March 10, 1994
DREYFUS GLOBAL BOND FUND, INC.
Supplement to Prospectus
Dated February 28, 1994
The following information supplements and should be read in
conjunction with the section of the Fund's Prospectus entitled "Management
of the Fund."
The Fund's manager, The Dreyfus Corporation ("Dreyfus"), has entered
into an Agreement and Plan of Merger (the "Merger Agreement") providing
for the merger of Dreyfus with a subsidiary of Mellon Bank Corporation
("Mellon").
Following the merger, it is planned that Dreyfus will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a
number of contingencies, including receipt of certain regulatory approvals
and approvals of the stockholders of Dreyfus and of Mellon. The merger is
expected to occur in mid-1994, but could occur significantly later.
As a result of regulatory requirements and the terms of the Merger
Agreement, Dreyfus will seek various approvals from the Fund's board and
shareholders before completion of the merger. Shareholder approval will
be solicited by a proxy statement.
_____________________________________________________________________________
PROSPECTUS FEBRUARY 28, 1994
DREYFUS GLOBAL BOND FUND, INC.
_____________________________________________________________________________
DREYFUS GLOBAL BOND FUND, INC. (THE "FUND") IS AN OPEN-END, NON-
DIVERSIFIED, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL
FUND. ITS PRIMARY GOAL IS TO SEEK TOTAL RETURN. THE FUND WILL INVEST
PRINCIPALLY IN DEBT SECURITIES OF FOREIGN AND DOMESTIC ISSUERS. UP
TO 35% OF THE FUND'S TOTAL ASSETS MAY BE INVESTED IN THE SECURITIES
OF COMPANIES IN, OR GOVERNMENTS OF, EMERGING MARKET COUNTRIES.
YOU CAN INVEST, REINVEST OR REDEEM FUND SHARES AT ANY TIME
WITHOUT CHARGE OR PENALTY IMPOSED BY THE FUND. YOU CAN PURCHASE
OR REDEEM SHARES BY TELEPHONE USING DREYFUS TELETRANSFER.
THE DREYFUS CORPORATION ("DREYFUS") WILL SERVE AS THE FUND'S
INVESTMENT ADVISER. DREYFUS HAS ENGAGED M&G INVESTMENT
MANAGEMENT LIMITED ("M&G") TO SERVE AS THE FUND'S SUB-INVESTMENT
ADVISER AND PROVIDE DAY-TO-DAY MANAGEMENT OF THE FUND'S
INVESTMENTS. DREYFUS AND M&G ARE REFERRED TO COLLECTIVELY AS THE
"ADVISERS."
THE FUND BEARS CERTAIN COSTS PURSUANT TO A DISTRIBUTION PLAN
ADOPTED IN ACCORDANCE WITH RULE 12B-1 UNDER THE INVESTMENT
COMPANY ACT OF 1940 AND A SHAREHOLDER SERVICES PLAN.
-------------------------
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE
FUND THAT YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
PART B (ALSO KNOWN AS THE STATEMENT OF ADDITIONAL INFORMATION),
DATED FEBRUARY 28, 1994, WHICH MAY BE REVISED FROM TIME TO TIME,
PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS IN THIS PROSPECTUS
AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME INVESTORS. IT
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS
INCORPORATED HEREIN BY REFERENCE. FOR A FREE COPY, WRITE TO THE
FUND AT 144 GLENN CURTISS BOULEVARD, UNIONDALE, NEW YORK 11556-
0144, OR BY CALLING 1-800-554-4611. WHEN TELEPHONING, ASK FOR
OPERATOR 666.
-------------------------
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE FUND'S SHARES ARE
NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. THE
FUND'S SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE FUND'S SHARE PRICE, YIELD AND
INVESTMENT RETURN ARE NOT GUARANTEED AND SHOULD BE EXPECTED TO
FLUCTUATE.
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TABLE OF CONTENTS
PAGE
ANNUAL FUND OPERATING EXPENSES.................... 2
DESCRIPTION OF THE FUND........................... 2
MANAGEMENT OF THE FUND............................ 18
HOW TO BUY FUND SHARES............................ 19
SHAREHOLDER SERVICES.............................. 21
HOW TO REDEEM FUND SHARES......................... 24
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN... 26
DIVIDENDS, DISTRIBUTIONS AND TAXES................ 26
PERFORMANCE INFORMATION........................... 28
GENERAL INFORMATION............................... 28
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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.
- ---------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees...................................... .70%
12b-1 Fees........................................... .25%
Shareholder Servicing Fees........................... .25%
Other Expenses....................................... .60%
Total Fund Operating Expenses........................ 1.80%
EXAMPLE: 1 YEAR 3 YEARS
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the
end of each time period: $18 $57
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE
EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE FUND'S ACTUAL
PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER
OR LESS THAN 5%.
- ---------------------------------------------------------------------------
The purpose of the foregoing table is to assist you in understanding the
various costs and expenses borne by the Fund, and, therefore, indirectly by
investors, the payment of which will reduce investors' return on an annual
basis. Other Expenses and Total Fund Operating Expenses are based on
estimated amounts for the current fiscal year. The information in the
foregoing table does not reflect any fee waivers or expense
reimbursement arrangements that may be in effect. Long-term investors
could pay more in 12b-1 fees than the economic equivalent of paying a
front-end sales charge. Certain Service Agents (as defined below) may
charge their clients direct fees for effecting transactions in Fund shares;
such fees are not reflected in the foregoing table. For a further
description of the various costs and expenses incurred in the operation of
the Fund, as well as expense reimbursement or waiver arrangements, see
"Management of the Fund," "How to Buy Fund Shares" and "Distribution
Plan and Shareholder Services Plan."
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE
The Fund's primary goal is to seek total return. Total return consists of
realized and unrealized capital appreciation and income. The Fund's
investment objective cannot be changed without approval by the holders of
a majority (as defined in the Investment Company Act of 1940) of the
Fund's outstanding voting shares. There can be no assurance that the
Fund's investment objective will be achieved.
MANAGEMENT POLICIES
The Fund will invest in a portfolio of debt obligations of issuers
located throughout the world. These debt obligations include bonds,
debentures, notes, money market instruments (including domestic and
foreign bank obligations, such as time deposits, certificates of deposit
and bankers' acceptances, commercial paper and repurchase agreements),
mortgage-related securities, municipal obligations and convertible debt
obligations. The issuers of these obligations may include corporations,
partnerships, trusts or similar entities, governments or their political
subdivisions, agencies or instrumentalities, and supranational entities. At
least 65% of the value of the Fund's net assets (except when maintaining a
temporary defensive position) will be invested in bonds and debentures.
While there are no prescribed limits on geographic asset distribution, the
Fund ordinarily will seek to invest its assets in at least three countries.
The percentage of the Fund's assets invested in securities issued by
foreign issuers will vary depending on the relative yields of such
securities, the economic and financial markets of the countries in which
the investments are made and the interest rate climate of such countries.
The Fund may hold foreign currency of any country and may purchase debt
securities or hold currencies in combination with forward currency
exchange contracts. The Fund will be alert to opportunities to profit from
fluctuations in currency exchange rates. The Fund's portfolio will be
invested without regard to maturity.
It is a fundamental policy of the Fund that at least 65% of the Fund's
net assets will consist of debt secu
rities rated at least Baa by Moody's Investors Service, Inc. ("Moody's") or
at least BBB by Standard & Poor's
(2)
Corporation ("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff &
Phelps, Inc. ("Duff"). The Fund intends to invest less than 35% of its net
assets in debt securities rated lower than investment grade by Moody's,
S&P, Fitch and Duff. Investments rated Ba or lower by Moody's and BB or
lower by S&P, Fitch and Duff ordinarily provide higher yields but involve
greater risk because of their speculative characteristics. The Fund may
invest in obligations rated C by Moody's or D by S&P, Fitch or Duff, which
is such rating organizations' lowest rating and indicates that the
obligation is in default and interest and/or repayment of principal is in
arrears. See "Risk Factors-Lower Rated Securities" below for a further
discussion of certain risks. The Fund also may invest in securities which,
while not rated, are determined by the Advisers to be of comparable
quality to the rated securities in which the Fund may invest; for purposes
of the 65% requirement described above, such unrated securities shall be
deemed to have the rating so determined.
The Fund may invest up to 35% of its total assets in companies whose
principal activities are in, or governments of, emerging markets. Emerging
markets will include any countries (i) having an "emerging stock market"
as defined by the International Finance Corporation; (ii) with low- to
middle-income economies according to the World Bank; or (iii) listed in
World Bank publications as developing. Currently, the countries not
included in these categories are Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands,
New Zealand, Norway, Spain, Sweden, Switzerland, the United Kingdom and
the United States. Issuers whose principal activities are in countries with
emerging markets include issuers: (1) organized under the laws of, (2)
whose securities have their primary trading market in, (3) deriving at
least 50% of their revenues or profits from goods sold, investments made,
or services performed in, or (4) having at least 50% of their assets
located in a country with, an emerging market.
The Fund may invest up to 25% of its total assets in the securities of
issuers having their principal business activities in the same industry,
regardless of country. The Fund will not invest more than 25% of its total
assets in the securities of any foreign government or supranational entity.
The Fund may invest up to 5% of its assets in securities of companies that
have been in continuous operation for less than three years (including
operations of any predecessors).
In connection with its purchases of convertible securities, the Fund,
from time to time, may hold common stock received upon the conversion
of the security. The Fund does not intend to retain the common stock in its
portfolio and will sell it as promptly as practicable and in a manner which
it believes will reduce the risk to the Fund of loss in connection with the
sale.
When the Advisers determine that market conditions warrant, the Fund
may adopt a temporary defensive posture and invest without limitation in
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and in other U.S. dollar-denominated money market
instruments consisting of certificates of deposit, time deposits, bankers'
acceptances, short-term investment grade corporate bonds and other
short-term debt instruments, and repurchase agreements, as described
under "Certain Portfolio Securities" below.
In an effort to increase total return, the Fund may engage in various
investment techniques such as leveraging, short selling, options and
futures transactions, currency transactions and lending portfolio
securities, each of which involves risk. See "Other Investment
Considerations."
CERTAIN PORTFOLIO SECURITIES
SECURITIES OF EMERGING MARKETS ISSUERS - In emerging markets, the
Fund may purchase debt securities issued or guaranteed by foreign
governments, including participations in loans between foreign
governments and financial institutions, and interests in entities organized
and operated for the purpose of restructuring the investment
characteristics of instruments issued or guaranteed by foreign
governments ("Sovereign Debt Obligations"). These include Brady Bonds,
Structured Securities and Loan Participations and Assignments (as
defined below).
BRADY BONDS. Brady Bonds are debt obligations created through the
exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructurings under a plan introduced
by former U.S. Secretary of the Treasury, Nicholas F. Brady.
Brady Bonds have been issued only relatively recently, and, accordingly,
do not have a long payment history.
(3)
They may be collateralized or uncollateralized and issued in various
currencies (although most are U.S. dollar-denominated). They are actively
traded in the over-the-counter secondary market.
STRUCTURED SECURITIES. Structured Securities are interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of Sovereign Debt Obligations. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments (such as commercial bank
loans or Brady Bonds) and the issuance by that entity of one or more
classes of securities ("Structured Securities") backed by, or representing
interests in, the underlying instruments. The cash flow on the underlying
instruments may be apportioned among the newly-issued Structured
Securities to create securities with different investment characteristics
such as varying maturities, payment priorities and interest rate
provisions, and the extent of the payments made with respect to
Structured Securities is dependent on the extent of the cash flow on the
underlying instruments. Because Structured Securities of the type in
which the Fund anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments.
The Fund is permitted to invest in a class of Structured Securities that
is either subordinated or unsubordinated to the right of payment of
another class. Subordinated Structured Securities typically have higher
yields and present greater risks than unsubordinated Structured
Securities.
Certain issuers of Structured Securities may be deemed to be
"investment companies" as defined in the Investment Company Act of
1940. As a result, the Fund's investment in these Structured Securities
may be limited by the restrictions contained in the Investment Company
Act of 1940. See "Investment Company Securities" below.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The Fund may invest in fixed
and floating rate loans ("Loans") arranged through private negotiations
between an issuer of Sovereign Debt Obligations and one or more financial
institutions ("Lenders"). The Fund's investments in Loans are expected in
most instances to be in the form of participations in Loans
("Participations") and assignments of all or a portion of Loans
("Assignments") from third parties. The government that is the borrower
on the Loan will be considered by the Fund to be the issuer of a
Participation or Assignment. The Fund's investment in Participations
typically will result in the Fund having a contractual relationship only
with the Lender and not with the borrower. The Fund will have the right to
receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon
receipt by the Lender of the payments from the borrower. In connection
with purchasing Participations, the Fund generally will have no right to
enforce compliance by the borrower with the terms of the loan agreement
relating to the Loan, nor any rights of set-off against the borrower, and
the Fund may not directly benefit from any collateral supporting the Loan
in which it has purchased the Participation. As a result, the Fund may be
subject to the credit risk of both the borrower and the Lender that is
selling the Participation. In the event of the insolvency of the Lender
selling a Participation, the Fund may be treated as a general creditor of
the Lender and may not benefit from any set-off between the Lender and
the borrower. Certain Participations may be structured in a manner
designed to avoid purchasers of Participations being subject to the credit
risk of the Lender with respect to the Participation, but even under such a
structure, in the event of the Lender's insolvency, the Lender's servicing
of the Participation may be delayed and the assignability of the
Participation impaired. The Fund will acquire Participations only if the
Lender interpositioned between the Fund and the borrower is a Lender
having total assets of more than $25 billion and whose senior unsecured
debt is rated investment grade or higher (i.e., Baa/BBB or higher).
CONVERTIBLE SECURITIES - The Fund may purchase convertible securities,
which are fixed-income securities, such as bonds or preferred stock,
which may be converted at a stated price within a specified period of time
into a specified number of shares of common stock of the same or a
different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-
convertible debt securities. While providing a fixed-income stream
(generally higher in yield than the income derivable from a common stock
but lower than that afforded by a non-convertible debt security), a
convertible security
(4)
also affords an investor the opportunity, through its conversion feature,
to participate in the capital appreciation of the common stock into which
it is convertible.
In general, the market value of a convertible security is the higher of
its "investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e., the value of the underlying shares of common
stock if the security is converted). As a fixed-income security, the market
value of a convertible security generally increases when interest rates
decline and generally decreases when interest rates rise. However, the
price of a convertible security also is influenced by the market value of
the security's underlying common stock. Thus, the price of a convertible
security generally increases as the market value of the underlying stock
increases, and generally decreases as the market value of the underlying
stock declines. Investments in convertible securities generally entail less
risk than investments in the common stock of the same issuer.
U.S. GOVERNMENT SECURITIES - The Fund may purchase securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
which include U.S. Treasury securities that differ in their interest rates,
maturities and times of issuance. Treasury Bills have initial maturities of
one year or less; Treasury Notes have initial maturities of one to ten
years; and Treasury Bonds generally have initial maturities of greater
than ten years. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, for example, Government National
Mortgage Association pass-through certificates, are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
Home Loan Banks, by the right of the issuer to borrow from the U.S.
Treasury; others, such as those issued by the Federal National Mortgage
Association, by discretionary authority of the U.S. Government to purchase
certain obligations of the agency or instrumentality; and others, such as
those issued by the Student Loan Marketing Association, only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. Principal and interest may fluctuate based on
generally recognized reference rates or the relationship of rates. While
the U.S. Government provides financial support to such U.S. Government-
sponsored agencies or instrumentalities, no assurance can be given that it
will always do so, because the U.S. Government is not obligated to do so by
law.
ZERO COUPON SECURITIES - The Fund may invest in zero coupon U.S.
Treasury securities, which are Treasury Notes and 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. The Fund also may invest in zero coupon
securities issued by corporations and financial institutions which
constitute a proportionate ownership of the issuer's pool of underlying
U.S. Treasury securities. A zero coupon security pays no interest to its
holder during its life and is sold at a discount to its face value at
maturity. The amount of the discount fluctuates with the market price of
the security. The market prices of zero coupon 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 non-zero coupon securities having similar maturities
and credit qualities.
BANK OBLIGATIONS - The Fund may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries of domestic banks, foreign branches
of domestic banks, and domestic and foreign branches of foreign banks,
domestic savings and loan associations and other banking institutions.
With respect to such securities issued by foreign branches of domestic
banks, foreign subsidiaries 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 a fund which invests only in debt obligations of U.S. domestic issuers.
Such risks include possible future political and economic developments,
the possible imposition of foreign withholding taxes on interest income
payable on the securities, the possible establishment of exchange controls
or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities
and the possible seizure or nationalization of foreign deposits.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
(5)
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by the Fund will not benefit from insurance
from the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation. The Fund will
not invest more than 15% of the value of its net assets in time deposits
that are illiquid and in other illiquid securities.
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 of 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.
REPURCHASE AGREEMENTS - Repurchase agreements involve the
acquisition by the Fund of an underlying debt instrument, subject to an
obligation of the seller to repurchase, and the Fund to resell, the
instrument at a fixed price usually not more than one week after its
purchase. The Fund's custodian or sub-custodian will have custody of, and
will hold in a segregated account, securities acquired by the Fund under a
repurchase agreement. Repurchase agreements are considered by the staff
of the Securities and Exchange Commission to be loans by the Fund. In an
attempt to reduce the risk of incurring a loss on a repurchase agreement,
the Fund will enter into repurchase agreements only with domestic banks
with total assets in excess of one billion dollars, or primary government
securities dealers reporting to the Federal Reserve Bank of New York, with
respect to securities of the type in which the Fund may invest, and will
require that additional securities be deposited with it if the value of the
securities purchased should decrease below the resale price. The Advisers
will monitor on an ongoing basis the value of the collateral to assure that
it always equals or exceeds the repurchase price. Certain costs may be
incurred by the Fund in connection with the sale of the securities if the
seller does not repurchase them in accordance with the repurchase
agreement. In addition, if bankruptcy proceedings are commenced with
respect to the seller of the securities, realization on the securities by the
Fund may be delayed or limited. The Fund will consider on an ongoing basis
the creditworthiness of the institutions with which it enters into
repurchase agreements.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS -
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,
A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, (b) issued by companies having
an outstanding unsecured debt issue currently rated not lower than Aa3 by
Moody's or AA- by S&P, Fitch or Duff, or (c) if unrated, determined by the
Advisers to be of comparable quality to those rated obligations which may
be purchased by the Fund. The Fund may purchase floating and variable rate
demand notes and bonds, which are obligations ordinarily having stated
maturities in excess of one year, but which permit the holder to demand
payment of principal at any time or at specified intervals. Variable rate
demand notes 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. As mutually agreed between the parties, the Fund may increase
the amount under the notes at any time up to the full amount provided by
the note agreement, or decrease the amount, and the borrower may repay
up to the full amount of the note without penalty. 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. In connection with floating and variable
rate demand obligations, the Advisers will consider, on an ongoing basis,
earning power, cash flow and other liquidity ratios of the borrower and
the borrower's ability 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
(6)
above for other commercial paper issuers.
