cause all Securities released from collateral status to be
returned directly to the Custodian, and the Custodian shall receive from time to
time such return of collateral as may be tendered to it. In the event that the
Fund fails to specify in written Instruction all of the information required by
this Section 9, the Custodian shall not be under any obligation to deliver any
Securities. Collateral returned to the Custodian shall be held hereunder as it
was prior to being used as collateral.
10. PERSONS HAVING ACCESS TO ASSETS OF THE FUND.
--------------------------------------------
(a) No trustee or agent of the Fund, and no officer, director, employee
or agent of the Fund's investment adviser, of any sub-investment adviser of the
Fund, or of the Fund's administrator, shall have physical access to the assets
of the Fund held by the Custodian or be authorized or permitted to withdraw any
investments of the Fund, nor shall the Custodian deliver any assets of the Fund
to any such person. No officer, director, employee or agent of the Custodian who
holds any similar position with the Fund's investment adviser, with any
sub-investment adviser of the Fund or with the Fund's administrator shall have
access to the assets of the Fund.
(b) Nothing in this Section 10 shall prohibit any officer, employee or
agent of the Fund, or any officer, director, employee or agent of the investment
adviser, of any sub-investment adviser of the Fund or of the Fund's
administrator, from giving Oral Instructions or Written Instructions to the
Custodian or executing a Certificate so long as it does not result in delivery
of or access to assets of the Fund prohibited by paragraph (a) of this Section
10.
11. OVERDRAFT FACILITY AND SECURITY FOR PAYMENT.
--------------------------------------------
In the event that the Custodian is directed by Written Instructions (or
Oral Instructions confirmed in writing) to make any payment or transfer of funds
on behalf of the Fund for which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the Custodian on
behalf of the Fund, the Custodian may, in its sole discretion, provide an
overdraft (an "Overdraft") to the Fund in an amount sufficient to allow the
completion of such payment or transfer. Any Overdraft provided hereunder: (a)
shall be payable on the next Business Day, unless otherwise agreed by the Fund
and the Custodian; and (b) shall accrue interest from the date of the Overdraft
to the date of payment in full by the Fund at a rate agreed upon in writing,
from time to time, by the Custodian and the Fund. The Custodian and the Fund
acknowledge that the purpose of such Overdraft is to temporarily finance the
purchase of securities for prompt delivery in accordance with the terms hereof,
to meet unanticipated or unusual redemptions, or to meet other emergency
expenses not reasonably foreseeable by the Fund. The Custodian shall promptly
notify the Fund in writing (an "Overdraft Notice") of any Overdraft by facsimile
transmission or in such other manner as the Fund and the Custodian may agree in
writing. To secure payment of any Overdraft, the Fund hereby grants to the
Custodian a continuing security interest in and right of setoff against the
Securities in the Fund's account from time to time in the full amount of such
Overdraft. Shall the Fund fail to pay promptly any amounts owed hereunder, the
Custodian shall be entitled to use available cash in the Fund's account and to
liquidate Securities in the account as is necessary to meet the Fund's
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<PAGE>
obligations under the Overdraft. In any case, and without limiting the
foregoing, the Custodian shall be entitled to take such other action(s) or
exercise such other options, powers and rights as the Custodian now or hereafter
has as a secured creditor under the Massachusetts Uniform Commercial Code or any
other applicable law.
12. CONCERNING THE CUSTODIAN.
-------------------------
(a) STANDARD OF CONDUCT. Except as otherwise provided herein, neither
the Custodian nor its nominee shall be liable for any loss or damage, including
counsel fees, resulting from its action or omission to act or otherwise, except
for any such loss or damage arising out of its own negligence or willful
misconduct. The Custodian may, with respect to questions of law, apply for and
obtain the advice and opinion of counsel to the Fund or of its own counsel, at
the expense of the Fund, and shall be fully protected with respect to anything
done or omitted by it in good faith in conformity with such advice or opinion.
The Custodian shall be liable to the Fund for any loss or damage resulting from
the use of the Book-Entry System or the Depository arising by reason of any
negligence, misfeasance or misconduct on the part of the Custodian or any of its
employees or agents.