WARRANTS - The Fund may invest up to 5% of its net assets in warrants,
except that this limitation does not apply to warrants acquired in units or
attached to securities. A warrant is an instrument issued by a corporation
which gives the holder the right to subscribe to a specified amount of the
corporation's capital stock at a set price for a specified period of time.
The Fund does not intend to retain in its portfolio any common stock
received upon the exercise of a warrant and will sell the common stock as
promptly as practicable and in a manner that it believes will reduce its
risk of a loss in connection with the sale. The Fund does not intend to
retain in its portfolio any warrant for equity securities acquired as a unit
with a debt instrument if the warrant begins to trade separately from the
related debt instrument.
MORTGAGE-RELATED SECURITIES - The Fund may invest in mortgage-
related securities which are collateralized by pools of mortgage loans
assembled for sale to investors by various governmental agencies, such as
Government National Mortgage Association and government-related
organizations such as Federal National Mortgage Association and Federal
Home Loan Mortgage Corporation, as well as by private issuers such as
commercial banks, savings and loan institutions, mortgage banks and
private mortgage insurance companies, and similar foreign entities. The
mortgage-related securities in which the Fund may invest include those
with fixed, floating and variable interest rates and those with interest
rates that change based on multiples of changes in interest rates, as well
as stripped mortgage-backed securities which are derivative multiclass
mortgage securities. Stripped mortgage-backed securities usually are
structured with two classes that receive different proportions of interest
and principal distributions on a pool of mortgage-backed securities or
whole loans. A common type of stripped mortgage-backed security will
have one class receiving some of the interest and most of the principal
from the mortgage collateral, while the other class will receive most of
the interest and the remainder of the principal. In the most extreme case,
one class will receive all of the interest (the interest-only or "IO" class),
while the other class will receive all of the principal (the principal-only
or "PO" class). Although certain mortgage-related securities are
guaranteed by a third party or otherwise similarly secured, the market
value of the security, which may fluctuate, is not so secured. If the Fund
purchases a mortgage-related security 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
in the underlying mortgage collateral. As with other interest-bearing
securities, the prices of certain mortgage-backed securities are inversely
affected by changes in interest rates, while others, which the Fund may
purchase, may be structured so that their interest rates will fluctuate
inversely (and thus their price will increase as interest rates rise and
decrease as interest rates fall) in response to changes in interest rates.
Though 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 prepay. 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
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 in these securities
even if the securities are rated in the highest rating category by a
nationally recognized statistical rating organization. In addition, regular
payments received in respect of mortgage-related securities include both
interest and principal. No assurance can be given as to the return the Fund
will receive when these amounts are reinvested. The Fund also may invest
in collateralized mortgage obligations structured on pools of mortgage
pass-through certificates or mortgage loans. Collateralized mortgage
obligations will be purchased only if rated in one of the two highest rating
categories by a nationally recognized statistical rating organization such
as Moody's, S&P, Fitch or Duff, or, if unrated, deemed to be of comparable
quality by the Advisers. For a further discussion concerning the
investment considerations involved, see "Risk Factors - Other Investment
Considerations" below and "Investment Objectives and Management
Polices - Portfolio Securities - Mortgaged-Related Securities" in the
Fund's Statement of Additional Information.
INVESTMENT COMPANY SECURITIES - The Fund may invest in securities
issued by other investment companies
(7)
which principally invest in securities of the type in which the Fund
invests. Under the Investment Company Act of 1940, the Fund's
investments in such securities, subject to certain exceptions, currently
are limited to (i) 3% of the total voting stock of any one investment
company, (ii) 5% of the Fund's net assets with respect to any one
investment company and (iii) 10% of the Fund's net assets in the
aggregate. Investments in the securities of other investment companies
may involve duplication of advisory fees and certain other expenses.
ILLIQUID SECURITIES - The Fund may invest up to 15% of the value of its
net assets in securities as to which a liquid trading market does not
exist, provided such investments are consistent with the Fund's
investment objectives. Such securities may include securities that are not
readily marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, certain Sovereign Debt Obligations,
repurchase agreements providing for settlement in more than seven days
after notice, certain options traded in the over-the-counter market and
securities used to cover such options, and certain mortgage-backed
securities, such as certain collateralized mortgage obligations and
stripped mortgage-backed securities. As to these securities, the Fund is
subject to a risk that should the Fund desire to sell them when a ready
buyer is not available at a price the Fund deems representative of their
value, the value of the Fund's net assets could be adversely affected. 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 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, if a substantial market of qualified
institutional buyers develops pursuant to Rule 144A under the Securities
Act of 1933, as amended, for such securities held by the Fund, the Fund
intends to treat such securities as liquid securities in accordance with
procedures approved by the Fund's Board of Directors. Because it is not
possible to predict with assurance how the market for restricted
securities pursuant to Rule 144A will develop, the Fund's Board of
Directors has directed the Advisers 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 the Fund's portfolio during such period.
INVESTMENT TECHNIQUES
The Fund may engage in various investment techniques, such as
leveraging, short-selling, options and futures transactions and lending
portfolio securities, each of which involves risk. See "Risk Factors"
below.
LEVERAGE THROUGH BORROWING - The Fund may borrow for investment
purposes. This borrowing, which is known as leveraging, generally will be
unsecured, except to the extent the Fund enters into reverse repurchase
agreements described below. The Investment Company Act of 1940
requires the Fund to maintain continuous asset coverage (that is, total
assets including borrowings, less liabilities exclusive of borrowings) of
300% of the amount borrowed. If the 300% asset coverage should decline
as a result of market fluctuations or other reasons, the Fund may be
required to sell some of its portfolio holdings within three days to reduce
the debt and restore the 300% asset coverage, even though it may be
disadvantageous from an investment standpoint to sell securities at that
time. Leveraging may exaggerate the effect on net asset value of any
increase or decrease in the market value of the Fund's portfolio. Money
borrowed for leveraging will be subject to interest costs that may or may
not be recovered by appreciation of the securities purchased; in certain
cases, interest costs may exceed the return received on the securities
purchased. The Fund also may be required to maintain minimum average
balances in connection with such borrowing or to pay a commitment or
other fee to maintain a line of credit; either of these requirements would
increase the cost of borrowing over the stated interest rate.
Among the forms of borrowing in which the Fund may engage is the
entry into reverse repurchase agreements with banks, brokers or dealers.
These transactions involve the transfer by the Fund of an underlying debt
instrument in return for cash proceeds based on a percentage of the value
of the security. The Fund
(8)
retains the right to receive interest and principal payments on the
security. At an agreed upon future date, the Fund repurchases the security
at principal, plus accrued interest. In certain types of agreements, there
is no agreed upon repurchase date, and interest payments are calculated
daily, often based on the prevailing overnight repurchase rate. The Fund
will maintain in a segregated custodial account cash or U.S. Government
securities or other high quality liquid debt securities at least equal to the
aggregate amount of its reverse repurchase obligations, plus accrued
interest, in certain cases, in accordance with releases promulgated by the
Securities and Exchange Commission. The Securities and Exchange
Commission views reverse repurchase transactions as collateralized
borrowings by the Fund. These agreements, which are treated as if
reestablished each day, are expected to provide the Fund with a flexible
borrowing tool.
FOREIGN CURRENCY TRANSACTIONS - The Fund may engage in currency
exchange transactions to the extent consistent with its investment
objectives or to hedge its portfolio. The Fund will conduct its currency
exchange transactions either on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, or through entering into
forward contracts to purchase or sell currencies. A forward currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which must be more than two days from the
date of the contract, at a price set at the time of the contract. Forward
currency exchange contracts are entered into in the interbank market
conducted directly between currency traders (typically commercial banks
or other financial institutions) and their customers. The Fund also may
combine forward currency exchange contracts with investments in
securities denominated in other currencies.
The Fund also may maintain short positions in forward currency
exchange transactions, which would involve the Fund agreeing to exchange
an amount of a currency it did not currently own for another currency at a
future date in anticipation of a decline in the value of the currency sold
relative to the currency the Fund contracted to receive in the exchange.
The Fund will maintain in a segregated custodial account cash or U.S.
Government securities or other high quality liquid debt securities at least
equal to the aggregate amount of its short positions, plus accrued
interest, in certain cases, in accordance with releases promulgated by the
Securities and Exchange Commission.
OPTIONS ON FOREIGN CURRENCY - The Fund may purchase and sell call and
put options on foreign currency for the purpose of hedging against changes
in future currency exchange rates. Call options convey the right to buy the
underlying currency at a price which is expected to be lower than the spot
price of the currency at the time the option expires. Put options convey
the right to sell the underlying currency at a price which is anticipated to
be higher than the spot prices of the currency at the time the option
expires. The Fund may use foreign currency options for the same purposes
as forward currency exchange and futures transactions, as described
herein. See also "Call and Put Options on Specific Securities" and
"Currency Futures and Options on Currency Futures" below.
SHORT-SELLING - The Fund may make short sales, which are transactions
in which the Fund sells a security it does not own in anticipation of a
decline in the market value of that security. To complete such a
transaction, the Fund must borrow the security to make delivery to the
buyer. The Fund then is obligated to replace the security borrowed by
purchasing it 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. Until the security is replaced, the Fund is required to pay
to the lender amounts equal to any dividends or interest which accrue
during the period of the loan. To borrow the security, the Fund also may be
required to pay a premium, which would increase the cost of the security
sold. The proceeds of the short sale will be retained by the broker, to the
extent necessary to meet margin requirements, until the short position is
closed out.
Until the Fund closes its short position or replaces the borrowed
security, the Fund will: (a) maintain a segregated account, containing cash
or U.S. Government securities, at such a level that (i) the amount
deposited in the account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short and (ii)
the amount deposited in the segregated account plus the amount deposited
with the broker as collateral will not be less than the market value of the
security at the time it was sold short; or (b) otherwise cover its short
position.
The Fund will incur a loss as a result of the short sale if the price of
the security increases between
(9)
the date of the short sale and the date on which the Fund replaces the
borrowed security. The Fund will realize a gain if the security declines in
price between those dates. This result is the opposite of what one would
expect from a cash purchase of a long position in a security. The amount of
any gain will be decreased, and the amount of any loss increased, by the
amount of any premium or amounts in lieu of dividends or interest the
Fund may be required to pay in connection with a short sale.
The Fund may purchase call options to provide a hedge against an
increase in the price of a security sold short by the Fund. When the Fund
purchases a call option it has to pay a premium to the person writing the
option and a commission to the broker selling the option. If the option is
exercised by the Fund, the premium and the commission paid may be more
than the amount of the brokerage commission charged if the security were
to be purchased directly. See "Call and Put Options on Specific Securities"
below.
The Fund anticipates that the frequency of short sales will vary
substantially under different market conditions, and it does not intend
that any specified portion of its assets, as a matter of practice, will be
invested in short sales. However, no securities will 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 sell short the securities of any single issuer
listed on a United States national securities exchange to the extent of
more than 5% of the value of the Fund's net assets. The Fund may not sell
short the securities of any class of an issuer to the extent, at the time of
the transaction, of more than 5% of the outstanding securities of that
class.
In addition to the short sales discussed above, the Fund may make short
sales "against the box," a transaction in which the Fund enters into a
short sale of a security which the Fund owns. The proceeds of the short
sale will be held by a broker until the settlement date at which time the
Fund delivers the security to close the short position. The Fund receives
the net proceeds from the short sale. The Fund at no time will have more
than 15% of the value of its net assets in deposits on short sales against
the box. It currently is anticipated that the Fund will make short sales
against the box for purposes of protecting the value of the Fund's net
assets.
CALL AND PUT OPTIONS ON SPECIFIC SECURITIES - The Fund may invest up
to 5% of its assets, represented by the premium paid, in the purchase of
call and put options in respect of specific securities (or groups or
"baskets" of specific securities) in which the Fund may invest. The Fund
may write covered call and put option contracts to the extent of 20% of
the value of its net assets at the time such option contracts are written.
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. 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. A covered call option sold by the
Fund, which is a call option with respect to which the Fund owns the
underlying security or securities, exposes the Fund during the term of the
option to possible loss of opportunity to realize appreciation in the
market price of the underlying security or securities or to possible
continued holding of a security or securities which might otherwise have
been sold to protect against depreciation in the market price thereof. A
covered put option sold by the Fund exposes the Fund during the term of
the option to a decline in price of the underlying security or securities. A
put option sold by the Fund is covered when, among other things, cash or
liquid securities are placed in a segregated account with the Fund's
custodian to fulfill the obligation undertaken.
To close out a position when writing covered options, the Fund may
make a "closing purchase transaction," which involves purchasing an
option on the same security or securities with the same exercise price
and expiration date as the option which it has previously written. To close
out a position as a purchaser of an option, the Fund may make a "closing
sale transaction," which involves liquidating the Fund's position by
selling the option previously purchased. The Fund will realize a profit or
loss from a closing purchase or sale transaction depending upon the
difference between the amount paid to purchase an option and the amount
received from the sale thereof.
The Fund intends to treat options in respect of specific securities that
are not traded on a national securities exchange and the securities
underlying covered call options written by the Fund as illiquid securities.
See
(10)
"Certain Portfolio Securities - Illiquid Securities" above.
The Fund will purchase options only to the extent permitted by the
policies of state securities authorities in states where shares of the Fund
are qualified for offer and sale.
OPTIONS ON INTEREST RATE SWAPS - The Fund may purchase cash-settled
options on interest rate swaps in pursuit of its investment objectives.
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)
denominated in U.S. dollars. 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.
FUTURES TRANSACTIONS - IN GENERAL - The Fund will not be a commodity
pool. However, as a substitute for a comparable market position in the
underlying securities and for hedging purposes, the Fund may engage in
futures and options on futures transactions, as described below.
The Fund may trade 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, to
the extent permitted under applicable law, on exchanges located outside
the United States, such as the London International Financial Futures
Exchange and the Sydney Futures Exchange Limited. Foreign markets may
offer advantages such as trading in commodities that are not currently
traded in the United States or arbitrage possibilities not available in the
United States. Foreign markets, however, may have greater risk potential
than domestic markets. See "Risk Factors - Foreign Commodity
Transactions" below.
The Fund's commodities transactions must constitute bona fide hedging
or other permissible transactions pursuant to regulations promulgated by
the Commodity Futures Trading Commission (the "CFTC"). In addition, the
Fund may not engage in such transactions if the sum of the amount of
initial margin deposits and premiums paid for unexpired commodity
options, other than for bona fide hedging transactions, would exceed 5% of
the liquidation value of the Fund's assets, after taking into account
unrealized profits and unrealized losses on such contracts it has entered
into; provided, however, that in the case of an option that is in-the-money
at the time of purchase, the in-the-money amount may be excluded in
calculating the 5%. Pursuant to regulations and/or published positions of
the Securities and Exchange Commission, the Fund may be required to
segregate cash or high quality money market instruments in connection
with its commodities transactions in an amount generally equal to the
value of the underlying commodity.
Initially, when purchasing or selling futures contracts the Fund will be
required to deposit with its custodian in the broker's name an amount of
cash or cash equivalents up to approximately 10% of the contract amount.
This amount is subject to change by the exchange or board of trade on
which the contract is traded and members of such exchange or board of
trade may impose their own higher requirements. This amount is known as
"initial margin" and is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination of
the futures position, assuming all contractual obligations have been
satisfied. Subsequent payments, known as "variation margin," to and from
the broker will be made daily as the price of the index or securities
underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known
as "marking-to-market." At any time prior to the expiration of a futures
contract, the Fund may elect to close the position by taking an opposite
position, at the then prevailing price, which will operate to terminate the
Fund's existing position in the contract.
Although the Fund intends to purchase or sell futures contracts 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 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
prices could move to the limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting
(11)
the Fund to substantial losses. If it is not possible, or the Fund determines
not, to close a futures position in anticipation of adverse price
movements, the Fund will be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may offset partially or
completely losses on the futures contract. However, no assurance can be
given that the price of the securities being hedged will correlate with the
price movements in a futures contract and thus provide an offset to losses
on the futures contract.
In addition, to the extent the Fund is engaging in a futures transaction
as a hedging device, due to the risk of an imperfect correlation between
securities in the Fund's portfolio that are the subject of a hedging
transaction and the futures contract used as a hedging device, it is
possible that the hedge will not be fully effective in that, for example,
losses on the portfolio securities may be in excess of gains on the futures
contract or losses on the futures contract may be in excess of gains on the
portfolio securities that were the subject of the hedge. In futures
contracts based on indexes, the risk of imperfect correlation increases as
the composition of the Fund's portfolio varies from the composition of the
index. In an effort to compensate for the imperfect correlation of
movements in the price of the securities being hedged and movements in
the price of futures contracts, the Fund may buy or sell futures contracts
in a greater or lesser dollar amount than the dollar amount of the
securities being hedged if the historical volatility of the futures contract
has been less or greater than that of the securities. Such "over hedging"
or "under hedging" may adversely affect the Fund's net investment results
if market movements are not as anticipated when the hedge is established.
Successful use of futures by the Fund also is subject to the Advisers'
ability to predict correctly movements in the direction of the market or
interest rates. For example, if the Fund has hedged against the possibility
of a decline in the market adversely affecting the value of securities held
in its portfolio and prices increase instead, the Fund will lose part or all
of the benefit of the increased value of securities which it has hedged
because it will have offsetting losses in its futures positions. In addition,
in such situations, if the Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may, but will not necessarily, be at increased prices which
reflect the rising market. The Fund may have to sell securities at a time
when it may be disadvantageous to do so.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
at a specified exercise price at any time during the option exercise period.
The writer of the option is required upon exercise to assume an offsetting
futures position (a short position if the option is a call and a long position
if the option is a put). Upon exercise of the option, the assumption of
offsetting futures positions by the writer and holder of the option will be
accompanied by delivery of the accumulated cash balance in the writer's
futures margin account which represents the amount by which the market
price of the futures contract, at exercise, exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
Call options sold by the Fund with respect to futures contracts will be
covered by, among other things, entering into a long position in the same
contract at a price no higher than the strike price of the call option, or by
ownership of the instruments underlying, or instruments the prices of
which are expected to move relatively consistently with the instruments
underlying, the futures contract. Put options sold by the Fund with respect
to futures contracts will be covered in the same manner as put options on
specific securities as described above.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST RATE
FUTURES CONTRACTS - The Fund may invest in interest rate futures
contracts and options on interest rate futures contracts as a substitute
for a comparable market position and to hedge against adverse movements
in interest rates.
To the extent the Fund has invested in interest rate futures contracts
or options on interest rate futures
contracts as a substitute for a comparable market position, the Fund will
be subject to the investment risks of having purchased the securities
underlying the contract.
The Fund may purchase call options on interest rate futures contracts
to hedge against a decline in interest
(12)
rates and may purchase put options on interest rate futures contracts to
hedge its portfolio securities against the risk of rising interest rates.
The Fund may sell call options on interest rate futures contracts to
partially hedge against declining prices of its portfolio securities. If the
futures price at expiration of the option is below the exercise price, the
Fund will retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in the Fund's
portfolio holdings. The Fund may sell put options on interest rate futures
contracts to hedge against increasing prices of the securities which are
deliverable upon exercise of the futures contracts. If the futures price at
expiration of the option is higher than the exercise price, the Fund will
retain the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which the Fund
intends to purchase. If a put or call option sold by the Fund is exercised,
the Fund will incur a loss which will be reduced by the amount of the
premium it receives. Depending on the degree of correlation between
changes in the value of its portfolio securities and changes in the value of
its futures positions, the Fund's losses from existing options on futures
may to some extent be reduced or increased by changes in the value of its
portfolio securities.
The Fund also may sell options on interest rate futures contracts as
part of closing purchase transactions to terminate its options positions.
No assurance can be given that such closing transactions can be effected
or that there will be correlation between price movements in the options
on interest rate futures and price movements in the Fund's portfolio
securities which are the subject of the hedge. In addition, the Fund's
purchase of such options will be based upon predictions as to anticipated
interest rate trends, which could prove to be inaccurate.
CURRENCY FUTURES AND OPTIONS ON CURRENCY FUTURES - The Fund may
purchase and sell currency futures contracts and options thereon. See
"Call and Put Options on Specific Securities" above. By selling foreign
currency futures, the Fund can establish the number of U.S. dollars it will
receive in the delivery month for a certain amount of a foreign currency.
In this way, if the Fund anticipates a decline of a foreign currency against
the U.S. dollar, the Fund can attempt to fix the U.S. dollar value of some or
all of its securities that are denominated in that currency. By purchasing
foreign currency futures, the Fund can establish the number of U.S. dollars
it will be required to pay for a specified amount of a foreign currency in
the delivery month. Thus, if the Fund intends to buy securities in the
future and expects the U.S. dollar to decline against the relevant foreign
currency during the period before the purchase is effected, the Fund, for
the price of the currency future, can attempt to fix the price in U.S.
dollars of the securities it intends to acquire.
The purchase of options on currency futures will allow the Fund, for the
price of the premium it must pay for the option, to decide whether or not
to buy (in the case of a call option) or to sell (in the case of a put option)
a futures contract at a specified price at any time during the period
before the option expires. If the Fund, in purchasing an option, has been
correct in its judgment concerning the direction in which the price of a
foreign currency would move as against the U.S. dollar, it may exercise the
option and thereby take a futures position to hedge against the risk it had
correctly anticipated or close out the option position at a gain that will
offset, to some extent, currency exchange losses otherwise suffered by
the Fund. If exchange rates move in a way the Fund did not anticipate, the
Fund will have incurred the expense of the option without obtaining the
expected benefit. As a result, the Fund's profits on the underlying
securities transactions may be reduced or overall losses incurred.
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 derivative investments which are not presently
contemplated for use by the Fund or which are not currently available but
which may be developed, to the extent such opportunities are both
consistent with the Fund's investment objectives and legally permissible
for the Fund. Before entering into such transactions or making any such
investment, the Fund will pro
vide appropriate disclosure in its prospectus.
LENDING PORTFOLIO SECURITIES - From time to time, the Fund may lend
securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain
transactions. Such loans may not exceed 33-1/3% of the value of the
Fund's total assets. In connection with such loans, the
(13)
Fund will 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. The Fund can increase its income through the investment of
such collateral. The Fund continues to be entitled to payments in amounts
equal to the interest or other distributions payable on the loaned security
and receives interest on the amount of the loan. Such loans will be
terminable 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.
FORWARD COMMITMENTS - The Fund may purchase securities on a when-
issued or forward commitment basis, which means that the price is fixed
at the time of commitment, but delivery and payment ordinarily take place
a number of days after the date of the commitment to purchase. The Fund
will make commitments 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 not accrue income in respect of a security purchased on a when-
issued or forward commitment basis prior to its stated delivery date.
Securities purchased on a when-issued or forward commitment basis
and certain other debt securities held by the Fund are subject to changes
in value (both 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 when-issued or forward commitment basis may expose the
Fund to risk because they may experience such fluctuations prior to their
actual delivery. Purchasing debt securities on a when-issued or forward
commitment 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. A segregated account of the Fund
consisting of cash, cash equivalents or U.S. Government securities or other
high quality liquid debt securities at least equal at all times to the
amount of the when-issued or forward commitments will be established
and maintained at the Fund's custodian bank. Purchasing debt securities on
a when-issued or forward commitment 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.
CERTAIN FUNDAMENTAL POLICIES
The Fund may (i) borrow money to the extent permitted under the
Investment Company Act of 1940; and (ii) invest up to 25% of its total
assets in the securities of issuers in a single industry, provided that
there is no such limitation on investments in securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. This
paragraph describes fundamental policies of the Fund that cannot be
changed without approval by the holders of a majority (as defined in the
Investment Company Act of 1940) of the outstanding voting shares of the
Fund. See "Investment Objective and Management Policies - Investment
Restrictions" in the Fund's Statement of Additional Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES
The Fund may (i) pledge, hypothecate, mortgage or otherwise encumber
its assets, but only to secure permitted borrowings; (ii) invest up to 15%
of the value of its net assets in repurchase agreements providing for
settlement in more than seven days after notice and in other illiquid
securities; and (iii) purchase securities of other investment companies to
the extent permitted under the Investment Company Act of 1940. See
"Investment Objective and Management Policies - Investment
Restrictions" in the Fund's Statement of Additional Information.
RISK FACTORS
INVESTING IN SOVEREIGN DEBT OBLIGATIONS AND EMERGING MARKET
COUNTRIES - No established secondary markets may exist for many of the
Sovereign Debt Obligations in which the Fund will invest. Reduced
secondary market liquidity may have an adverse effect on the market price
and the Fund's ability to dispose of particular instruments when necessary
to meet its liquidity requirements or in response to specific economic
events such as a deterioration in the creditworthiness of the issuer.
Reduced secondary market liquidity for certain Sovereign Debt Obligations
also may make it more difficult for the Fund to obtain accurate market
(14)
quotations for purposes of valuing its portfolio. Market quotations are
generally available on many Sovereign Debt Obligations only from a
limited number of dealers and may not necessarily represent firm bids of
those dealers or prices for actual sales.
By investing in Sovereign Debt Obligations, the Fund will be exposed to
the direct or indirect consequences of political, social and economic
changes in various countries. Political changes in a country may affect the
willingness of a foreign government to make or provide for timely
payments of its obligations. The country's economic status, as reflected,
among other things, in its inflation rate, the amount of its external debt
and its gross domestic product, will also affect the government's ability
to honor its obligations.
Many 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. In an attempt to control
inflation, wage and price controls have been imposed in certain countries.
Investing in Sovereign Debt Obligations involves economic and political
risks. The Sovereign Debt Obligations in which the Fund will invest in
most cases pertain to countries that are among the world's largest
debtors to commercial banks, foreign governments, international financial
organizations and other financial institutions. In recent years, the
governments of some of these countries have encountered difficulties in
servicing their external debt obligations, which led to defaults on certain
obligations and the restructuring of certain indebtedness. Restructuring
arrangements have included, among other things, reducing and
rescheduling interest and principal payments by negotiating new or
amended credit agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance interest
payments. Certain governments have not been able to make payments of
interest on or principal of Sovereign Debt Obligations as those payments
have come due. Obligations arising from past restructuring agreements
may affect the economic performance and political and social stability of
those issuers.
Central banks and other governmental authorities which control the
servicing of Sovereign Debt Obligations may not be willing or able to
permit the payment of the principal or interest when due in accordance
with the terms of the obligations. As a result, the issuers of Sovereign
Debt Obligations may default on their obligations. Defaults on certain
Sovereign Debt Obligations have occurred in the past. Holders of certain
Sovereign Debt Obligations may be requested to participate in the
restructuring and rescheduling of these obligations and to extend further
loans to the issuers. The interests of holders of Sovereign Debt
Obligations could be adversely affected in the course of restructuring
arrangements or by certain other factors referred to below. Furthermore,
some of the participants in the secondary market for Sovereign Debt
Obligations also may be directly involved in negotiating the terms of
these arrangements and, therefore, may have access to information not
available to other market participants.
The Fund is permitted to invest in Sovereign Debt Obligations that are
not current in the payment of interest or principal or are in default, so
long as the Advisers believe it to be consistent with the Fund's
investment objectives. The Fund may have limited legal recourse in the
event of a default with respect to certain Sovereign Debt Obligations it
holds. Bankruptcy, moratorium and other similar laws applicable to
issuers of Sovereign Debt Obligations may be substantially different from
those applicable to issuers of private debt obligations. The political
context, expressed as the willingness of an issuer of Sovereign Debt
Obligations to meet the terms of the debt obligation, for example, is of
considerable importance. In addition, no assurance can be given that the
holders of commercial bank debt will not contest payments to the holders
of securities issued by foreign governments in the event of default under
commercial bank loan agreements.
INVESTING IN OTHER FOREIGN SECURITIES - 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. The
issuers of some of these securities, such as foreign bank obligations, may
be subject to less stringent or different regulations than are U.S. issuers.
In addition, there may be less publicly available information about a
(15)
non-U.S. issuer, and non-U.S. issuers generally are not subject to uniform
accounting and financial reporting standards, practices and requirements
comparable to those applicable to U.S. issuers.
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,
possible seizure or nationalization of foreign deposits and possible
adoption of governmental restrictions that might adversely affect the
payment of principal and interest on the foreign securities or might
restrict the payment of principal and interest to investors located outside
the country of the issuer, whether from currency blockage or otherwise.
Custodial expenses for a portfolio of non-U.S. securities generally are
higher than for a portfolio of U.S. securities.
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. Some currency exchange
costs may be incurred when the Fund changes investments from one
country to another.
Furthermore, some of these securities may be subject to brokerage
taxes levied by foreign governments, which have the effect of increasing
the cost of such investment and reducing the realized gain or increasing
the realized loss on such securities at the time of sale. Income received
by the Fund from sources within foreign countries may be reduced by
withholding and other taxes imposed by such countries. Tax conventions
between certain countries and the United States, however, may reduce or
eliminate such taxes. All such taxes paid by the Fund will reduce its net
income available for distribution to investors.
FOREIGN CURRENCY EXCHANGE - Currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by
the forces of supply and demand in the foreign exchange markets and the
relative merits of investments in different countries, actual or perceived
changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central
banks, or the failure to intervene, or by currency controls or political
developments in the United States or abroad.
The foreign currency market offers less protection against defaults in
the forward trading of currencies than is available when trading in
currencies occurs on an exchange. Since a forward currency contract is not
guaranteed by an exchange or clearinghouse, a default on the contract
would deprive the Fund of unrealized profits or force the Fund to cover its
commitments for purchase or resale, if any, at the current market price.
FOREIGN COMMODITY TRANSACTIONS - Unlike trading on domestic
commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal
markets so that no common clearing facility exists and a trader may look
only to the broker for performance of the contract. In addition, unless the
Fund hedges against fluctuations in the exchange rate between the U.S.
dollar and the currencies in which trading is done on foreign exchanges,
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
which are not.
LOWER RATED SECURITIES - You should carefully consider the relative
risks of investing in the higher yielding (and, therefore, higher risk) debt
securities in which the Fund may invest. These are securities such as
those rated Ba by Moody's or BB by S&P, Fitch or Duff or as low as the
lowest rating assigned by Moody's, S&P, Fitch or Duff. They generally are
not meant for short-term investing and may be subject to certain risks
with respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated fixed-income securities. 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,
Fitch or Duff are regarded as having predominantly speculative
characteristics and, while such obligations have less near-term
vulnerability to default than other speculative grade debt, 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
(16)
Moody's are regarded as having extremely poor prospects of ever attaining
any real investment standing. Securities rated D by S&P, Fitch and Duff
are in default and the payment of interest and/or repayment of principal
is in arrears. Such securities, though high yielding, are characterized by
great risk. See "Appendix" in the Fund's Statement of Additional
Information for a general description of Moody's, S&P, Fitch and Duff
securities ratings. Although these ratings may be an initial criterion for
selection of portfolio investments, the Advisers also will evaluate these
securities and the ability of the issuers of such securities to pay interest
and principal. The Fund's ability to achieve its investment objectives may
be more dependent on the Advisers' credit analysis than might be the case
for a fund that invested in higher rated securities. See "Certain Portfolio
Securities - Ratings" above.
The market price and yield of securities rated Ba or lower by Moody's
and BB or lower by S&P, Fitch or Duff are more volatile than those of
higher rated securities. Factors adversely affecting the market price and
yield of these securities will adversely affect the Fund's net asset value.
In addition, the retail secondary market for these 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.
The market values of certain lower rated debt securities tend to reflect
specific developments with respect to the issuer to a greater extent than
do higher rated securities, which react primarily to fluctuations in the
general level of interest rates, and tend to be more sensitive to economic
conditions than are higher rated securities. Issuers of such debt
securities often are highly leveraged and may not have available to them
more traditional methods of financing. Therefore, the risk associated with
acquiring the securities of such issuers generally is greater than is the
case with higher rated securities.
The ratings of the various rating agencies represent their opinions as to
the quality of the obligations which they undertake to rate. It should be
emphasized, however, that 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. Therefore, although these ratings may be an initial criterion
for selection of portfolio investments, the Advisers also will evaluate
such obligations and the ability of their issuers to pay interest and
principal. The Fund will rely on the Advisers' judgment, analysis and
experience in evaluating the creditworthiness of an issuer. In this
evaluation, the Advisers will take into consideration, among other things,
the issuer's financial resources, its sensitivity to economic conditions
and trends, and the quality of the issuer's management and regulatory
matters. It also is possible that a rating agency might not timely change
the rating on a particular issue to reflect subsequent events. Once the
rating of a security in the Fund's portfolio has been changed, the Advisers
will consider all circumstances deemed relevant in determining whether
the Fund should continue to hold the security.
See "Investment Objective and Management Policies - Risk Factors -
Lower Rated Securities" in the Fund's Statement of Additional
Information.
DISCOUNT OBLIGATIONS - A substantial portion of the Fund's investments
(including most Brady Bonds) may be in (i) securities which were initially
issued at a discount from their face value (collectively, "Discount
Obligations") and (ii) securities purchased by the Fund at a price less than
their stated face amount or, in the case of Discount Obligations, at a price
less than their issue price plus the portion of "original issue discount"
previously accrued thereon, i.e., purchased at a "market discount." The
amount of original issue discount and/or market discount on obligations
purchased by the Fund may be significant, and accretion of market
discount together with original issue discount, will cause the Fund to
realize income prior to the receipt of cash payments with respect to these
securities. To maintain its qualification as a regulated investment
company and avoid liability for Federal income taxes, the Fund may be
required to distribute such income accrued with
respect to these securities and may have to dispose of portfolio
securities under disadvantageous circumstances in order to generate cash
to satisfy these distribution requirements. See "Dividends, Distributions
and Taxes."
OTHER INVESTMENT CONSIDERATIONS - The Fund's net asset value is not
fixed and should be expected to fluctuate. You should purchase Fund shares
only as a supplement to an overall investment program and only
(17)
if you are willing to undertake the risks involved.
The use of investment techniques such as leveraging, short-selling,
engaging in financial futures and options transactions and lending
portfolio securities and the purchase of Sovereign Debt Obligations and
certain stripped mortgage-backed securities involves greater risk than
that incurred by many other funds with similar objectives. Using these
techniques may produce higher than normal portfolio turnover and may
affect the degree to which the Fund's net asset value fluctuates. Portfolio
turnover may vary from year to year, as well as within a year. Under
normal market conditions, the Fund's portfolio turnover rate generally
will not exceed 150%. Higher portfolio turnover rates are likely to result
in comparatively greater brokerage commissions or transaction costs. In
addition, short-term gains realized from portfolio transactions are
taxable to shareholders as ordinary income. See "Portfolio Transactions"
in the Statement of Additional Information.
The Fund's ability to engage in certain short-term transactions may be
limited by the requirement that, to qualify as a regulated investment
company, it must earn less than 30% of its gross income from the
disposition of securities held for less than three months. This 30% test
limits the extent to which the Fund may sell securities held for less than
three months, effect short sales of securities held for less than three
months, write options expiring in less than three months and invest in
certain futures contracts, among other strategies. However, portfolio
turnover will not otherwise be a limiting factor in making investment
decisions.
Investors should be aware that even though interest-bearing securities
are investments which promise a stable stream of income, the prices of
such securities are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The values
of fixed-income securities also may be affected by changes in the credit
rating or financial condition of the issuing entities.
The Fund's classification as a "non-diversified" investment company
means that the proportion of the Fund's assets that may be invested in the
securities of a single issuer is not limited by the Investment Company Act
of 1940. A "diversified" investment company is required by the
Investment Company Act of 1940 generally to invest, with respect to 75%
of its total assets, not more than 5% of such assets in the securities of a
single issuer. However, the Fund intends to conduct its operations so as to
qualify as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended (the "Code"), which requires that, at
the end of each quarter of its taxable year, (i) at least 50% of the market
value of the Fund's total assets be invested in cash, U.S. Government
securities, the securities of other regulated investment companies and
other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the
value of the Fund's total assets, and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its
total assets be invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies). Since a relatively high percentage of the Fund's assets may be
invested in the securities of a limited number of issuers, some of which
may be within the same industry or economic sector, the Fund's portfolio
securities may be more susceptible to any single economic, political or
regulatory occurrence than the portfolio securities of a diversified
investment company.
Investment decisions for the Fund are made independently from those of
other investment companies or accounts advised by Dreyfus or M&G.
However, if such other investment companies or accounts are prepared to
invest in, or desire to dispose of, securities of the type in which the Fund
invests at the same time as the Fund, available investments or
opportunities for sales will be allocated equitably to each. 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.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER - Dreyfus, located at 200 Park Avenue, New York,
New York 10166, was
formed in 1947 and serves as the Fund's investment adviser. As of January
31, 1994, Dreyfus managed or administered approximately $79 billion in
assets for more than 1.9 million investor accounts.
Dreyfus supervises and assists in the overall management of the Fund's
affairs under a Management Agreement with the Fund, subject to the
overall authority of the Fund's Board of Directors in accordance
(18)
with Maryland law.
Dreyfus has engaged M&G, located at Three Quays Tower Hill, London
EC3R 6BQ, England, to serve as the Fund's sub-investment adviser. M&G, a
registered investment adviser, was formed in 1961. As of January 31,
1994, M&G managed approximately $21.9 billion in assets and serves as
the investment adviser of one other investment company.