(b) LIMIT OF DUTIES. Without limiting the generality of the foregoing,
the Custodian shall be under no duty or obligation to inquire into, and shall
not be liable for:
1. The validity of the issue of any Securities purchased
by the Fund, the legality of the purchase thereof, or
the propriety of the amount paid therefor;
2. The legality of the sale of any Securities by the
Fund or the propriety of the amount for which the
same are sold;
3. The legality of the issue or sale of any Shares, or
the sufficiency of the amount to be received
therefore;
4. The legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor;
5. The legality of the declaration or payment of any
distribution of the Fund; or
6. The legality of any borrowing for temporary or
emergency administrative purposes.
(c) NO LIABILITY UNTIL RECEIPT. The Custodian shall not be liable for,
or considered to be the Custodian of, any money, whether or not represented by
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any check, draft, or other instrument for the payment of money, received by it
on behalf of the Fund until the Custodian actually receives and collects such
money directly or by the final crediting of the account representing the Fund's
interest in the Book-Entry System or the Depository.
(d) AMOUNTS DUE FROM TRANSFER AGENT. The Custodian shall not be under
any duty or obligation to take action to effect collection of any amount due to
the Fund from the Transfer Agent nor to take any action to effect payment or
distribution by the Transfer Agent of any amount paid by the Custodian to the
Transfer Agent in accordance with this Agreement.
(e) COLLECTION WHERE PAYMENT REFUSED. The Custodian shall not be under
any duty or obligation to take action to effect collection of any amount, if the
Securities upon which such amount is payable are in default, or if payment is
refused after due demand or presentation, unless and until (a) it shall be
directed to take such action by a Certificate and (b) it shall be assured to its
satisfaction of reimbursement of its costs and expenses in connection with any
such action.
(f) APPOINTMENT OF AGENTS AND SUB-CUSTODIANS. The Custodian may appoint
one or more banking institutions, including but limited to banking institutions
located in foreign countries, to act as Depository or Depositories or as
Sub-Custodian or as Sub-Custodians of Securities and monies at any time owned by
the Fund, upon terms and conditions specified in a Certificate. The Custodian
shall use reasonable care in selecting a Depository and/or Sub-Custodian located
in a country other than the United States ("Foreign Sub-Custodian"), and shall
oversee the maintenance of any Securities or monies of the Fund by any Foreign
Sub-Custodian. In addition, the Custodian shall hold the Fund harmless from, and
indemnify the Fund against, any loss that occurs as a result of the failure of
any Foreign Sub-Custodian to exercise reasonable care with respect to the
safekeeping of Securities and monies of the Fund.
(g) NO DUTY TO ASCERTAIN AUTHORITY. The Custodian shall not be under
any duty or obligation to ascertain whether any Securities at any time delivered
to or held by it for the Fund are such as may properly be held by the Fund under
the provisions of the Master Trust Agreement and the Fund's Prospectus.
(h) COMPENSATION OF THE CUSTODIAN. The Custodian shall be entitled to
receive, and the Fund agrees to pay to the Custodian, such compensation as may
be agreed upon from time to time between the Custodian and the Fund. The
Custodian may charge against any monies held on behalf of the Fund pursuant to
this Agreement such compensation and any expenses incurred by the Custodian in
the performance of its duties pursuant to this Agreement. The Custodian shall
also be entitled to charge against any money held on behalf of the Fund pursuant
to this Agreement the amount of any loss, damage, liability or expense incurred
with respect to the Fund, including counsel fees, for which it shall be entitled
to reimbursement under the provisions of this Agreement.
The expenses which the Custodian may charge against such account
include, but are not limited to, the expenses of Sub-Custodians and foreign
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<PAGE>
branches of the Custodian incurred in settling transactions outside of Boston,
Massachusetts or New York City, New York involving the purchase and sale of
Securities.
(i) RELIANCE ON CERTIFICATES AND INSTRUCTIONS. The Custodian shall be
entitled to rely upon any Certificate, notice or other instrument in writing
received by the Custodian and reasonably believed by the Custodian to be genuine
and to be signed by two officers of the Fund. The Custodian shall be entitled to
rely upon any Written Instructions or Oral Instructions actually received by the
Custodian pursuant to the applicable Sections of this Agreement and reasonably
believed by the Custodian to be genuine and to be given by an Authorized Person.