M&G, subject to the supervision and approval of Dreyfus, provides
investment advisory assistance and the day-to-day management of the
Fund's investments, as well as investment research and statistical
information, under a Sub-Investment Advisory Agreement with Dreyfus,
subject to the overall authority of the Fund's Board of Directors in
accordance with Maryland law. The Fund's primary investment officer will
be Theodora Zemek. Ms. Zemek has been employed by M&G as Head of Fixed
Income since 1992. Prior thereto, she was employed by James Capel Fund
Managers as a Multicurrency Fixed Income Manager.
Under the Management Agreement, the Fund has agreed to pay Dreyfus a
monthly fee at the annual rate of .70 of 1% of the value of the Fund's
average daily net assets.
Under the Sub-Investment Advisory Agreement, Dreyfus has agreed to
pay M&G a monthly fee at the annual rate of .28 of 1% of the value of the
Fund's average daily net assets.
EXPENSES - All expenses incurred in the operation of the Fund will be
borne by the Fund, except to the extent specifically assumed by Dreyfus
and/or M&G. The expenses to be borne by the Fund will include:
organizational costs, taxes, interest, loan commitment fees, interest and
distributions paid on securities sold short, brokerage fees and
commissions, if any, fees of Directors who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of
Dreyfus or M&G or their affiliates, Securities and Exchange Commission
fees, state Blue Sky qualification fees, advisory fees, charges of
custodians, transfer and dividend disbursing agents' fees, certain
insurance premiums, industry association fees, outside auditing and legal
expenses, costs of independent pricing services, costs of maintaining the
Fund's existence, costs attributable to investor services (including,
without limitation, telephone and personnel expenses), costs of
shareholders' reports and meetings, and any extraordinary expenses. The
Fund is subject to an annual distri-bution fee for advertising, marketing
and distributing its shares and an annual service fee for ongoing personal
services relating to shareholder accounts and services related to the
maintenance of shareholder accounts. See "Distribution Plan and
Shareholder Services Plan."
From time to time, Dreyfus may waive receipt of its fee and/or
voluntarily assume certain expenses of the Fund, which would have the
effect of lowering the overall expense ratio of the Fund and increasing
yield to investors at the time such amounts are waived or assumed, as the
case may be. The Fund will not pay Dreyfus at a later time for any amounts
it may waive, nor will the Fund reimburse Dreyfus for any amounts it may
assume.
Dreyfus may pay Dreyfus Service Corporation for shareholder and
distribution services from its own monies, including past profits but not
including the management fee paid by the Fund. Dreyfus Service
Corporation may pay part or all of these payments to securities dealers or
others for servicing and distribution.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT - The Bank of
New York, 110 Washington Street, New York, New York 10286, is the
Fund's Custodian. The Shareholder Services Group, Inc., a subsidiary of
First Data Corporation, P.O. Box 9671, Providence, Rhode Island 02940-
9671, is the Fund's Transfer and Dividend Disbursing Agent (the "Transfer
Agent").
HOW TO BUY FUND SHARES
The Fund's distributor is Dreyfus Service Corporation, a wholly-owned
subsidiary of Dreyfus located at 200 Park Avenue, New York, New York
10166. The shares it distributes are not deposits or obligations of The
Dreyfus Security Savings Bank, F.S.B. and therefore are not insured by the
Federal Deposit Insurance
Corporation.
You can purchase Fund shares through Dreyfus Service Corporation or
certain financial institutions, securities dealers and other industry
professionals (collectively, "Service Agents") that have entered into
agreements with Dreyfus Service Corporation. Stock certificates are
issued only upon your written request.
(19)
No certificates are issued for fractional shares. The Fund reserves the
right to reject any purchase order.
Management understands that some Service Agents may impose certain
conditions on their clients which are different from those described in
this Prospectus, and, to the extent permitted by applicable regulatory
authority, may charge their clients direct fees which would be in addition
to any amounts which might be received under the Distribution Plan or
Shareholder Services Plan. Each Service Agent has agreed to transmit to
its clients a schedule of such fees. You should consult your Service Agent
in this regard.
The minimum initial investment is $2,500, or $1,000 if you are a client
of a Service Agent which has made an aggregate minimum initial purchase
for its customers of $2,500. Subsequent investments must be at least
$100. The initial investment must be accompanied by the Fund's Account
Application. For full-time or part-time employees of Dreyfus or any of its
affiliates or subsidiaries, directors of Dreyfus, Board members of a fund
advised by Dreyfus, including members of the Fund's Board, or the spouse
or minor child of any of the foregoing, the minimum initial investment is
$1,000. For full-time or part-time employees of Dreyfus or any of its
affiliates or subsidiaries who elect to have a portion of their pay directly
deposited into their Fund account, the minimum initial investment is $50.
The Fund reserves the right to offer Fund shares without regard to
minimum purchase requirements to employees participating in certain
qualified or non-qualified employee benefit plans or other programs where
contributions or account information can be transmitted in a manner and
form acceptable to the Fund. The Fund reserves the right to vary further
the initial and subsequent investment minimum requirements at any time.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable
to "The Dreyfus Family of Funds," or, if for Dreyfus retirement plan
accounts, to "The Dreyfus Trust Company, Custodian." Payments to open
new accounts which are mailed should be sent to The Dreyfus Family of
Funds, P.O. Box 9387, Providence, Rhode Island 02940-9387, together with
your Account Application. For subsequent investments, your Fund account
number should appear on the check and an investment slip should be
enclosed and sent to The Dreyfus Family of Funds, P.O. Box 105, Newark,
New Jersey 07101-0105. For Dreyfus retirement plan accounts, both
initial and subsequent investments should be sent to The Dreyfus Trust
Company, Custodian, P.O. Box 6427, Providence, Rhode Island 02940-6427.
Neither initial nor subsequent investments should be made by third party
check. Purchase orders may be delivered in person only to a Dreyfus
Financial Center. THESE ORDERS WILL BE FORWARDED TO THE FUND AND
WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the
nearest Dreyfus Financial Center, please call one of the telephone numbers
listed under "General Information."
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank
having a correspondent bank in New York City. Immediately available funds
may be transmitted by wire to The Bank of New York, DDA
#8900118385/Dreyfus Global Bond Fund, Inc., for purchase of Fund shares
in your name. The wire must include your Fund account number (for new
accounts, please include your Taxpayer Identification Number ("TIN")
instead), account registration and dealer number, if applicable. If your
initial purchase of Fund shares is by wire, please call 1-800-645-6561
after completing your wire payment to obtain your Fund account number.
Please include your Fund account number on the Fund's Account
Application and promptly mail the Account Application to the Fund, as no
redemptions will be permitted until the Account Application is received.
You may obtain further information about remitting funds in this manner
from your bank. All payments should be made in U.S. dollars and, to avoid
fees and delays, should be drawn only on U.S. banks. A charge will be
imposed if any check used for investment in your account does not clear.
The Fund makes available to certain large institutions the ability to issue
purchase instructions through compatible computer facilities.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House member. You must direct
the institution to transmit immediately available funds through the
Automated Clearing House to The Bank of New York with instructions to
credit your Fund account. The instructions must specify your Fund account
registration and your Fund account number PRECEDED BY THE DIGITS
"1111."
(20)
Fund shares are sold on a continuous basis at net asset value per share
next determined after an order in proper form is received by the Transfer
Agent or other agent. Net asset value per share is determined as of the
close of trading on the floor of the New York Stock Exchange (currently
4:00 p.m., New York time), on each day the New York Stock Exchange is
open for business. For purposes of determining net asset value, options
and futures contracts will be valued 15 minutes after the close of trading
on the floor of the New York Stock Exchange. Net asset value per share is
computed by dividing the value of the Fund's net assets (i.e., the value of
its assets less liabilities) by the total number of shares outstanding. The
Fund's investments are valued based on market value or, where market
quotations are not readily available, based on fair value as determined in
good faith by the Fund's Board of Directors. For further information
regarding the methods employed in valuing the Fund's investments, see
"Determination of Net Asset Value" in the Fund's Statement of Additional
Information.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes"
and the Fund's Account Application for further information concerning this
requirement. Failure to furnish a certified TIN to the Fund could subject
you to a $50 penalty imposed by the Internal Revenue Service (the "IRS").
DREYFUS TELETRANSFER PRIVILEGE
You may purchase Fund shares (minimum $500, maximum $150,000 per
day) by telephone if you have checked the appropriate box and supplied the
necessary information on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. The proceeds will be
transferred between the bank account designated in one of these
documents and your Fund account. Only a bank account maintained in a
domestic financial institution which is an Automated Clearing House
member may be so designated. The Fund may modify or terminate this
Privilege at any time or charge a service fee upon notice to shareholders.
No such fee currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-
3306.
SHAREHOLDER SERVICES
The services and privileges described under this heading may not be
available to clients of certain Service Agents and some Service Agents
may impose certain conditions on their clients which are different from
those in this Prospectus. You should consult your Service Agent in this
regard.
EXCHANGE PRIVILEGE
The Exchange Privilege enables you to purchase, in exchange for shares
of the Fund, shares of certain other funds managed or administered by
Dreyfus, to the extent such shares are offered for sale in your state of
residence. These funds have different investment objectives which may be
of interest to you. If you desire to use this Privilege, you should consult
your Service Agent or Dreyfus Service Corporation to determine if it is
available and whether any conditions are imposed on its use.
To use this Privilege, you or your Service Agent acting on your behalf
must give exchange instructions to the Transfer Agent in writing, by wire
or by telephone. If you previously have established the Telephone Exchange
Privilege, you may telephone exchange instructions by calling 1-800-221-
4060 or, if you are calling from overseas, call 1-401-455-3306. See "How
to Redeem Fund Shares - Procedures." Before any exchange, you must
obtain and should review a copy of the current prospectus of the fund into
which the exchange is being made. Prospectuses may be obtained from
Dreyfus Service Corporation. Except in the case of Personal Retirement
Plans, the shares being exchanged must have a current value of at least
$500; furthermore, when establishing a new account by exchange, the
shares being exchanged must have a value of at least the minimum initial
investment required for the fund into which the exchange is being made.
Telephone exchanges may be made only if the appropriate "YES" box has
been checked on the Account Application, or a separate signed Shareholder
Services Form is on file with the Transfer Agent. Upon an exchange into a
new account, the following shareholder services and privileges, as
applicable and where available, will be automatically
(21)
carried over to the fund into which the exchange is made: Exchange
Privilege, Wire Redemption Privilege, Telephone Redemption Privilege,
Dreyfus TELETRANSFER Privilege and the dividend/capital gain
distribution option (except for the Dreyfus Dividend Sweep Privilege)
selected by the investor.
Shares will be exchanged at the next determined net asset value;
however, a sales load may be charged with respect to exchanges into funds
sold with a sales load. If you are exchanging into a fund that charges a
sales load, you may qualify for share prices which do not include the sales
load or which reflect a reduced sales load, if the shares of the fund from
which you are exchanging were: (a) purchased with a sales load, (b)
acquired by a previous exchange from shares purchased with a sales load,
or (c) acquired through reinvestment of dividends or distributions paid
with respect to the foregoing categories of shares. To qualify, at the time
of your exchange you must notify the Transfer Agent or your Service Agent
must notify Dreyfus Service Corporation. Any such qualification is subject
to confirmation of your holdings through a check of appropriate records.
See "Shareholder Services" in the Statement of Additional Information. No
fees currently are charged shareholders directly in connection with
exchanges, although the Fund reserves the right, upon not less than 60
days' written notice, to charge shareholders a nominal fee in accordance
with rules promulgated by the Securities and Exchange Commission. The
Fund reserves the right to reject any exchange request in whole or in part.
The Exchange Privilege may be modified or terminated at any time upon
notice to shareholders.
The exchange of shares of one fund for shares of another is treated for
Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss.
DREYFUS AUTO-EXCHANGE PRIVILEGE
Dreyfus Auto-Exchange Privilege enables you to invest regularly (on a
semi-monthly, monthly, quarterly or annual basis), in exchange for shares
of the Fund, in shares of other funds in the Dreyfus Family of Funds of
which you are currently an investor. The amount you designate, which can
be expressed either in terms of a specific dollar or share amount ($100
minimum), will be exchanged automatically on the first and/or fifteenth
day of the month according to the schedule you have selected. Shares will
be exchanged at the then-current net asset value; however, a sales load
may be charged with respect to exchanges into funds sold with a sales
load. See "Shareholder Services" in the Statement of Additional
Information. The right to exercise this Privilege may be modified or
canceled by the Fund or the Transfer Agent. You may modify or cancel your
exercise of this Privilege at any time by mailing written notification to
The Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island
02940-9671. The Fund may charge a service fee for the use of this
Privilege. No such fee currently is contemplated. The exchange of shares
of one fund for shares of another is treated for Federal income tax
purposes as a sale of the shares given in exchange by the shareholder and,
therefore, an exchanging shareholder may realize a taxable gain or loss.
For more information concerning this Privilege and the funds in the
Dreyfus Family of Funds eligible to participate in this Privilege, or to
obtain a Dreyfus Auto-Exchange Authorization Form, please call toll free
1-800-645-6561.
DREYFUS-AUTOMATIC ASSET BUILDER
Dreyfus-AUTOMATIC Asset Builder permits you to purchase Fund shares
(minimum of $100 and maximum of $150,000 per transaction) at regular
intervals selected by you. Fund shares are purchased by transferring funds
from the bank account designated by you. At your option, the bank account
designated by you will be debited in the specified amount, and Fund shares
will be purchased, once a month, on either the first or fifteenth day, or
twice a month, on both days. Only an account maintained at a domestic
financial institution which is an Automated Clearing House member may
be so designated. To establish a Dreyfus-AUTOMATIC Asset Builder
account, you must file an authorization form with the Transfer Agent. You
may obtain the necessary authorization form from Dreyfus Service
Corporation. You may cancel your participation in this Privilege or change
the amount of purchase at any time by mailing written notification to The
Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-
9671, or, if for Dreyfus retirement plan accounts, to The Dreyfus Trust
Company, Custodian, P.O. Box 6427, Providence, Rhode Island 02940-6427,
and the notification will be effective three business days following
receipt. The Fund may modify or terminate this
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Privilege at any time or charge a service fee. No such fee currently is
contemplated.
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE
Dreyfus Government Direct Deposit Privilege enables you to purchase
Fund shares (minimum of $100 and maximum of $50,000 per transaction)
by having Federal salary, Social Security, or certain veterans', military or
other payments from the Federal government automatically deposited into
your Fund account. You may deposit as much of such payments as you elect.
To enroll in Dreyfus Government Direct Deposit, you must file with the
Transfer Agent a completed Direct Deposit Sign-Up Form for each type of
payment that you desire to include in the Privilege. The appropriate form
may be obtained from Dreyfus Service Corporation. Death or legal
incapacity will terminate your participation in this Privilege. You may
elect at any time to terminate your participation by notifying in writing
the appropriate Federal agency. Further, the Fund may terminate your
participation upon 30 days' notice to you.
DREYFUS DIVIDEND SWEEP PRIVILEGE
Dreyfus Dividend Sweep Privilege enables you to invest automatically
dividends or dividends and capital gain distributions, if any, paid by the
Fund in shares of another fund in the Dreyfus Family of Funds of which you
are a shareholder. Shares of the other fund will be purchased at the then-
current net asset value; however, a sales load may be charged with
respect to investments in shares of a fund sold with a sales load. If you
are investing in a fund that charges a sales load, you may qualify for share
prices which do not include the sales load or which reflect a reduced sales
load. If you are investing in a fund that charges a contingent deferred
sales charge, the shares purchased will be subject on redemption to the
contingent deferred sales charge, if any, applicable to the purchased
shares. See "Shareholder Services" in the Statement of Additional
Information. For more information concerning this Privilege and the funds
in the Dreyfus Family of Funds eligible to participate in this Privilege, or
to request a Dividend Options Form, please call toll free 1-800-645-6561.
You may cancel this Privilege by mailing written notification to The
Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-
9671. To select a new fund after cancellation, you must submit a new
authorization form. Enrollment in or cancellation of this Privilege is
effective three business days following receipt. This Privilege is
available only for existing accounts and may not be used to open new
accounts. Minimum subsequent investments do not apply. The Fund may
modify or terminate this Privilege at any time or charge a service fee. No
such fee currently is contemplated. Shares held under Keogh Plans or IRAs
are not eligible for this Privilege.
DREYFUS PAYROLL SAVINGS PLAN
Dreyfus Payroll Savings Plan permits you to purchase Fund shares
(minimum of $100 per transaction) automatically on a regular basis.
Depending upon your employer's direct deposit program, you may have part
or all of your paycheck transferred to your existing Dreyfus account
electronically through the Automated Clearing House system at each pay
period. To establish a Dreyfus Payroll Savings Plan account, you must file
an authorization form with your employer's payroll department. Your
employer must complete the reverse side of the form and return it to The
Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-
9671. You may obtain the necessary authorization form from Dreyfus
Service Corporation. You may change the amount of purchase or cancel the
authorization only by written notification to your employer. It is the sole
responsibility of your employer, not Dreyfus Service Corporation, Dreyfus,
the Fund, the Transfer Agent or any other person, to arrange for
transactions under the Dreyfus Payroll Savings Plan. The Fund may modify
or terminate this Privilege at any time or charge a service fee. No such
fee currently is contemplated.
AUTOMATIC WITHDRAWAL PLAN
The Automatic Withdrawal Plan permits you to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or quarterly
basis if you have a $5,000 minimum account. An application for the
Automatic Withdrawal Plan can be obtained from Dreyfus Service
Corporation. There is a service charge of $.50 for each withdrawal check.
The Automatic Withdrawal Plan may be ended at any time by you, the Fund
or the Transfer Agent. Shares for which certificates have been issued may
not be redeemed through the Automatic Withdrawal Plan.
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RETIREMENT PLANS
The Fund offers a variety of pension and profit-sharing plans, including
Keogh Plans, IRAs, SEP-IRAs and IRA "Rollover Accounts," 401(k) Salary
Reduction Plans and 403(b)(7) Plans. Plan support services also are
available. For details, please contact Dreyfus Group Retirement Plans, a
division of Dreyfus Service Corporation, by calling toll free 1-800-358-
5566.
HOW TO REDEEM FUND SHARES
GENERAL
You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below.
When a request is received in proper form, the Fund will redeem the
shares at the next determined net asset value.
The Fund imposes no charges when shares are redeemed directly through
Dreyfus Service Corporation. Service Agents may charge a nominal fee for
effecting redemptions of Fund shares. Any certificates representing Fund
shares being redeemed must be submitted with the redemption request.
The value of the shares redeemed may be more or less than their original
cost, depending upon the Fund's then-current net asset value.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and
Exchange Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY
CHECK, BY DREYFUS TELETRANSFER PRIVILEGE OR THROUGH DREYFUS-
AUTOMATIC ASSET BUILDER AND SUBSEQUENTLY SUBMIT A WRITTEN
REDEMPTION REQUEST TO THE TRANSFER AGENT, THE REDEMPTION
PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK CLEARANCE
OF YOUR PURCHASE CHECK, DREYFUS TELETRANSFER PURCHASE OR
DREYFUS-AUTOMATIC ASSET BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT
BUSINESS DAYS OR MORE. IN ADDITION, THE FUND WILL REJECT REQUESTS
TO REDEEM SHARES BY WIRE OR TELEPHONE OR PURSUANT TO THE DREYFUS
TELETRANSFER PRIVILEGE FOR A PERIOD OF EIGHT BUSINESS DAYS AFTER
RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE CHECK, THE DREYFUS
TELETRANSFER PURCHASE OR THE DREYFUS-AUTOMATIC ASSET BUILDER
ORDER AGAINST WHICH SUCH REDEMPTION IS REQUESTED. THESE
PROCEDURES WILL NOT APPLY IF YOUR SHARES WERE PURCHASED BY WIRE
PAYMENT, OR IF YOU OTHERWISE HAVE A SUFFICIENT COLLECTED BALANCE
IN YOUR ACCOUNT TO COVER THE REDEMPTION REQUEST. PRIOR TO THE TIME
ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH SHARES WILL ACCRUE
AND BE PAYABLE, AND YOU WILL BE ENTITLED TO EXERCISE ALL OTHER
RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will not be redeemed until
the Transfer Agent has received your Account Application.
The Fund reserves the right to redeem your account at its option upon
not less than 45 days' written notice if your account's net asset value is
$500 or less and remains so during the notice period.
PROCEDURES
You may redeem shares by using the regular redemption procedure
through the Transfer Agent, through the Wire Redemption Privilege,
through the Telephone Redemption Privilege, or through the Dreyfus
TELETRANSFER Privilege. Other redemption procedures may be in effect
for investors who effect transactions in Fund shares through Service
Agents. The Fund makes available to certain large institutions the ability
to issue redemption instructions through compatible computer facilities.
You may redeem or exchange Fund shares by telephone if you have
checked the appropriate box on the Fund's Account Application or have
filed an Shareholder Services Form with the Transfer Agent. If you select
a telephone redemption or exchange privilege, you authorize the Transfer
Agent to act on telephone instructions from any person representing
himself or herself to be you or a representative of your Service Agent, and
reasonably believed by the Transfer Agent to be genuine. The Fund will
require the Transfer Agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that instructions
are genuine and, if it does not follow such procedures, the Fund or the
Transfer Agent may be liable for any losses due to unauthorized or
fraudulent instructions. Neither the Fund nor the Transfer Agent will be
liable for following telephone instructions reasonably believed to be
genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the
(24)
Transfer Agent by telephone to request a redemption or exchange of Fund
shares. In such cases, you should consider using the other redemption
procedures described herein. Use of these other redemption procedures
may result in your redemption request being processed at a later time
than it would have been if telephone redemption had been used. During the
delay, the Fund's net asset value may fluctuate.
REGULAR REDEMPTION - Under the regular redemption procedure, you may
redeem Fund shares by written request mailed to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. Redemption
requests may be delivered in person only to a Dreyfus Financial Center.
These requests will be forwarded to the Fund and will be processed only
upon receipt thereby. For the location of the nearest Dreyfus Financial
Center, please call one of the telephone numbers listed under "General
Information." Redemption requests must be signed by each shareholder,
including each owner of a joint account, and each signature must be
guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing
agencies and savings associations, as well as from participants in the
New York Stock Exchange Medallion Signature Program, the Securities
Transfer Agents Medallion Program ("STAMP") and the Stock Exchanges
Medallion Program. If you have any questions with respect to signature-
guarantees, please call one of the telephone numbers listed under "General
Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
WIRE REDEMPTION PRIVILEGE - You may request by wire or telephone that
redemption proceeds (minimum $1,000) be wired to your account at a bank
which is a member of the Federal Reserve System, or a correspondent bank
if your bank is not a member. To establish the Wire Redemption Privilege,
you must check the appropriate box and supply the necessary information
on the Fund's Account Application or file a Shareholder Services Form
with the Transfer Agent. You may direct that redemption proceeds be paid
by check (maximum $150,000 per day) made out to the owners of record
and mailed to your address. Redemption proceeds of less than $1,000 will
be paid automatically by check. Holders of jointly registered Fund or bank
accounts may have redemption proceeds of only up to $250,000 wired
within any 30-day period. You may telephone redemption requests by
calling 1-800-221-4060 or, if you are calling from overseas, call 1-401-
455-3306. The Fund reserves the right to refuse any redemption request,
including requests made shortly after a change of address, and may limit
the amount involved or the number of such requests. This Privilege may be
modified or terminated at any time by the Transfer Agent or the Fund. The
Fund's Statement of Additional Information sets forth instructions for
transmitting redemption requests by wire. Shares held under Keogh Plans,
IRAs or other retirement plans, and shares for which certificates have
been issued, are not eligible for this Privilege.
TELEPHONE REDEMPTION PRIVILEGE - You may redeem Fund shares
(maximum $150,000 per day) by telephone if you have checked the
appropriate box on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. The redemption
proceeds will be paid by check and mailed to your address. You may
telephone redemption instructions by calling 1-800-221-4060 or, if you
are
calling from overseas, call 1-401-455-3306. The Fund reserves the right
to refuse any request made by telephone, including requests made shortly
after a change of address, and may limit the amount involved or the
number of telephone redemption requests. This Privilege may be modified
or terminated at any time by the Transfer Agent or the Fund. Shares held
under Keogh Plans, IRAs or other retirement plans, and shares for which
certificates have been issued, are not eligible for this Privilege.
DREYFUS TELETRANSFER PRIVILEGE - You may redeem Fund shares
(minimum $500 per day), by telephone if you have checked the appropriate
box and supplied the necessary information on the Fund's Account
Application or have filed a Shareholder Services Form with the Transfer
Agent. The proceeds will be transferred between your Fund account and the
bank account designated in one of these documents. Only such an account
maintained in a domestic financial institution which is an Automated
Clearing House member may be so designated. Redemption proceeds will be
on deposit in your account at an Automated Clearing House
(25)
member bank ordinarily two days after receipt of the redemption request
or, at your request, paid by check (maximum $150,000 per day) and mailed
to your address. Holders of jointly registered Fund or bank accounts may
redeem through the Dreyfus TELETRANSFER Privilege for transfer to their
bank account only up to $250,000 within any 30-day period. The Fund
reserves the right to refuse any request made by telephone, including
requests made shortly after a change of address, and may limit the amount
involved or the number of such requests. The Fund may modify or
terminate this Privilege at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-
3306. Shares held under Keogh Plans, IRAs or other retirement plans, and
shares issued in certificate form, are not eligible for this Privilege.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
Fund shares are subject to a Distribution Plan and a Shareholder
Services Plan.
DISTRIBUTION PLAN - Under the Distribution Plan, adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays
Dreyfus Service Corporation for advertising, marketing and distributing
Fund shares at an annual rate of .25 of 1% of the value of the Fund's
average daily net assets. Under the Distribution Plan, Dreyfus Service
Corporation may make payments to Service Agents in respect of these
services. Dreyfus Service Corporation determines the amounts to be paid
to Service Agents. Service Agents receive such fees in respect of the
average daily value of Fund shares owned by their clients. From time to
time, Dreyfus Service Corporation may defer or waive receipt of fees
under the Distribution Plan while retaining the ability to be paid by the
Fund under the Distribution Plan thereafter. The fees payable to Dreyfus
Service Corporation under the Distribution Plan for advertising, marketing
and distributing Fund shares and for payments to Service Agents are
payable without regard to actual expenses incurred.
The Fund bears the costs of preparing and printing prospectuses and
statements of additional information used for regulatory purposes and for
distribution to existing Fund shareholders. Under the Distribution Plan, the
Fund bears (a) the costs of preparing, printing and distributing
prospectuses and statements of additional information used for other
purposes and (b) the costs associated with implementing and operating the
Distribution Plan, the aggregate of such amounts not to exceed in any
fiscal year of the Fund the greater of $100,000 or .005 of 1% of the value
of the Fund's average daily net assets for such fiscal year.
SHAREHOLDER SERVICES PLAN - Under the Shareholder Services Plan, the
Fund pays Dreyfus Service Corporation for the provision of certain
services to Fund shareholders a fee at the annual rate of .25 of 1% of the
value of the Fund's average daily net assets. The services provided may
include personal services relating to shareholder accounts, such as
answering shareholder inquiries regarding the Fund and providing reports
and other information, and services related to the maintenance of
shareholder accounts. Dreyfus Service Corporation may make payments to
Service Agents in respect of these services. Dreyfus Service Corporation
determines the amounts to be paid to Service Agents. Each Service Agent
is required to disclose to its clients any compensation payable to it by the
Fund pursuant to the Shareholder Services Plan and any other
compensation payable by their clients in connection with the investment
of their assets in Fund shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund ordinarily declares and pays dividends from its net investment
income monthly. Fund shares begin earning income dividends on the day
following the date of purchase. If you redeem all shares in your account at
any time during the month, all dividends to which you are entitled will be
paid to you along with the proceeds of the redemption. Distributions from
net realized securities gains, if any, generally are declared and paid once
a year, but the Fund may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code of
1986, as amended (the "Code"), in all events in a manner consistent with
the provisions of the Investment Company Act of 1940. The Fund will not
make distributions
(26)
from net realized securities gains unless capital loss carryovers, if any,
have been utilized or have expired. You may choose whether to receive
dividends and distributions in cash or to reinvest in additional Fund shares
at net asset value. All expenses are accrued daily and deducted before
declaration of dividends to investors.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains of the Fund
and gains from the sale or other disposition of market discount bonds,
paid by the Fund will be taxable to U.S. shareholders as ordinary income
whether received in cash or reinvested in Fund shares. Distributions from
net realized long-term securities gains of the Fund will be taxable to U.S.
shareholders as long-term capital gains for Federal income tax purposes,
regardless of how long shareholders have held their Fund shares and
whether such distributions are received in cash or reinvested in Fund
shares. The Code provides that the net capital gain of an individual
generally will not be subject to Federal income tax at a rate in excess of
28%. Dividends and distributions may be subject to state and local taxes.
Dividends, together with distributions from net realized short-term
securities gains of the Fund and gains from the sale of other disposition
of market discount bonds, paid by the Fund to a foreign investor generally
are subject to U.S. nonresident withholding taxes at the rate of 30%,
unless the foreign investor claims the benefit of a lower rate specified in
a tax treaty. Distributions from net realized long-term securities gains
paid by the Fund to a foreign investor as well as the proceeds of any
redemptions from a foreign investor's account, regardless of the extent to
which gain or loss may be realized, generally will not be subject to U.S.
nonresident withholding tax. However, such distributions may be subject
to backup withholding, as described below, unless the foreign investor
certifies his non-U.S. residency status.
The Fund may invest a substantial portion of its assets in Sovereign
Debt Obligations with original issue discount and/or market discount.
Original issue discount generally is the excess (if any) of the stated
redemption price of an obligation over its original issue price. Market
discount generally is the excess (if any) of the stated redemption price of
an obligation (or in the case of an obligation issued with original issue
discount, its original issue price plus accreted original issue discount)
over the price at which it is purchased subsequent to original issuance.
Original issue discount is generally required to be included in income on a
periodic basis by a holder as ordinary income. Income attributable to
market discount generally is ordinary income (as opposed to capital gain).
A taxpayer may elect to include market discount in income on a periodic
basis as opposed to including market discount in income upon payment or
sale of the obligation. It is expected that the Fund will elect to include
market discount in income currently, for both book and tax purposes.
Accordingly, accretion of market discount together with original issue
discount will cause the Fund to realize income prior to the receipt of cash
payments with respect to these securities. To distribute this income and
maintain its qualification as a regulated investment company and avoid
becoming subject to Federal income or excise tax, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold, use its cash assets or borrow funds on a temporary
basis necessary to declare and pay a distribution to shareholders. The Fund
may realize capital gains or losses from those sales, which would
increase or decrease the Fund's investment company taxable income or net
capital gain. If the Fund realizes net capital gains from such sales, its
shareholders may receive a larger capital gain distribution, if any, than
they would have in the absence of such sales.
Notice as to the tax status of your dividends and distributions will be
mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions
from securities gains, if any, paid during the year.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends,
distributions from net realized securities gains and the proceeds of any
redemption, regardless of the extent to which gain or loss may be
realized, paid to a shareholder if such shareholder fails to certify either
that the TIN furnished in connection with opening an account is correct or
that such shareholder has not received notice from the IRS of being
subject to backup withholding as a result of a failure to properly report
taxable dividend or interest income on a Federal income tax return.
Furthermore, the IRS may notify the Fund to institute backup withholding
if the IRS determines a shareholder's TIN is incorrect or if a shareholder
has failed to properly report taxable dividend and interest income on a
Federal income tax return.
(27)
A TIN is either the Social Security number or employer identification
number of the record owner of the account. Any tax withheld as a result of
backup withholding does not constitute an additional tax imposed on the
record owner of the account, and may be claimed as a credit on the record
owner's Federal income tax return.
It is expected that the Fund will qualify as a "regulated investment
company" under the Code so long as such qualification is in the best
interests of its shareholders. Such qualification relieves the Fund of any
liability for Federal income tax to the extent its earnings are distributed
in accordance with applicable provisions of the Code. In addition, the Fund
is subject to a non-deductible 4% excise tax, measured with respect to
certain undistributed amounts of taxable investment income and capital
gains.
You should consult your tax adviser regarding specific questions as to
Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance will be calculated on several
bases, including current yield, average annual total return and/or total
return.
Current yield refers to the Fund's annualized net investment income per
share over a 30-day period, expressed as a percentage of the net asset
value per share at the end of the period. For purposes of calculating
current yield, the amount of net investment income per share during that
30-day period, computed in accordance with regulatory requirements, is
compounded by assuming that it is reinvested at a constant rate over a
six-month period. An identical result is then assumed to have occurred
during a second six-month period which, when added to the result for the
first six months, provides an "annualized" yield for an entire one-year
period. Calculations of the Fund's current yield may reflect absorbed
expenses pursuant to expense limitations in effect. See "Management of
the Fund."
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment in the Fund was purchased
with an initial payment of $1,000 and that the investment was redeemed
at the end of a stated period of time, after giving effect to the
reinvestment of dividends and distributions during the period. The return
is expressed as a percentage rate which, if applied on a compounded
annual basis, would result in the redeemable value of the investment at
the end of the period. Advertisements of the Fund's performance will
include the Fund's average annual total return for one, five and ten year
periods, or for shorter periods depending upon the length of time during
which the Fund has operated. Computations of average annual total return
for periods of less than one year represent an annualization of the Fund's
actual total return for the applicable period.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the
income and principal changes for a specified period and dividing by the net
asset value per share at the beginning of the period. Advertisements may
include the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type
and quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment
companies using a different method of calculating performance.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Morgan Stanley Capital International World
Index, Standard & Poor's 500 Composite Stock Price Index, Standard &
Poor's MidCap 400 Index, the Dow Jones Industrial Average, Morningstar,
Inc. and other industry publications.
GENERAL INFORMATION
The Fund was incorporated under Maryland law on September 8, 1993,
and has not engaged in active business to the date of this Prospectus. The
Fund is authorized to issue 300 million shares of Common Stock,
(28)
par value $.001 per share. Each share has one vote.
Unless otherwise required by the Investment Company Act of 1940,
ordinarily it will not be necessary for the Fund to hold annual meetings of
shareholders. As a result, Fund shareholders may not consider each year
the election of Directors or the appointment of auditors. However,
pursuant to the Fund's By-Laws, the holders of at least 10% of the shares
outstanding and entitled to vote may require the Fund to hold a special
meeting of shareholders for purposes of removing a Director from office
or for any other purpose. Fund shareholders may remove a Director by the
affirmative vote of a majority of the Fund's outstanding shares. In
addition, the Board of Directors will call a meeting of shareholders for
the purpose of electing Directors if, at any time, less than a majority of
the Directors then holding office have been elected by shareholders.
The Transfer Agent maintains a record of your ownership and will send
you confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll
free 1-800-645-6561. In New York City, call 1-718-895-1206; on Long
Island, call 794-5254.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND IN THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFER OF THE FUND'S SHARES, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY
PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY BE MADE.
(29)
(Dreyfus Logo)
Globle
Bond Fund, Inc.
PROSPECTUS
Dreyfus Service Corporation, 1994
Distributor 098pros1022894
__________________________________________________________________________
DREYFUS GLOBAL BOND FUND, INC.
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
FEBRUARY 28, 1994
__________________________________________________________________________
This Statement of Additional Information, which is not a
prospectus, supplements and should be read in conjunction with the current
Prospectus of Dreyfus Global Bond Fund, Inc. (the "Fund"), dated February
28, 1994, as it may be revised from time to time. To obtain a copy of the
Fund's Prospectus, please write to the Fund at 144 Glenn Curtiss
Boulevard, Uniondale, New York 11556-0144, or call the following numbers:
Call Toll Free -- 1-800-645-6561
In New York City -- Call 1-718-895-1206
On Long Island -- Call 794-5254
The Dreyfus Corporation ("Dreyfus") serves as the Fund's
investment adviser. Dreyfus has engaged M&G Investment Management Limited
("M&G") to serve as the Fund's sub-investment adviser and provide day-to-
day management of the Fund's investments, subject to the supervision of
Dreyfus. Dreyfus and M&G are referred to collectively as the "Advisers."
Dreyfus Service Corporation (the "Distributor"), a wholly-owned
subsidiary of Dreyfus, is the distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objectives and Management Policies . . . . . . . . . . . . . . B-2
Management of the Fund. . . . . . . . . . . . . . . . . . . . . . . . . . B-12
Management Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . B-15
Distribution Plan and Shareholder Services Plan . . . . . . . . . . . . . B-17
Purchase of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . . B-19
Redemption of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . B-19
Shareholder Services. . . . . . . . . . . . . . . . . . . . . . . . . . . B-21
Determination of Net Asset Value. . . . . . . . . . . . . . . . . . . . . B-24
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . . . . . . B-25
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . B-27
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . B-28
Information About the Fund. . . . . . . . . . . . . . . . . . . . . . . . B-29
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors. . . . . . . . . . . . . . . . . . . . B-29
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-30
Financial Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . B-38
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . B-39
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Description of the Fund."
Bank Obligations. Domestic commercial banks organized under Federal
law are supervised and examined by the Comptroller of the Currency and are
required to be members of the Federal Reserve System and to have their
deposits insured by the Federal Deposit Insurance Corporation (the
"FDIC"). Domestic banks organized under state law are supervised and
examined by state banking authorities but are members of the Federal
Reserve System only if they elect to join. In addition, state banks whose
certificates of deposit ("CDs") may be purchased by the Fund are insured
by the FDIC (although such insurance may not be of material benefit to the
Fund, depending on the principal amount of the CDs of each bank held by
the Fund) and are subject to Federal examination and to a substantial body
of Federal law and regulation. As a result of Federal or state laws and
regulations, domestic branches of domestic banks whose CDs may be
purchased by the Fund generally are required, among other things, to
maintain specified levels of reserves, are limited in the amounts which
they can loan to a single borrower and are subject to other regulations
designed to promote financial soundness. However, not all of such laws
and regulations apply to the foreign branches of domestic banks.