The Fund agrees to forward to the Custodian Written Instructions from an
Authorized Person confirming such Oral Instructions in such manner so that such
Written Instructions are received by the Custodian, whether by hand delivery,
telex or otherwise, by the close of business on the same day that such Oral
Instructions are given to the Custodian. The Fund agrees that the fact that such
confirming instructions are not received by the Custodian shall in no way affect
the validity of the transactions or enforceability of the transactions hereby
authorized by the Fund. The Fund agrees that the Custodian shall incur no
liability to the Fund in acting upon Oral Instructions given to the Custodian
hereunder concerning such transactions provided such instructions reasonably
appear to have been received from a duly Authorized Person.
(j) INSPECTION OF BOOKS AND RECORDS. The books and records of the
Custodian shall be open to inspection and audit at reasonable times by officers
and auditors employed by the Fund and by the appropriate employees of the
Securities and Exchange Commission.
The Custodian shall provide the Fund with any report obtained by the
Custodian on the system of internal accounting control of the Book-Entry System
or the Depository and with such reports on its own systems of internal
accounting control as the Fund may reasonably request from time to tune.
13. TERM AND TERMINATION.
---------------------
(a) This Agreement shall become effective on the date first set forth
above (the "Effective Date") and shall continue in effect thereafter as the
parties may mutually agree.
(b) Either of the parties hereto may terminate this Agreement by giving
to the other party a notice in writing specifying the date of such termination,
which shall be not less than 60 days after the date of receipt of such notice.
In the event such notice is given by the Fund, it shall be accompanied by a
certified vote of the Board of Trustees of the Fund, electing to terminate this
Agreement and designating a successor custodian or custodians, which shall be a
person qualified to so act under the 1940 Act.
In the event such notice is given by the Custodian, the Fund shall, on
or before the termination date, deliver to the Custodian a certified vote of the
Board of Trustees of the Fund, designating a successor custodian or custodians.
In the absence of such designation by the Fund, the Custodian may designate a
successor custodian, which shall be a person qualified to so act under the 1940
Act. If the Fund fails to designate a successor custodian, the Fund shall upon
14
<PAGE>
the date specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and monies then owned
by the Fund, be deemed to be its own custodian, and the Custodian shall thereby
be relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book-Entry System which
cannot be delivered to the Fund.
(c) Upon the date set forth in such notice under paragraph (b) of this
Section 13, this Agreement shall terminate to the extent specified in such
notice, and the Custodian shall upon receipt of a notice of acceptance by the
successor custodian on that date deliver directly to the successor custodian all
Securities and monies then held by the Custodian on behalf of the Fund, after
deducting all fees, expenses and other amounts for the payment or reimbursement
of which it shall then be entitled.
14. LIMITATION OF LIABILITY.
------------------------
The Fund and the Custodian agree that the obligations of the Fund under
this Agreement shall not be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past, present or future, of the
Fund, individually, but are binding only upon the assets and property of the
Fund, as provided in the Master Trust Agreement. The execution and delivery of
this Agreement have been Authorized by the Trustees of the Fund, and signed by
an authorized officer of the Fund, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them or any shareholder of the Fund
individually or to impose any liability on any of them or any shareholder of the
Fund personally, but shall bind only the assets and property of the Fund as
provided in the Master Trust Agreement.
15. MISCELLANEOUS.
--------------
(a) Annexed hereto as Appendix A is a certification signed by the
Secretary of the Fund setting forth the names and the signatures of the present
Authorized Persons. The Fund agrees to furnish to the Custodian a new
certification in similar form in the event that any such present Authorized
Person ceases to be such an Authorized Person or in the event that other or
additional Authorized Persons are elected or appointed. Until such new
certification shall be received, the Custodian shall be fully protected in
acting under the provisions of this Agreement upon Oral Instructions or
signatures of the present Authorized Persons as set forth in the last delivered
certification.
(b) Annexed hereto as Appendix B is a certification signed by the
Secretary of the Fund setting forth the names and the signatures of certain
officers of the Fund. The Fund agrees to furnish to the Custodian a new
certification in similar form in the event any such present officer ceases to be
an officer of the Fund or in the event that other or additional officers are
elected or appointed. Until such new certification shall be received, the
Custodian shall be fully protected in acting under the provisions of this
Agreement upon the signature of the officers as set forth in the last delivered
certification.