Obligations of foreign branches of domestic banks, foreign
subsidiaries of domestic banks and domestic and foreign branches of
foreign banks, such as CDs and time deposits ("TDs"), may be general
obligations of the parent banks in addition to the issuing branch, or may
be limited by the terms of a specific obligation and governmental
regulation. Such obligations are subject to different risks than are
those of domestic banks. These risks include foreign economic and
political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations,
foreign exchange controls and foreign withholding and other taxes on
interest income. These foreign branches and subsidiaries are not
necessarily subject to the same or similar regulatory requirements that
apply to domestic banks, such as mandatory reserve requirements, loan
limitations, and accounting, auditing and financial record keeping
requirements. In addition, less information may be publicly available
about a foreign branch of a domestic bank or about a foreign bank than
about a domestic bank.
Obligations of United States branches of foreign banks may be
general obligations of the parent bank in addition to the issuing branch,
or may be limited by the terms of a specific obligation or by Federal or
state regulation as well as governmental action in the country in which
the foreign bank has its head office. A domestic branch of a foreign bank
with assets in excess of $1 billion may be subject to reserve requirements
imposed by the Federal Reserve System or by the state in which the branch
is located if the branch is licensed in that state.
In addition, Federal branches licensed by the Comptroller of the
Currency and branches licensed by certain states ("State Branches") may be
required to: (1) pledge to the regulator, by depositing assets with a
designated bank within the state, a certain percentage of their assets as
fixed from time to time by the appropriate regulatory authority; and (2)
maintain assets within the state in an amount equal to a specified
percentage of the aggregate amount of liabilities of the foreign bank
payable at or through all of its agencies or branches within the state.
The deposits of Federal and State Branches generally must be insured by
the FDIC if such branches take deposits of less than $100,000.
Securities of Supranational Entities. Supranational entities in
which the Fund may invest 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.
Mortgage-Related Securities.
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 the FNMA and are not backed by
or entitled to the full faith and credit of the United States. The FNMA
is a government-sponsored organization owned entirely by private
stockholders. 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"). The 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 the FHLMC. The FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When the 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.
Brady Bonds. Collateralized Brady Bonds may be fixed rate par bonds
or floating rate discount bonds, which are generally collateralized in
full as to principal due at maturity by U.S. Treasury zero coupon
obligations which have the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to
at least one year of rolling interest payments or, in the case of floating
rate bonds, initially is equal to at least one year's rolling interest
payments based on the applicable interest rate at that time and is
adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or four
valuation components: (i) the collateralized repayment of principal at
final maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) any uncollateralized
repayment of principal at maturity (these uncollateralized amounts
constitute the "residual risk"). In the event of a default with respect
to Collateralized Brady Bonds as a result of which the payment obligations
of the issuer are accelerated, the U.S. Treasury zero coupon obligations
held as collateral for the payment of principal will not be distributed to
investors, nor will such obligations be sold and the proceeds distributed.
The collateral will be held by the collateral agent to the scheduled
maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal
the principal payments which would have then been due on the Brady Bonds
in the normal course. In addition, in light of the residual risk of Brady
Bonds and, among other factors, the history of defaults with respect to
commercial bank loans by public and private entities of countries issuing
Brady Bonds, investments in Brady Bonds are to be viewed as speculative.
Debt restructurings totalling more than $80 billion have been
implemented under the Brady Plan to date in Argentina, Bolivia, Costa
Rica, Mexico, Nigeria, the Philippines, Uruguay and Venezuela, with the
largest proportion of Brady Bonds having been issued to date by Argentina,
Mexico and Venezuela. Most Argentine and Mexican Brady Bonds and a
significant portion of the Venezuelan Brady Bonds issued to date are
Collateralized Brady Bonds with interest coupon payments collateralized on
a rolling-forward basis by funds or securities held in escrow by an agent
for the bondholders. Of the other issuers of Brady Bonds, Bolivia,
Nigeria, the Philippines and Uruguay have to date issued Collateralized
Brady Bonds. Brazil has announced plans to issue Brady Bonds in respect
of approximately $44 billion of bank debt.
Loan Participation and Assignments. When the Fund purchases
Assignments from Lenders it will acquire direct rights against the
borrower on the Loan (as such terms, and other capitalized terms used in
this paragraph, are defined in the Prospectus). Because Assignments are
arranged through private negotiations between potential assignees and
potential assignors, however, the rights and obligations acquired by the
Fund as the purchaser of an Assignment may differ from, and be more
limited than, those held by the assigning Lender. The assignability of
certain Sovereign Debt Obligations is restricted by the governing
documentation as to the nature of the assignee such that the only way in
which the Fund may acquire an interest in a Loan is through a
Participation and not an Assignment. The Fund may have difficulty
disposing of Assignments and Participations because to do so it will have
to assign such securities to a third party. Because there is no
established secondary market for such securities, the Fund anticipates
that such securities could be sold only to a limited number of
institutional investors. The lack of an established secondary market may
have an adverse impact on the value of such securities and the Fund's
ability to dispose of particular Assignments or Participations when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the
borrower. The lack of an established secondary market for Assignments and
Participation also may make it more difficult for the Fund to assign a
value to these securities for purposes of valuing the Fund's portfolio and
calculating its net asset value. The Fund will not invest more than 15%
of the value of its net assets in Loan Participation and Assignments that
are illiquid, and in other illiquid securities.
Options Transactions. The Fund may engage in options transactions,
such as purchasing or writing covered call or put options. The principal
reason for writing covered call options is to realize, through the receipt
of premiums, a greater return than would be realized on the Fund's
portfolio securities alone. In return for a premium, the writer of a
covered call option forfeits the right to any appreciation in the value of
the underlying security above the strike price for the life of the option
(or until a closing purchase transaction can be effected). Nevertheless,
the call writer retains the risk of a decline in the price of the
underlying security. Similarly, the principal reason for writing covered
put options is to realize income in the form of premiums. The writer of a
covered put option accepts the risk of a decline in the price of the
underlying security. The size of the premiums that the Fund may receive
may be adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option-writing
activities.
Options written ordinarily will have expiration dates between one
and nine months from the date written. The exercise price of the options
may be below, equal to or above the market values of the underlying
securities at the time the options are written. In the case of call
options, these exercise prices are referred to as "in-the-money," "at-the-
money" and "out-of-the-money," respectively. The Fund may write (a) in-
the-money call options when the Advisers expect that the price of the
underlying security will remain stable or decline moderately during the
option period, (b) at-the-money call options when the Advisers expect that
the price of the underlying security will remain stable or advance
moderately during the option period and (c) out-of-the-money call options
when the Advisers expect that the premiums received from writing the call
option plus the appreciation in market price of the underlying security up
to the exercise price will be greater than the appreciation in the price
of the underlying security alone. In these circumstances, if the market
price of the underlying security declines and the security is sold at this
lower price, the amount of any realized loss will be offset wholly or in
part by the premium received. Out-of-the-money, at-the-money and in-the-
money put options (the reverse of call options as to the relation of
exercise price to market price) may be utilized in the same market
environments that such call options are used in equivalent transactions.
So long as the Fund's obligation as the writer of an option
continues, the Fund may be assigned an exercise notice by the broker-
dealer through which the option was sold, requiring the Fund to deliver,
in the case of a call, or take delivery of, in the case of a put, the
underlying security against payment of the exercise price. This
obligation terminates when the option expires or the Fund effects a
closing purchase transaction. The Fund can no longer effect a closing
purchase transaction with respect to an option once it has been assigned
an exercise notice.
While it may choose to do otherwise, the Fund generally will
purchase or write only those options for which the Advisers believe there
is an active secondary market so as to facilitate closing transactions.
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 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 otherwise may 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.
Futures Contracts and Options on Futures Contracts. Upon exercise
of an option, the writer of the option will deliver to the holder of the
option the futures position and the accumulated balance in the writer's
futures margin account, which represents the amount by which the market
price of the futures contract exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of options
on futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the time
of sale, there are no daily cash payments to reflect changes in the value
of the underlying contract; however, the value of the option does change
daily and that change would be reflected in the net asset value of the
Fund.
Foreign Currency Transactions. If the Fund enters into a currency
transaction, it will deposit, if so required by applicable regulations,
with its custodian cash or readily marketable securities in a segregated
account of the Fund in an amount at least equal to the value of the Fund's
total assets committed to the consummation of the forward contract. If
the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account so that the
value of the account will equal the amount of the Fund's commitment with
respect to the contract.
At or before the maturity of a forward contract, the Fund either may
sell a security and make delivery of the currency, or retain the security
and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on
the same maturity date, the same amount of the currency which it is
obligated to deliver. If the Fund retains the portfolio security and
engages in an offsetting transaction, the Fund, at the time of execution
of the offsetting transaction, will incur a gain or loss to the extent
movement has occurred in forward contract prices. Should forward prices
decline during the period between the Fund's entering into a forward
contract for the sale of a currency and the date it enters into an
offsetting contract for the purchase of the currency, the Fund will
realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
The cost to the Fund of engaging in currency transactions varies
with factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because transactions in
currency exchange usually are conducted on a principal basis, no fees or
commissions are involved. The use of forward currency exchange contracts
does not eliminate fluctuations in the underlying prices of the
securities, but it does establish a rate of exchange that can be achieved
in the future. If a devaluation generally is anticipated, the Fund may
not be able to contract to sell the currency at a price above the
devaluation level it anticipates. The requirements for qualification as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"), may cause the Fund to restrict the degree to which
it engages in currency transactions. See "Dividends, Distributions and
Taxes."
Lending Portfolio Securities. To a limited extent, the Fund may
lend its portfolio securities to brokers, dealers and other financial
institutions, provided it receives cash collateral which at all times is
maintained in an amount equal to at least 100% of the current market value
of the securities loaned. By lending its portfolio securities, the Fund
can increase its income through the investment of the cash collateral.
For purposes of this policy, the Fund considers collateral consisting of
U.S. Government securities or irrevocable letters of credit issued by
banks whose securities meet the standards for investment by the Fund to be
the equivalent of cash. From time to time, the Fund may return to the
borrower or a third party which is unaffiliated with the Fund, and which
is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned.
The Securities and Exchange Commission 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 interest or other
distributions on the loaned securities, and any increase in market value;
and (5) the Fund may pay only reasonable custodian fees in connection with
the loan.
Investing in Sovereign Debt Obligations of Emerging Market
Countries. The ability of governments to make timely payments on their
obligations is likely to be influenced strongly by the issuer's balance of
payments, including export performance, and its access to international
credits and investments. A country whose exports are concentrated in a
few commodities could be vulnerable to a decline in the international
prices of one or more of those commodities. Increased protectionism on
the part of a country's trading partners also could adversely affect the
country's exports and diminish its trade account surplus, if any. To the
extent that a country receives payment for its exports in currencies other
than dollars, its ability to make debt payments denominated in dollars
could be adversely affected.
To the extent that a country develops a trade deficit, it will need
to depend on continuing loans from foreign governments, multilateral
organizations or private commercial banks, aid payments from foreign
governments and on inflows of foreign investment. The access of a country
to these forms of external funding may not be certain, and a withdrawal of
external funding could adversely affect the capacity of a government to
make payments on its obligations. In addition, the cost of servicing debt
obligations can be affected by a change in international interest rates
since the majority of these obligations carry interest rates that are
adjusted periodically based upon international rates.
Another factor bearing on the ability of a country to repay
Sovereign Debt Obligations is the level of the country's international
reserves. Fluctuations in the level of these reserves can affect the
amount of foreign exchange readily available for external debt payments
and, thus, could have a bearing on the capacity of the country to make
payments on its Sovereign Debt Obligations.
Expropriation, confiscatory taxation, nationalization, political,
economic or social instability or other similar developments, such as
military coups, have occurred in the past in countries in which the Fund
will invest and could adversely affect the Fund's assets should these
conditions or events recur.
Foreign investment in certain Sovereign Debt Obligations is
restricted or controlled to varying degrees. These restrictions or
controls at times may limit or preclude foreign investment in certain
Sovereign Debt Obligations and increase the costs and expenses of the
Fund. Certain countries in which the Fund will invest require
governmental approval prior to investments by foreign persons, limit the
amount of investment by foreign persons in a particular issuer, limit the
investment by foreign persons only to a specific class of securities of an
issuer that may have less advantageous rights than the classes available
for purchase by domiciliaries of the countries and/or impose additional
taxes on foreign investors.
Certain countries other than those on which the Fund initially will
focus its investments may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs
in a country's balance of payments, the country could impose temporary
restrictions on foreign capital remittances. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental
approval for repatriation of capital, as well as by the application to the
Fund of any restrictions on investments. Investing in local markets may
require the Fund to adopt special procedures, seek local government
approvals or take other actions, each of which may involve additional
costs to the Fund.
Risk Factors--Lower Rated Securities. The Fund is permitted to
invest in securities rated below Baa by Moody's Investors Service, Inc.
("Moody's") and below BBB by Standard & Poor's Corporation ("S&P"), Fitch
Investors Service, Inc. ("Fitch") and Duff & Phelps, Inc. ("Duff") and as
low as the lowest rating assigned by Moody's, S&P, Fitch or Duff. Such
securities, though higher yielding, are characterized by risk. See in the
Prospectus "Description of the Fund--Risk Factors--Lower Rated Securities"
for a discussion of certain risks and the "Appendix" for a general
description of Moody's, S&P, Fitch and Duff ratings. Although ratings may
be useful in evaluating the safety of interest and principal payments,
they do not evaluate the market value risk of these securities. The Fund
will rely on the Advisers' judgment, analysis and experience in evaluating
the creditworthiness of an issuer.
Investors should be aware that the market values of many of these
securities tend to be more sensitive to economic conditions than are
higher rated securities and will fluctuate over time. These securities
are considered by S&P, Moody's, Fitch and Duff, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation and
generally will involve more credit risk than securities in the higher
rating categories.
Issues of certain of these securities often are highly leveraged and
may not have available to them more traditional methods of financing.
Therefore, the risk associated with acquiring the securities of such
issuers generally is greater than is the case with the higher rated
securities. For example, during an economic downturn or a sustained
period of rising interest rates, highly leveraged issuers of these
securities may not have sufficient revenues to meet their interest payment
obligations. The issuer's ability to service its debt obligations also
may be affected adversely by specific corporate developments, forecasts,
or the unavailability of additional financing. The risk of loss because
of default by the issuer is significantly greater for the holders of these
securities because such securities generally are unsecured and often are
subordinated to other creditors of the issuer.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these securities does exist, it
generally is not as liquid as the secondary market for higher rated
securities. The lack of a liquid secondary market may have an adverse
impact on market price and yield and the Fund's ability to dispose of
particular issues when necessary to meet the Fund's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing the Fund's securities
and calculating its net asset value. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease
the values and liquidity of these securities. In such cases, judgment may
play a greater role in valuation because less reliable, objective data may
be available.
These securities may be particularly susceptible to economic
downturns. It is likely that any 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 Fund may acquire these securities during an initial offering.
Such securities may involve special risks because they are new issues.
The Fund has no arrangement with the Distributor or any other persons
concerning the acquisition of such securities, and the Advisers will
review carefully the credit and other characteristics pertinent to such
new issues.
Lower rated zero coupon securities involve special considerations.
The credit risk factors pertaining to lower rated securities also apply to
lower rated zero coupon securities. Such zero coupon securities carry an
additional risk in that, unlike securities which pay interest throughout
the period to maturity, the Fund will realize no cash until the cash
payment date unless a portion of such securities are sold and, if the
issuer defaults, the Fund may obtain no return at all on its investment.
See "Dividends, Distributions and Taxes."
Investment Restrictions. The Fund has adopted investment
restrictions numbered 1 through 8 as fundamental policies. These
restrictions cannot be changed without approval by the holders of a
majority (as defined in the Investment Company Act of 1940, as amended
(the "Act")) of the Fund's outstanding voting shares. Investment
restrictions numbered 9 through 14 are not fundamental policies and may be
changed by vote of a majority of the Fund's Directors at any time. The
Fund may not:
1. 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.
2. Invest in commodities, except that the Fund may purchase and
sell options, forward contracts, futures contracts, including those
relating to indexes, and options on futures contracts or indexes.
3. Purchase, hold or deal in real estate, or oil, gas or other
mineral leases or exploration or development programs, but the Fund may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate or real estate investment
trusts.
4. Borrow money, except to the extent permitted under the Act. For
purposes of this Investment Restriction, the entry into options, forward
contracts, futures contracts, including those relating to indexes, and
options on futures contracts or indexes shall not constitute borrowing.
5. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, the Fund
may lend its portfolio securities in an amount not to exceed 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 of Directors.
6. Act as an underwriter of securities of other issuers, except to
the extent the Fund may be deemed an underwriter under the Securities Act
of 1933, as amended, by virtue of disposing of portfolio securities.
7. Issue any senior security (as such term is defined in Section
18(f) of the Act), except to the extent the activities permitted in
Investment Restriction Nos. 2, 4, 11 and 12 may be deemed to give rise to
a senior security.
8. Purchase securities on margin, but the Fund may make margin
deposits in connection with transactions in options, forward contracts,
futures contracts, including those relating to indexes, and options on
futures contracts or indexes.
9. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessor) if such
purchase would cause the value of the Fund's investments in all such
companies to exceed 5% of the value of its total assets.
10. 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.
11. 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, including those relating to indexes, and options on futures
contracts or indexes.
12. Purchase, sell or write puts, calls or combinations thereof,
except as described in the Fund's Prospectus and Statement of Additional
Information.
13. Enter into repurchase agreements providing for settlement in
more than seven days after notice or purchase securities which are
illiquid, if, in the aggregate, more than 15% of the value of the Fund's
net assets would be so invested.
14. Purchase securities of other investment companies, except to
the extent permitted under the Act.
If a percentage restriction is adhered to at the time of investment,
a later change in percentage resulting from a change in values or assets
will not constitute a violation of such restriction.
The Fund may invest, notwithstanding any other investment
restriction (whether or not fundamental), all of the Fund's assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies and
restrictions as the Fund.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
Should the Fund determine that a commitment is no longer in the best
interest of the Fund and its shareholders, the Fund reserves the right to
revoke the commitment by terminating the sale of Fund shares in the state
involved.
MANAGEMENT OF THE FUND
Directors and officers of the Fund, together with information as to
their principal business occupations during at least the last five years,
are shown below. Each Director who is deemed to be an "interested person"
of the Fund, as defined in the Act, is indicated by an asterisk.