15
<PAGE>
(c) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at One
Mellon Bank Center, Pittsburgh Pennsylvania 15258 or at such other place as the
Custodian may from time to time designate in writing.
(d) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Fund shall be sufficiently given if
addressed to the Fund or the Fund and mailed or delivered to it at its offices
at 200 Park Avenue, New York, New York 10166 or at such other place as the Fund
may from time to time designate in writing.
(e) This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement, (i) authorized and approved by a vote of the Board of Trustees of the
Fund, including a majority of the members of the Board of Trustees of the Fund
who are not "interested persons" of the Fund (as defined in the 1940 Act), or
(ii) authorized and approved by such other procedures as may be permitted or
required by the 1940 Act.
(f) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Fund without the written
consent of the Custodian, or by the Custodian without the written consent of the
Fund authorized or approved by a vote of the Board of Trustees of the Fund, and
any attempted assignment without such written consent shall be null and void.
(g) The Fund represents that a copy of the Master Trust Agreement is on
file with the Secretary of State of The Commonwealth of Massachusetts and with
the Boston City Clerk.
(h) This Agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts.
(i) The captions of the Agreement are included for convenience of
reference only and no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(j) This agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective representatives duly authorized as of the day and
year first above written
THE DREYFUS HIGH YIELD STRATEGIES FUNDS
TRUST
/s/ Marie E. Connolly
BY:--------------------
Name: Marie E. Connolly
Title: President
MELLON BANK, N.A.
BY:
Name:
Title:
17
<PAGE>
FORM OF
APPENDIX A
I, John E. Pelletier, Secretary of The Dreyfus High Yield Strategies
Funds Trust, a business trust organized under the laws of The Commonwealth of
Massachusetts (the "Fund"), do hereby certify that:
The following individuals have been duly authorized as Authorized
Persons to give Oral Instructions and Written Instructions on behalf of the Fund
and the signatures set forth opposite their respective names are their true and
correct signatures:
Name Signature
Marie E. Connolly _____________________________
Douglas C. Conroy _____________________________
Richard W. Ingram _____________________________
Mary A. Nelson _____________________________
Michael S. Petrucelli _____________________________
Joseph F. Tower, III _____________________________
Elba Vasque _____________________________
Kathleen Morrisey _____________________________
Christopher J. Kelley _____________________________
_____________________________
President
Dated:
18
<PAGE>
FORM OF
APPENDIX B
I, John E. Pelletier, Secretary of The Dreyfus High Yield Strategies
Funds Trust, a business trust organized under the laws of The Commonwealth of
Massachusetts (the "Fund"), do hereby certify that:
The following individuals serve in the following positions with the
Fund and each individual has been duly elected or appointed to each such
position and qualified therefor in conformity with the Fund's Master Trust
Agreement and the signatures set forth opposite their respective names are their
true and correct signatures:
NAME POSITION SIGNATURE
Marie E. Connolly President and Treasurer _______________________
Douglas C. Conroy Vice President and
Assistant Secretary
Richard W. Ingram Vice President and _______________________
Assistant Treasurer
Mary A. Nelson Vice President and _______________________
Assistant Secretary
Michael S. Petrucelli Vice President and _______________________
Assistant Treasurer
Joseph F. Tower, III Vice President and _______________________
Assistant Treasurer
Elba Vasquez Vice President and _______________________
Assistant Secretary
Kathleen Morrisey Vice President and _______________________
Assistant Secretary
Christopher J. Kelley Vice President and _______________________
Assistant Secretary
_______________________
President
Dated:
19
SHAREHOLDER SERVICING AGREEMENT
SHAREHOLDER SERVICING AGREEMENT (the "Agreement"), dated April __,
1998, between Dreyfus High Yield Strategies Fund (the "Fund") and PaineWebber
Incorporated ("PaineWebber").
WHEREAS, the Fund is a closed-end, non-diversified management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), and its common shares of beneficial interest are
registered under the Securities Act of 1933, as amended; and
WHEREAS, the Fund desires to retain PaineWebber to provide shareholder
servicing and market information with respect to the Fund, and PaineWebber is
willing to render such services;
NOW, THEREFORE, in consideration of the mutual terms and conditions set
forth below, the parties hereto agree as follows:
l. The Fund hereby employs PaineWebber, for the period and on the terms
and conditions set forth herein, to provide the following services:
(a) 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 or current or prospective
shareholders and specific shareholder contact where appropriate);
(b) 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;
(c) At the request of the Fund, provide certain economic
research and statistical information and reports, if reasonable obtainable, on
behalf of the Fund and consult with representatives and Trustees of the Fund in
connection therewith, which information and reports shall include: (i)
statistical and financial market information with respect to the Fund's market
performance; and (ii) comparative information regarding the Fund and other
closed-end management investment companies with respect to (x) the net asset
value of their respective shares, (y) the respective market performance of the
Fund and such other companies, and (z) other relevant performance indicators;
and
(d) At the request of the Fund, provide information to and
consult with the Board of Trustees of the Fund with respect to applicable
strategies designed to address market value discounts, which may include share
repurchases, 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; including providing
information concerning the use and impact of the above strategic alternatives by
other market participants.
<PAGE>
2. The Fund will pay PaineWebber a fee computed weekly and payable
quarterly at an annualized rate of 0.10% of the Fund's average weekly value of
the total assets of the Fund minus the sum of accrued liabilities (other than
the aggregate indebtedness constituting financial leverage).
3. The Fund acknowledges that the shareholder services of PaineWebber
provided for hereunder do not include any advice as to the value of securities
or regarding the advisability of purchasing or selling any securities for the
Fund's portfolio. No provision of this Agreement shall be considered as
creating, nor shall any provision create, any obligation on the part of
PaineWebber, and PaineWebber is not hereby agreeing, to: (i) furnish any advice
or make any recommendations regarding the purchase or sale of portfolio
securities or (ii) render any opinions, valuations or recommendations of any
kind or to perform any such similar services in connection with providing the
services described in Section 1 hereof.
4. Nothing herein shall be construed as prohibiting PaineWebber or its
affiliates from providing similar or other services to any other clients
(including other registered investment companies or the investment managers
thereof), so long as PaineWebber's services to the Fund is not impaired thereby.
5. The term of this Agreement shall commence upon the date referred to
above, shall be in effect for a period of two years and shall thereafter
continue for successive one year periods provided that the agreement may be
terminated by either party upon 60 days written notice of the intention to
terminate.
6. The Fund will furnish PaineWebber with such information as
PaineWebber believes appropriate to its assignment hereunder (all such
information so furnished being the "Information"). The Fund recognizes and
confirms that PaineWebber (a) will use and rely primarily on the Information and
on information available from generally recognized public sources in performing
the services contemplated by this Agreement without having independently
verified the same and (b) does not assume responsibility for the accuracy or
completeness of the Information and such other information. To the best of the
Fund's knowledge, the Information to be furnished by the Fund when delivered,
will be true and correct in all material respects and will not contain any
material misstatement of fact or omit to state any material fact necessary to
make the statements contained therein not misleading. The Fund will promptly
notify PaineWebber if it learns of any material inaccuracy or misstatement in,
or material omission from, any Information thereto delivered to PaineWebber.
7. It is understood that PaineWebber is being engaged hereunder solely
to provide the services described above to the Fund and that PaineWebber is not
acting as an agent or fiduciary of, and shall have no duties or liability to the
current or future shareholders of the Fund, the current or future shareholders
of the Fund or any other third party in connection with its engagement
hereunder, all of which are hereby expressly waived.
8. The Fund agrees that PaineWebber shall have no liability to the Fund
for any act or omission to act by PaineWebber in the course of its performance
under this Agreement, in the absence of gross negligence or willful misconduct
on the part of PaineWebber. The Fund agrees to the indemnification and other
2
<PAGE>
agreements set forth in the Indemnification Agreement attached hereto, the
provisions of which are incorporated herein by reference and shall survive the
termination, expiration or supersession of this Agreement.
9. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK FOR CONTRACTS TO BE PERFORMED ENTIRELY THEREIN AND WITHOUT
REGARD TO THE CHOICE OF LAW PRINCIPLES THEREOF.