Directors and Officers of the Fund
*JOSEPH S. DiMARTINO, Director, Vice President and Investment Officer.
President, Chief Operating Officer and a director of Dreyfus, Executive
Vice President and a director of the Distributor and an officer, director
or trustee of other investment companies advised or administered by
Dreyfus. He is also a director of Noel Group, Inc., a director and
Corporate Member of The Muscular Dystrophy Association and a Trustee of
Bucknell University. His address is 200 Park Avenue, New York, New York
10166.
JOHN M. FRASER, JR., Director. President of Fraser Associates, a service
company for planning and arranging corporate meetings and other events.
From September 1975 to June 1978, he was Executive Vice President of
Flagship Cruises, Ltd. Prior thereto, he was Senior Vice President and
Resident Director of the Swedish-American Line for the United States and
Canada. His address is 965 Fifth Avenue, New York, New York 10021.
ROBERT R. GLAUBER, Director. Research Fellow, Center for Business and
Government at the John F. Kennedy School of Government, Harvard
University since January 1992. He was Under Secretary of the Treasury
for Finance at the U.S. Treasury Department from May 1989 to January
1992. For more than five years prior thereto, he was a Professor of
Finance at the Graduate School of Business Administration of Harvard
University and, from 1985 to 1989, Chairman of its Advanced Management
Program. His address is 79 John F. Kennedy Street, Cambridge,
Massachusetts 02138.
JAMES F. HENRY, Director. President of the Center for Public Resources, a
non-profit organization principally engaged in the development of
alternatives to business litigation. He was of counsel to the law firm
of Lovejoy, Wasson & Ashton from October 1975 to December 1976 and from
October 1979 to June 1983, and was a partner of that firm from January
1977 to September 1979. From September 1971 to December 1976, he was
President and a director of the Edna McConnell Clark Foundation, a
philanthropic organization. His address is c/o Center for Public
Resources, 366 Madison Avenue, New York, New York 10017.
ROSALIND GERSTEN JACOBS, Director. Director of Merchandise and Marketing for
Corporate Property Investors, a real estate investment company. From
1974 to 1976, she was owner and manager of a merchandise and marketing
consulting firm. Prior to 1974, she was Vice President of Macy's, New
York. Her address is c/o Corporate Property Investors, 305 East 47th
Street, New York, New York 10017.
*IRVING KRISTOL, Director. President and principal shareholder of Irving
Kristol, Inc., which serves as a consultant to Dreyfus on economic
matters. He is also John M. Olin Distinguished Fellow of the American
Enterprise Institute for Public Policy Research. From 1969 to 1988, he
was Professor of Social Thought at the Graduate School of Business
Administration, New York University. From September 1969 to August 1979,
he was Henry R. Luce Professor of Urban Values at New York University.
He is also co-editor of The Public Interest magazine and an author or
co-editor of several books. He is also a director of Lincoln National
Corporation, an insurance company, and Warner-Lambert Company, a
pharmaceutical and consumer products company. His address is c/o The
Public Interest, 1112 16th Street, N.W., Suite 530, Washington, D.C.
20036.
DR. PAUL A. MARKS, Director. President and Chief Executive Officer of
Memorial Sloan-Kettering Cancer Center. He was Vice President for Health
Sciences and Director of the Cancer Center at Columbia University from
1973 to September 1980, and Professor of Medicine and of Human Genetics
and Development at Columbia University from 1968 to 1982. He is also a
director of Pfizer, Inc., a pharmaceutical company, Tularik, Inc., a
biotechnology company, the Charles H. Revson Foundation and Life
Technologies, Inc., a life science company providing products for cell
and molecular biology and microbiology. His address is c/o Memorial
Sloan-Kettering Cancer Center, 1275 York Avenue, New York, New York
10021.
DR. MARTIN PERETZ, Director. Editor-in-Chief of The New Republic magazine and
a lecturer in social studies at Harvard University, where he has been a
member of the faculty since 1965. He is also a director of Bank of Leumi
Trust Company of New York and Carmel Container Corporation. His address
is c/o The New Republic, 1220 19th Street, N.W., Washington, D.C. 20036.
HOWARD STEIN, Director. Chairman of the Board and Chief Executive Officer of
the Manager, Chairman of the Board of the Distributor and an officer,
director, trustee or general partner of other investment companies
advised or administered by the Manager. His address is 200 Park Avenue,
New York, New York 10166.
BERT W. WASSERMAN, Director. Executive Vice President and Chief Financial
Officer since January 1990 and a director from January 1990 to March 1993
of Time Warner Inc. From 1981 to 1990, he was President and a director
of Warner Communications Inc. He is also a member of the Chemical Bank
National Advisory Board. His address is c/o Time Warner Inc., 75
Rockefeller Plaza, New York, New York 10019.
Mrs. Jacobs, Messrs. Fraser, Glauber, Henry, Kristol and Wasserman
and Drs. Marks and Peretz are also directors of Dreyfus A Bonds Plus,
Inc., Dreyfus Balanced Fund, Inc., Dreyfus Growth Opportunity Fund, Inc.,
Dreyfus International Equity Fund, Inc., The Dreyfus Leverage Fund, Inc.
and Dreyfus Money Market Instruments, Inc. and trustees of Dreyfus
Institutional Money Market Fund and Dreyfus Variable Investment Fund. In
addition, Mr. Glauber is a director of Dreyfus California Municipal
Income, Inc., The Dreyfus Fund Incorporated, Dreyfus Municipal Income,
Inc., Dreyfus New York Municipal Income, Inc. and Dreyfus Worldwide Dollar
Money Market Fund, Inc. and a trustee of Dreyfus U.S. Government Income
Fund.
For so long as the Fund's plans described in the section captioned
"Distribution Plan and Shareholder Services Plan" remain in effect, the
Directors of the Fund who are not "interested persons" of the Fund, as
defined in the Act, will be selected and nominated by the Directors who
are not "interested persons" of the Fund.
Officers of the Fund Not Listed Above
THEODORA ZEMEK, Executive Vice President and Investment Officer. Head of
Fixed Income of M&G since 1992. Prior thereto, she was employed by James
Capel Fund Managers as a Multicurrency Fixed Income Manager.
BARBARA L. KENWORTHY, Senior Vice President and Investment Officer. An
employee of Dreyfus and an officer of other investment companies advised
and administered by Dreyfus.
PAUL D.A. NIX, Senior Vice President and Investment Officer. Chairman,
International Investment Committee and a Director of M&G. He is an
officer of other investment companies managed by Dreyfus and/or M&G.
WILLIAM VINCENT, Senior Vice President and Investment Officer. Alternate
Chairman, International Investment Committee and an employee of M&G since
1992. Prior thereto, he was Chief Investment Officer and seconded to
Societe General of Touche Remnant.
MARK N. JACOBS, Vice President. Secretary and Deputy General Counsel of
Dreyfus and an officer of other investment companies advised or
administered by Dreyfus.
JEFFREY N. NACHMAN, Vice President and Treasurer. Vice President-Mutual Fund
Accounting of Dreyfus and an officer of other investment companies
advised or administered by Dreyfus.
THOMAS J. DURANTE, Controller. Senior Accounting Manager in the Fund
Accounting Department of Dreyfus and an officer of other investment
companies advised or administered by Dreyfus.
DANIEL C. MACLEAN, Secretary. Vice President and General Counsel of Dreyfus,
Secretary of the Distributor and an officer of other investment companies
advised or administered by Dreyfus.
STEVEN F. NEWMAN, Assistant Secretary. Associate General Counsel of Dreyfus
and an officer of other investment companies advised or administered by
Dreyfus.
CHRISTINE PAVALOS, Assistant Secretary. Assistant Secretary of Dreyfus, the
Distributor and other investment companies advised or administered by
Dreyfus.
The address of each officer of the Fund is 200 Park Avenue, New
York, New York 10166.
MANAGEMENT ARRANGEMENTS
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Management
of the Fund."
Management Agreement. Dreyfus supervises investment management of
the Fund pursuant to the Management Agreement (the "Management Agreement")
dated February 17, 1994 between Dreyfus and the Fund. The Management
Agreement is subject to annual approval by (i) the Fund's Board of
Directors or (ii) vote of a majority (as defined in the Act) of the Fund's
outstanding voting securities, provided that in either event its
continuance also is approved by a majority of the Fund's Directors who are
not "interested persons" (as defined in the Act) of the Fund or Dreyfus,
by vote cast in person at a meeting called for the purpose of voting on
such approval. The Management Agreement is terminable without penalty, on
60 days' notice, by the Fund's Directors 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 Management Agreement will terminate automatically in the
event of its assignment (as defined in the Act).
In addition to the persons named in the section entitled "Management
of the Fund," the following persons also are officers and/or directors of
Dreyfus: Howard Stein, Chairman of the Board of Directors and Chief
Executive Officer; Julian M. Smerling, Vice Chairman of the Board of
Directors; Alan M. Eisner, Vice President and Chief Financial Officer;
David W. Burke, Vice President and Chief Administrative Officer; Robert F.
Dubuss, Vice President; Elie M. Genadry, Vice President--Institutional
Sales; Peter A. Santoriello, Vice President; Robert H. Schmidt, Vice
President; Kirk V. Stumpp, Vice President--New Product Development; Philip
L. Toia, Vice President; John J. Pyburn and Katherine C. Wickham,
Assistant Vice Presidents; Maurice Bendrihem, Controller; and Mandell L.
Berman, Alvin E. Friedman, Lawrence M. Greene, Abigail Q. McCarthy and
David B. Truman, directors.
Dreyfus pays the salaries of all officers and employees employed by
both it and the Fund, maintains office facilities, and furnishes the Fund
statistical and research data, clerical help, accounting, data processing,
bookkeeping and internal auditing and certain other required services.
Dreyfus also may make such advertising and promotional expenditures using
its own resources, as it from time to time deems appropriate.
Sub-Investment Advisory Agreement. M&G provides investment advisory
assistance and day-to-day management of the Fund's investments pursuant to
the Sub-Investment Advisory Agreement (the "Sub-Advisory Agreement") dated
February 17, 1994 between M&G and Dreyfus. The Sub-Advisory Agreement is
subject to annual approval by (i) the Fund's Board of Directors or (ii)
vote of a majority (as defined in the Act) of the Fund's outstanding
voting securities, provided that in either event the continuance also is
approved by a majority of the Fund's Directors who are not "interested
persons" (as defined in the Act) of the Fund or M&G, by vote cast in
person at a meeting called for the purpose of voting on such approval.
The Sub-Advisory Agreement is terminable without penalty, (i) by Dreyfus
on 60 days' notice, (ii) by the Fund's Board of Directors or by vote of
the holders of a majority of the Fund's shares on 60 days' notice, or
(iii) by M&G on not less than 90 days' notice. The Sub-Advisory Agreement
will terminate automatically in the event of its assignment (as defined in
the Act) or upon the termination of the Management Agreement for any
reason.
In addition to the persons named in the section entitled "Management
of the Fund," the following persons are officers and/or directors of M&G:
Laurence E. Linaker, Chairman of the Board of Directors; David L. Morgan,
Managing Director; John P. Allard, John W. Boeckmann, Gordon P. Craig,
Robert A. R. Hayes, Richard S. Hughes, David J. Hutchins, Peter D. Jones,
James R.D. Korner, Ewen A. Macpherson, Paul R. Marsh, Michael G.
McLintock, Nigel D. Morrison, Roger D. Nightingale, Paul D.A. Nix, William
J. Nott, Neil A. Pegrum, Duncan N. Robertson, J. Christopher Whitaker,
directors; and Anthony J. Ashplant, Secretary.
M&G provides day-to-day management of the Fund's investments in
accordance with the stated policies of the Fund, subject to the
supervision of Dreyfus and approval of the Fund's Board of Directors.
Dreyfus and M&G provide the Fund with Investment Officers who are
authorized by the Board of Directors to execute purchases and sales of
securities. The Fund's Investment Officers are Joseph S. DiMartino,
William Vincent, Barbara L. Kenworthy, Paul D.A. Nix and Theodora Zemek.
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 other funds advised by Dreyfus. All purchases and
sales are reported for the Board of Directors' review at the meeting
subsequent to such transactions.
Expenses. All expenses incurred in the operation of the Fund are
borne by the Fund, except to the extent specifically assumed by Dreyfus
and/or M&G. The expenses borne by the Fund include: organizational
costs, taxes, interest, loan commitment fees, interest and distributions
paid on securities sold short, brokerage fees and commissions, if any,
fees of Directors who are not officers, directors, employees or holders of
5% or more of the outstanding voting securities of Dreyfus or M&G or any
of their affiliates, Securities and Exchange Commission fees, state Blue
Sky qualification fees, advisory 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, costs of independent pricing services,
costs attributable to investor services (including, without limitation,
telephone and personnel expenses), costs of shareholders' reports and
meetings, and any extraordinary expenses. The Fund is subject to an
annual distribution fee for advertising, marketing and distributing its
shares and an annual service fee for ongoing personal services relating to
shareholder accounts and services related to the maintenance of
shareholder accounts. See "Distribution Plan and Shareholder Services
Plan."
Dreyfus and M&G have agreed that if in any fiscal year the aggregate
expenses of the Fund, exclusive of interest, taxes, brokerage and (with
the prior written consent of the necessary state securities commissions)
extraordinary expenses, but including the management fee, exceed the
expense limitation of any state having jurisdiction over the Fund, Dreyfus
and M&G will bear the excess expense in proportion to their management fee
and sub-advisory fee to the extent required by state law. Such payment,
if any, will be estimated daily, and reconciled and paid on a monthly
basis.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Distribution Plan and Shareholder Services Plan."
The Fund's shares are subject to a Distribution Plan and a
Shareholder Services Plan.
Distribution Plan. Rule 12b-1 (the "Rule") adopted by the
Securities and Exchange Commission under the Act provides, among other
things, that an investment company may bear expenses of distributing its
shares only pursuant to a plan adopted in accordance with the Rule. The
Fund's Board of Directors has adopted such a plan (the "Distribution
Plan") with respect to the Fund's shares, pursuant to which the Fund pays
the Distributor for advertising, marketing and distributing the Fund's
shares. Under the Distribution Plan, the Distributor may make payments to
certain financial institutions, securities dealers and other financial
industry professionals (collectively, "Service Agents") in respect to
these services. The Fund's Board of Directors believes that there is a
reasonable likelihood that the Distribution Plan will benefit the Fund and
its shareholders. In some states, certain financial institutions
effecting transactions in Fund shares may be required to register as
dealers pursuant to state law.
A quarterly report of the amounts expended under the Distribution
Plan, and the purposes for which such expenditures were incurred, must be
made to the Directors for their review. In addition, the Distribution
Plan provides that it may not be amended to increase materially the costs
which Fund shareholders may bear for distribution pursuant to the
Distribution Plan without shareholder approval and that other material
amendments of the Distribution Plan must be approved by the Board of
Directors, and by the Directors who are not "interested persons" (as
defined in the Act) of the Fund and have no direct or indirect financial
interest in the operation of the Distribution Plan or in any agreements
entered into in connection with the Distribution Plan, by vote cast in
person at a meeting called for the purpose of considering such amendments.
The Distribution Plan is subject to annual approval by such vote of the
Directors cast in person at a meeting called for the purpose of voting on
the Distribution Plan. The Distribution Plan was so approved by the
Directors at a meeting held on February 17, 1994. The Distribution Plan
may be terminated at any time by vote of a majority of the Directors who
are not "interested persons" and have no direct or indirect financial
interest in the operation of the Distribution Plan or in any agreements
entered into in connection with the Distribution Plan or by vote of the
holders of a majority of the Fund's shares.
Shareholder Services Plan. The Fund has adopted a Shareholder
Services Plan, pursuant to which the Fund pays the Distributor for the
provision of certain services to Fund shareholders.
A quarterly report of the amounts expended under the Shareholder
Services Plan, and the purposes for which such expenditures were incurred,
must be made to the Directors for their review. In addition, the
Shareholder Services Plan provides that it may not be amended without
approval of the Directors, and by the Directors who are not "interested
persons" (as defined in the Act) of the Fund and have no direct or
indirect financial interest in the operation of the Shareholder Services
Plan or in any agreements entered into in connection with the Shareholder
Services Plan, by vote cast in person at a meeting called for the purpose
of considering such amendments. The Shareholder Services Plan is subject
to annual approval by such vote of the Directors cast in person at a
meeting called for the purpose of voting on the Shareholder Services Plan.
The Shareholder Services Plan was so approved on February 17, 1994. The
Shareholder Services Plan is terminable at any time by vote of a majority
of the Directors who are not "interested persons" and have no direct or
indirect financial interest in the operation of the Shareholder Services
Plan or in any agreements entered into in connection with the Shareholder
Services Plan.
PURCHASE OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
The Distributor. The Distributor serves as the Fund's distributor
pursuant to an agreement which is renewable annually. The Distributor
also acts as distributor for the other funds in the Dreyfus Family of
Funds and for certain other investment companies.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase
orders may be made between the hours of 8:00 a.m. and 4:00 p.m., New York
time, on any business day that The Shareholder Services Group, Inc., the
Fund's transfer and dividend disbursing agent (the "Transfer Agent"), and
the New York Stock Exchange are open. Such purchases will be credited to
the shareholder's Fund account on the next bank business day. To qualify
to use the Dreyfus TeleTransfer Privilege, the initial payment for
purchase of Fund shares must be drawn on, and redemption proceeds paid to,
the same bank and account as are designated on the Account Application or
Shareholder Services Form on file. If the proceeds of a particular
redemption are to be wired to an account at any other bank, the request
must be in writing and signature-guaranteed. See "Redemption of Fund
Shares--Dreyfus TeleTransfer Privilege."
Reopening an Account. An investor may reopen an account with a
minimum investment of $100 without filing a new Account Application during
the calendar year the account is closed or during the following calendar
year, provided the information on the old Account Application is still
applicable.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to
Redeem Fund Shares."
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire or telephone redemption
instructions from any person representing himself or herself to be the
investor, or a representative of the investor's Service Agent, and
reasonably believed by the Transfer Agent to be genuine. Ordinarily, the
Fund will initiate payment for shares redeemed pursuant to this Privilege
on the next business day after receipt if the Transfer Agent receives the
redemption request in proper form. Redemption proceeds will be
transferred by Federal Reserve wire only to the commercial bank account
specified by the investor on the Account Application or Shareholder
Services Form. Redemption proceeds, if wired, must be in the amount of
$1,000 or more and will be wired to the investor's account at the bank of
record designated in the investor's file at the Transfer Agent, if the
investor's bank is a member of the Federal Reserve System, or to a
correspondent bank if the investor's bank is not a member. Fees
ordinarily are imposed by such bank and usually are borne by the investor.
Immediate notification by the correspondent bank to the investor's bank is
necessary to avoid a delay in crediting the funds to the investor's bank
account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
- ---------------- ----------------
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at 1-800-
654-7171, toll free. Investors should advise the operator that the above
transmittal code must be used and should also inform the operator of the
Transfer Agent's answer back sign.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent.