10. EACH OF THE FUND AND PAINEWEBBER AGREE THAT ANY ACTION OR
PROCEEDING BASED HEREON, OR ARISING OUT OF PAINEWEBBER'S ENGAGEMENT HEREUNDER,
SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW
YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. PAINEWEBBER EACH HEREBY IRREVOCABLY
SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE
CITY AND COUNTY OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH ACTION OR PROCEEDING
AS SET FORTH ABOVE AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH SUCH ACTION OR PROCEEDING. EACH OF THE FUND AND
PAINEWEBBER HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF
ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.
11. The Fund and PaineWebber each hereby irrevocably waive any right
they may have to a trial by jury in respect of any claim based upon or arising
out of this Agreement or the transactions contemplated hereby. This Agreement
may not be assigned by either party without the prior written consent of the
other party.
12. This Agreement (including the attached Indemnification Agreement)
embodies the entire agreement and understanding between the parties hereto and
supersedes all prior agreements and understandings relating to the subject
matter hereof. If any provision of this Agreement is determined to be invalid or
unenforceable in any respect, such determination will not affect such provision
in any other respect or any other provision of this Agreement, which will remain
in full force and effect. This Agreement may not be amended or otherwise
modified or waived except by an instrument in writing signed by both PaineWebber
and the Fund.
13. All notices required or permitted to be sent under this Agreement
shall be sent, if to the Fund:
3
<PAGE>
Dreyfus High Yield Strategies Fund
200 Park Avenue
New York, New York 10166
Attention: Marie E. Connolly
or if to PaineWebber:
PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Attention: Oscar J. Junquera
or such other name or address as may be given in writing to the other parties.
Any notice shall be deemed to be given or received on the third day after
deposit in the U. S. mail with certified postage prepaid or when actually
received, whether by hand, express delivery service or facsimile transmission,
whichever is earlier.
14. This Agreement may be exercised on separate counterparts, each of
which is deemed to be an original and all of which taken together constitute one
and the same agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Shareholder Servicing Agreement as of the date first above written.
DREYFUS HIGH YIELD STRATEGIES FUND
By:
-------------------------------
Name: Marie E. Connolly
Title: President
PAINEWEBBER INCORPORATED
By:
------------------------------
Name: Oscar J. Junquera
Title: Managing Director
<PAGE>
--------------------------------
PAINEWEBBER
INDEMNIFICATION
AGREEMENT
-------------------------------
<PAGE>
PAINEWEBBER INDEMNIFICATION AGREEMENT
- --------------------------------------------------------------------------------
Date ______________, 19__
PaineWebber Incorporated
1285 Avenue of the Americas
New York, NY 10019
Gentlemen:
In connection with the engagement of PaineWebber Incorporated
("PaineWebber") to advise and assist the undersigned (referred to herein as
"we", "our" or "us") with the matters set forth in the Agreement dated
____________, 199_ between us and PaineWebber, we hereby agree to indemnify and
hold harmless PaineWebber, its affiliated companies, and each of PaineWebber's
and such affiliated companies' respective officers, directors, agents, employees
and controlling persons (within the meaning of each of Section 20 of the
Securities Exchange Act of 1934 and Section 15 of the Securities Act of 1933)
(each of the foregoing, including PaineWebber, being hereinafter referred to as
an "Indemnified Person") to the fullest extent permitted by law from and against
any and all losses, claims, damages, expenses (including reasonable fees,
disbursements and other charges of counsel), actions (including actions brought
by us or our equity holders or derivative actions brought by any person claiming
through us or in our name), proceedings, arbitrations or investigations (whether
formal or informal), or threats thereof (all of the foregoing being hereinafter
referred to as "Liabilities"), based upon, relating to or arising out of such
engagement or any Indemnified Person's role therein; provided, however, that we
shall not be liable under this paragraph: (a) for any amount paid in settlement
of claims without our consent, unless our consent is unreasonably withheld, or
(b) to the extent that it is finally judicially determined, or expressly stated
in an arbitration award, that such Liabilities resulted primarily from the
willful misconduct or gross negligence of the Indemnified Person seeking
indemnification. If multiple claims are brought against any Indemnified Person
in an arbitration or other proceeding and at least one such claim is based upon,
relates to or arises out of the engagement of PaineWebber by us or any
Indemnified Person's role therein, we agree that any award, judgment and other
Liabilities resulting therefrom shall be deemed conclusively to be based on,
relate to or arise out of the engagement of PaineWebber by us or any Indemnified
Person's role therein, except to the extent that such award or judgment
expressly states that the award or judgment, or any portion thereof, is based
solely upon, relates to or arises out of other matters for which indemnification
is not available hereunder. In connection with our obligation to indemnify for
expenses as set forth above, we further agree to reimburse each Indemnified
Person for all such expenses (including reasonable fees, disbursements and other
charges of counsel) as they are incurred by such Indemnified Person; provided,
however, that if an Indemnified Person is reimbursed hereunder for any expenses,
the amount so paid shall be refunded if and to the extent it is finally
judicially determined, or expressly stated in an arbitration award, that the
Liabilities in question resulted primarily from the willful misconduct or gross
negligence of such Indemnified Person. We hereby also agree that neither
PaineWebber nor any other Indemnified Person shall have any liability to us (or
anyone claiming through us or in our name) in connection with PaineWebber's
engagement by us except to the extent that such Indemnified Person has engaged
in willful misconduct or been grossly negligent.
- --------------------------------------------------------------------------------
2
<PAGE>
PaineWebber Indemnification Agreement
- --------------------------------------------------------------------------------
Promptly after PaineWebber receives notice of the commencement of any
action or other proceeding in respect of which indemnification or reimbursement
may be sought hereunder, PaineWebber will notify us thereof; but the omission so
to notify us shall not relieve us from any obligation hereunder unless, and only
to the extent that, such omission results in our forfeiture of substantive
rights or defenses. If any such action or other proceeding shall be brought
against any Indemnified Person, we shall, upon written notice given reasonably
promptly following your notice to us of such action or proceeding, be entitled
to assume the defense thereof at our expense with counsel chosen by us and
reasonably satisfactory to such Indemnified Person; provided, however, that any
Indemnified Person may at its own expense retain separate counsel to participate
in such defense. Notwithstanding the foregoing, such Indemnified Person shall
have the right to employ separate counsel at our expense and to control its own
defense of such action or proceeding if, in the reasonable opinion of counsel to
such Indemnified Person, (i) there are or may be legal defenses available to
such Indemnified Person or to other Indemnified Persons that are different from
or additional to those available to us, or (ii) a difference of position or
potential difference of position exists between us and such Indemnified Person
that would make such separate representation advisable; provided, however, that
in no event shall we be required to pay fees and expenses under this indemnity
for more than one firm of attorneys (in addition to local counsel) in any
jurisdiction in any one legal action or group of related legal actions. We agree
that we will not, without the prior written consent of PaineWebber, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding relating to the matters contemplated by
PaineWebber's engagement (whether or not any Indemnified Person is a party
thereto) unless such settlement, compromise or consent includes an unconditional
release of PaineWebber and each other Indemnified Person from all liability
arising or that may arise out of such claim, action or proceeding.
If the indemnification of an Indemnified Person provided for hereunder
is finally judicially determined by a court of competent jurisdiction to be
unenforceable, then we agree, in lieu of indemnifying such Indemnified Person,
to contribute to the amount paid or payable by such Indemnified Person as a
result of such Liabilities in such proportion as is appropriate to reflect the
relative benefits received, or sought to be received, by us on the one hand and
by PaineWebber on the other from the transactions in connection with which
PaineWebber has been engaged. If the allocation provided in the preceding
sentence is not permitted by applicable law, then we agree to contribute to the
amount paid or payable by such Indemnified Person as a result of such
Liabilities in such proportion as is appropriate to reflect not only the
relative benefits referred to in such preceding sentence but also the relative
fault of us and of such Indemnified Person. Notwithstanding the foregoing, in no
event shall the aggregate amount required to be contributed by all Indemnified
Persons taking into account our contributions as described above exceed the
amount of fees actually received by PaineWebber pursuant to such engagement. The
relative benefits received or sought to be received by us on the one hand and by
PaineWebber on the other shall be deemed to be in the same proportion as (a) the
total value of the transactions with respect to which PaineWebber has been
engaged bears to (b) the fees paid or payable to PaineWebber with respect to
such engagement.
The rights accorded to Indemnified Persons hereunder shall be in
addition to any rights that any Indemnified Person may have at common law, by
separate agreement or otherwise.
- --------------------------------------------------------------------------------
3
<PAGE>
PaineWebber Indemnification Agreement
- --------------------------------------------------------------------------------
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE. WE HEREBY CONSENT, SOLELY FOR THE PURPOSE
OF ALLOWING AN INDEMNIFIED PERSON TO ENFORCE ITS RIGHTS HEREUNDER, TO PERSONAL
JURISDICTION AND SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM FOR WHICH
INDEMNIFICATION MAY BE SOUGHT HEREUNDER IS BROUGHT AGAINST PAINEWEBBER OR ANY
OTHER INDEMNIFIED PERSON. We and PaineWebber also hereby irrevocably waive any
right we and PaineWebber may have to a trial by jury in respect of any claim
based upon or arising out of this agreement. This agreement may not be amended
or otherwise modified except by an instrument signed by both PaineWebber and us.
If any provision hereof shall be determined to be invalid or unenforceable in
any respect, such determination shall not affect such provision in any other
respect or any other provision of this agreement, which shall remain in full
force and effect. If there is more than one indemnitor hereunder, each
indemnifying person agrees that its liabilities hereunder shall be joint and
several. Each Indemnified Person is an intended beneficiary hereunder.
The foregoing indemnification agreement shall remain in effect
indefinitely, notwithstanding any termination of PaineWebber's engagement.
Very truly yours,
---------------------------------
Name of Client
By:
-----------------------------
Name:
Title:
Acknowledged and Agreed to:
PAINEWEBBER INCORPORATED
By:
-------------------------------
Name:
Title:
- --------------------------------------------------------------------------------
4
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
April 21, 1998
Dreyfus High Yield Strategies Fund
200 Park Avenue
New York, New York 10166
Dear Sirs:
This opinion is furnished in connection with the registration by Dreyfus
High Yield Strategies Fund, a business trust organized under the laws of the
Commonwealth of Massachusetts (the "Fund"), of 57,500,000 shares of common
stock, par value $.001 per share (the "Shares"), under the Securities Act of
1933, as amended, pursuant to a registration statement on Form N-2 (File No.
333-48117), as amended (the "Registration Statement"), in the amounts set forth
under "Amount Being Registered" on the facing page of the Registration
Statement.
As counsel for the Fund, we are familiar with the proceedings taken by it
in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Declaration of Trust, as
amended, of the Fund, the By-Laws of the Fund, and such other documents as we
have deemed relevant to the matters referred to in this opinion.
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement, will
be legally issued, fully paid and non-assessable shares of common stock of the
Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus constituting
a part thereof.
Very truly yours,
/s/ Kirkpatrick & Lockhart LLP
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Corporate High Yield Fund III, Inc.:
We consent to the use in Pre-Effective Amendment No. 1 to Registration Statement
No. 333-48117 of our report dated April __, 1998 and to the reference to us
under the caption "Experts" both of which appear in the Prospectus, which is a
part of such Registration Statement.
KPMG/Peat Marwick LLP
New York, New York
April __, 1998
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.
/s/ KPMG Peat Marwick LLP
--------------------------------
KPMG Peat Marwick LLP
New York, New York
April 22, 1998
<PAGE>
Independent Auditors' Consent
To the Shareholders and Board of Trustees
The Dreyfus High Yield Strategies Fund
We consent to the use of our report dated April 22, 1998 with respect to the
statement of assets and liabilities dated April 15, 1998 of the Dreyfus High
Yield Strategies Fund (in organization) included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
------------------------------------
KPMG Peat Marwick LLP
New York, New York
April 22, 1998
THE DREYFUS CORPORATION
April 21, 1998
Dreyfus High Yield Strategies Fund
200 Park Avenue
New York, New York 10166
Ladies and Gentlemen:
We are writing in connection with our purchase of 6,667 Shares of
Beneficial Interest ("Shares") of Dreyfus High Yield Fund at a price of $15 per
share. This is to advise you that the Shares were purchased for investment only
with no present intention of selling the Shares, and we do not now have any
intention of selling the Shares.
Sincerely,