This request must be signed by each shareholder, with each signature
guaranteed as described below under "Stock Certificates; Signatures."
Dreyfus TeleTransfer Privilege. Investors should be aware that if
they have selected the Dreyfus TeleTransfer Privilege, any request for a
wire redemption will be effected as a Dreyfus TeleTransfer transaction
through the Automated Clearing House ("ACH") system unless more prompt
transmittal specifically is requested. Redemption proceeds will be on
deposit in the investor's account at an ACH member bank ordinarily two
business days after receipt of the redemption request. See "Purchase of
Fund Shares--Dreyfus TeleTransfer Privilege."
Stock Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request.
Written redemption requests must be signed by each shareholder, including
each holder of a joint account, and each signature must be guaranteed.
Signatures on endorsed certificates submitted for redemption also must be
guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing
agencies and savings associations, as well as from participants in the New
York Stock Exchange Medallion Signature Program, the Securities Transfer
Agents Medallion Program ("STAMP") and the Stock Exchanges Medallion
Program. Guarantees must be signed by an authorized signatory of the
guarantor and "Signature-Guaranteed" must appear with the signature. The
Transfer Agent may request additional documentation from corporations,
executors, administrators, trustees or guardians, and may accept other
suitable verification arrangements from foreign investors, such as
consular verification. For more information with respect to signature-
guarantees, please call one of the telephone numbers listed on the cover.
Redemption Commitment. The Fund has committed itself to pay in cash
all redemption requests by any shareholder of record, limited in amount
during any 90-day period to the lesser of $250,000 or 1% of the value of
the Fund's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission. In the case of requests for redemption in excess of such
amount, the Board of Directors reserves the right to make payments in
whole or in part in securities or other assets in case of an emergency or
any time a cash distribution would impair the liquidity of the Fund to the
detriment of the existing shareholders. In such event, the securities
would be valued in the same manner as the Fund's portfolio is valued. If
the recipient sold such securities, brokerage charges would be incurred.
Suspension of Redemptions. The right of redemption may be suspended
or the date of payment postponed (a) during any period when the New York
Stock Exchange is closed (other than customary weekend and holiday
closings), (b) when trading in the markets the Fund ordinarily utilizes is
restricted, or when an emergency exists as determined by the Securities
and Exchange Commission so that disposal of the Fund's investments or
determination of its net asset value is not reasonably practicable, or (c)
for such other periods as the Securities and Exchange Commission by order
may permit to protect the Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Shareholder Services."
Exchange Privilege. Shares of other funds purchased by exchange
will be purchased on the basis of relative net asset value per share as
follows:
A. Exchanges for shares of funds that are offered without a sales
load will be made without a sales load.
B. Shares of funds purchased without a sales load may be exchanged
for shares of other funds sold with a sales load, and the
applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged
without a sales load for shares of other funds sold without a
sales load.
D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a
sales load and additional shares acquired through reinvestment
of dividends or distributions of any such funds (collectively
referred to herein as "Purchased Shares") may be exchanged for
shares of other funds sold with a sales load (referred to
herein as "Offered Shares"), provided that, if the sales load
applicable to the Offered Shares exceeds the maximum sales load
that could have been imposed in connection with the Purchased
Shares (at the time the Purchased Shares were acquired),
without giving effect to any reduced loads, the difference will
be deducted.
To accomplish an exchange under item D above, shareholders must
notify the Transfer Agent of their prior ownership of fund shares and
their account number.
To use this Privilege, an investor or the investor's Service Agent
acting on the investor's behalf must give exchange instructions to the
Transfer Agent in writing, by wire or by telephone. Telephone exchanges
may be made only if the appropriate "YES" box has been checked on the
Account Application, or a separate signed Shareholder Services Form is on
file with the Transfer Agent. By using this Privilege, the investor
authorizes the Transfer Agent to act on telephonic, telegraphic or written
exchange instructions from any person representing himself or herself to
be the investor or a representative of the investor's Service Agent, and
reasonably believed by the Transfer Agent to be genuine. Telephone
exchanges may be subject to limitations as to the amount involved or the
number of telephone exchanges permitted. Shares issued in certificate
form are not eligible for telephone exchange.
To establish a Personal Retirement Plan by exchange, shares of the
fund being exchanged must have a value of at least the minimum initial
investment required for the fund into which the exchange is being made.
For Dreyfus-sponsored Keogh Plans, IRAs and IRAs set up under a Simplified
Employee Pension Plan ("SEP-IRAs") with only one participant, the minimum
initial investment is $750. To exchange shares held in Corporate Plans,
403(b)(7) Plans and SEP-IRAs with more than one participant, the minimum
initial investment is $100 if the plan has at least $2,500 invested among
the funds in the Dreyfus Family of Funds. To exchange shares held in
Personal Retirement Plans, the shares exchanged must have a current value
of at least $100.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange permits an
investor to purchase, in exchange for shares of the Fund, shares of
another fund in the Dreyfus Family of Funds. This Privilege is available
only for existing accounts. Shares will be exchanged on the basis of
relative net asset value as set forth under "Exchange Privilege" above.
Enrollment in or modification or cancellation of this Privilege is
effective three business days following notification by the investor. An
investor will be notified if his account falls below the amount designated
to be exchanged under this Privilege. In this case, an investor's account
will fall to zero unless additional investments are made in excess of the
designated amount prior to the next Auto-Exchange transaction. Shares
held under IRA and other retirement plans are eligible for this Privilege.
Exchanges of IRA shares may be made between IRA accounts and from regular
accounts to IRA accounts, but not from IRA accounts to regular accounts.
With respect to all other retirement accounts, exchanges may be made only
among those accounts.
The Exchange Privilege and Dreyfus Auto-Exchange Privilege are
available to shareholders resident in any state in which shares of the
fund being acquired may legally be sold. Shares may be exchanged only
between accounts having identical names and other identifying
designations.
Shareholder Services Forms and prospectuses of the other funds may
be obtained from the Distributor, 144 Glenn Curtiss Boulevard, Uniondale,
New York 11556-0144. The Fund reserves the right to reject any exchange
request in whole or in part. The Exchange Privilege or Dreyfus Auto-
Exchange Privilege may be modified or terminated at any time upon notice
to shareholders.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or quarterly
basis. Withdrawal payments are the proceeds from sales of Fund shares,
not the yield on the shares. If withdrawal payments exceed reinvested
dividends and distributions, the investor's shares will be reduced and
eventually may be depleted. An Automatic Withdrawal Plan may be
established by completing the appropriate application available from the
Distributor. There is a service charge of $.50 for each withdrawal check.
Automatic Withdrawal may be terminated at any time by the investor, the
Fund or the Transfer Agent. Shares for which certificates have been
issued may not be redeemed through the Automatic Withdrawal Plan.
Dreyfus Dividend Sweep Privilege. Dreyfus Dividend Sweep Privilege
allows investors to invest on the payment date their dividends or
dividends and capital gain distributions, if any, from the Fund in shares
of another fund in the Dreyfus Family of Funds of which the investor is a
shareholder. Shares of other funds purchased pursuant to this Privilege
will be purchased on the basis of relative net asset value per share as
follows:
A. Dividends and distributions paid by a fund may be invested
without imposition of a sales load in shares of other funds
that are offered without a sales load.
B. Dividends and distributions paid by a fund which does not
charge a sales load may be invested in shares of other funds
sold with a sales load, and the applicable sales load will be
deducted.
C. Dividends and distributions paid by a fund which charges a
sales load may be invested in shares of other funds sold with a
sales load (referred to herein as "Offered Shares"), provided
that, if the sales load applicable to the Offered Shares
exceeds the maximum sales load charged by the fund from which
dividends or distributions are being swept, without giving
effect to any reduced loads, the difference will be deducted.
D. Dividends and distributions paid by a fund may be invested in
shares of other funds that impose a contingent deferred sales
charge and the applicable contingent deferred sales charge, if
any, will be imposed upon redemption of such shares.
Corporate Pension/Profit-Sharing and Personal Retirement Plans. The
Fund makes available to corporations a variety of prototype pension and
profit-sharing plans including a 401(k) Salary Reduction Plan. In
addition, the Fund makes available Keogh Plans, IRAs, including SEP-IRAs
and IRA "Rollover Accounts," and 403(b)(7) Plans. Plan support services
also are available. For details, please contact the Dreyfus Group
Retirement Plans, a division of the Distributor, by calling toll free 1-
800-358-5566.
Investors who wish to purchase Fund shares in conjunction with a
Keogh Plan, a 403(b)(7) Plan or an IRA, including an SEP-IRA, may request
from the Distributor forms for adoption of such plans.
The entity acting as custodian for Keogh Plans, 403(b)(7) Plans or
IRAs may charge a fee, payment of which could require the liquidation of
shares. All fees charged are described in the appropriate form.
Shares may be purchased in connection with these plans only by
direct remittance to the entity acting as custodian. Purchases for these
plans may not be made in advance of receipt of funds.
The minimum initial investment for corporate plans, Salary Reduction
Plans, 403(b)(7) Plans and SEP-IRAs with more than one participant, is
$2,500 with no minimum or subsequent purchases. The minimum initial
investment for Dreyfus-sponsored Keogh Plans, IRAs, SEP-IRAs and 403(b)(7)
Plans with only one participant, is normally $750, with no minimum on
subsequent purchases. Individuals who open an IRA may also open a non-
working spousal IRA with a minimum investment of $250.
The investor should read the Prototype Retirement Plan and the
appropriate form of Custodial Agreement for further details on
eligibility, service fees and tax implications, and should consult a tax
adviser.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
Valuation of Portfolio Securities. The Fund's securities, including
covered call options written by the Fund, are valued at the last sale
price on the securities exchange or national securities market on which
such securities primarily are traded. Securities not listed on an
exchange or national securities market, or securities in which there were
no transactions, are valued at the average of the most recent bid and
asked prices, except in the case of open short positions where the asked
price is used for valuation purposes. 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 dollars at the midpoint
of the New York interbank market spot exchange rate as quoted on the day
of such translation by the Federal Reserve Bank of New York or if no such
rate is quoted on such date, at the exchange rate previously quoted by the
Federal Reserve Bank of New York or at such other quoted market exchange
rate as may be determined to be appropriate by the Advisers. Forward
currency contracts will be valued at the current cost of offsetting the
contract. Because of the need to obtain prices as of the close of trading
on various exchanges throughout the world, the calculation of net asset
value does not take place contemporaneously with the determination of
prices of a majority of the Fund's securities. Short-term investments are
carried at amortized cost, which approximates value. Any securities or
other assets for which recent market quotations are not readily available
are valued at fair value as determined in good faith by the Fund's Board
of Directors. Expenses and fees of the Fund, including the management fee
paid by the Fund and distribution and service fees, are accrued daily and
taken into account for the purpose of determining the net asset value of
Fund shares.
Restricted securities, as well as securities or other assets for
which market quotations are not readily available, or are not valued by a
pricing service approved by the Board of Directors, are valued at fair
value as determined in good faith by the Board of Directors. The Board of
Directors will review the method of valuation on a current basis. In
making their good faith valuation of restricted securities, the Directors
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 of
Directors if the Directors believe that it 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 of Directors.
New York Stock Exchange Closings. The holidays (as observed) on
which the New York Stock Exchange is closed currently are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Dividends,
Distributions and Taxes."
It is expected that the Fund will qualify as a "regulated investment
company" under the Code, as long as such qualification is in the best
interests of its shareholders. As a regulated investment company, the
Fund will pay no Federal income tax on net investment income and net
realized securities gains to the extent that such income and gains are
distributed to shareholders in accordance with applicable provisions of
the Code. To qualify as a regulated investment company, the Fund must pay
out to its shareholders at least 90% of its net income (consisting of net
investment income and net short-term capital gain), must derive less than
30% of its annual gross income from gain on the sale of securities held
for less than three months, and must meet certain asset diversification
and other requirements. Accordingly, the Fund may be restricted in the
selling of securities held for less than three months. The Code, however,
allows the Fund to net certain offsetting positions, making it easier for
the Fund to satisfy the 30% test. The term "regulated investment company"
does not imply the supervision of management or investment practices or
policies by any government agency.
Any dividend or distribution paid shortly after an investor's
purchase may have the effect of reducing the net asset value of the shares
below the cost of the investment. Such a dividend or distribution would
be a return of investment in an economic sense, although taxable as stated
above. In addition, the Code provides that if a shareholder holds shares
of the Fund for six months or less and has received a capital gain
distribution with respect to such shares, any loss incurred on the sale of
such shares will be treated as long-term capital loss to the extent of the
capital gain distribution received.
Ordinarily, gains and losses realized from portfolio transactions
will be treated as capital gains and losses. However, a portion of the
gain or loss realized from the disposition of non-U.S. dollar denominated
securities (including debt instruments, certain financial futures and
options, and certain preferred stock) may be treated as ordinary income or
loss under Section 988 of the Code. In addition, all or a portion of the
gain realized from the disposition of certain market discount bonds will
be treated as ordinary income under Section 1276 of the Code. Finally,
all or a portion of the gain realized from engaging in "conversion
transactions" may be treated as ordinary income under Section 1258.
"Conversion transactions" are defined to include certain forward, futures,
option and "straddle" transactions, transactions marketed or sold to
produce capital gains, or transactions described in Treasury regulations
to be issued in the future.
The Fund may qualify for and may make an election permitted under
Section 853 of the Code so that shareholders may be eligible to claim a
credit or deduction on their Federal income tax returns for, and will be
required to treat as part of the amounts distributed to them, their pro
rata portion of qualified taxes paid or incurred by the Fund to foreign
countries (which taxes relate primarily to investment income). The Fund
may make an election under Section 853, provided that more than 50% of the
value of the Fund's total assets at the close of the taxable year consists
of securities in foreign corporations, and the Fund satisfies the
applicable distribution provisions of the Code. The foreign tax credit
available to shareholders is subject to certain limitations imposed by the
Code.
Under Section 1256 of the Code, any gain or loss the Fund realizes
from certain forward contracts and options transactions will be treated as
60% long-term capital gain or loss and 40% short-term capital gain or
loss. Gain or loss will arise upon exercise or lapse of such contracts
and options as well as from closing transactions. In addition, any such
contracts or options remaining unexercised at the end of the Fund's
taxable year will be treated as sold for their then fair market value,
resulting in additional gain or loss to the Fund characterized in the
manner described above.
Offsetting positions held by the Fund involving certain foreign
currency forward contracts or options may constitute "straddles."
"Straddles" are defined to include "offsetting positions" in actively
traded personal property. The tax treatment of "straddles" is governed by
Section 1092 of the Code, which, in certain circumstances, overrides or
modifies the provisions of Sections 1256 and 988. If the Fund were
treated as entering into "straddles" by reason of its engaging in certain
forward contracts or options transactions, such "straddles" would be
characterized as "mixed straddles" if the forward contracts or options
transactions comprising a part of such "straddles" were governed by
Section 1256. The Fund may make one or more elections with respect to
"mixed straddles." Depending on which election is made, if any, the
results to the Fund may differ. If no election is made to the extent the
"straddle" rules apply to positions established by the Fund, losses
realized by the Fund will be deferred to the extent of unrealized gain in
the offsetting position. Moreover, as a result of the "straddle" rules,
short-term capital loss on "straddle" positions may be recharacterized as
long-term capital loss, and long-term capital gains may be treated as
short-term capital gains or ordinary income.
Investment by the Fund in securities issued at a discount or
providing for deferred interest or for payment of interest in the form of
additional obligations could under special tax rules affect the amount,
timing and character of distributions to shareholders by causing the Fund
to recognize income prior to the receipt of cash payments. For example,
the Fund could be required to accrue as income each year a portion of the
discount (or deemed discount) at which such securities were issued and to
distribute such income. In such case, the Fund may have to dispose of
securities which it might otherwise have continued to hold in order to
generate cash to satisfy these distribution requirements.
PORTFOLIO TRANSACTIONS
Dreyfus assumes general supervision over placing orders on behalf of
the Fund for the purchase or sale of investment securities. Allocation of
brokerage transactions, including their frequency, is made in Dreyfus'
best judgment 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 the Advisers' 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 the Advisers and the Advisers' 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 to M&G in serving both the Fund and
the other funds or accounts it advises, and, conversely, supplemental
information obtained by the placement of business of other clients may be
useful to the Advisers in carrying out their obligations to the Fund.
Brokers also will be selected because of their ability to handle special
executions such as are involved in large block trades or broad distribu-
tions, 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.
Portfolio turnover may vary from year to year, as well as within a
year. High turnover rates are likely to result in comparatively greater
brokerage expenses. The overall reasonableness of brokerage commissions
paid is evaluated by the Advisers based upon their knowledge of available
information as to the general level of commissions paid by other
institutional investors for comparable services.
PERFORMANCE INFORMATION
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Performance Information."
Current yield is computed pursuant to a formula which operates as
follows: The amount of the Fund's expenses accrued for the 30-day period
(net of reimbursements) is subtracted from the amount of the dividends and
interest earned (computed in accordance with regulatory requirements) by
the Fund during the period. That result is then divided by the product
of: (a) the average daily number of shares outstanding during the period
that were entitled to receive dividends, and (b) the net asset value per
share on the last day of the period less any undistributed earned income
per share reasonably expected to be declared as a dividend shortly
thereafter. The quotient is then added to 1, and that sum is raised to
the 6th power, after which 1 is subtracted. The current yield is then
arrived at by multiplying the result by 2.
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased at net asset value per share
with a hypothetical $1,000 payment made at the beginning of the period
(assuming the reinvestment of dividends and distributions), dividing by
the amount of the initial investment, taking the "n"th root of the
quotient (where "n" is the number of years in the period) and subtracting
1 from the result.
Total return is calculated by subtracting the amount of the Fund's
net asset value per share at the beginning of a stated period from the net
asset value per share at the end of the period (after giving effect to the
reinvestment of dividends and distributions during the period) and
dividing the result by the net asset value per share at the beginning of
the period.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "General
Information."
Each Fund share has one vote and, when issued and paid for in
accordance with the terms of the offering, is 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.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, COUNSEL
AND INDEPENDENT AUDITORS
The Bank of New York, 110 Washington Street, New York, New York
10286, is the Fund's custodian. The Shareholder Services Group, Inc., a
subsidiary of First Data Corporation, P.O. Box 9671, Providence, Rhode
Island 02940-9671, is the Fund's transfer and dividend disbursing agent.
Neither The Bank of New York nor The Shareholder Services Group, Inc. has
any part in determining the investment policies of the Fund or which
securities are to be purchased or sold by the Fund.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York
10004-2696, as counsel for the Fund, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance
of the shares of Common Stock being sold pursuant to the Fund's
Prospectus.
Ernst & Young, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund.
APPENDIX
Description of certain ratings assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors
Service, Inc. ("Fitch") and Duff & Phelps, Inc. ("Duff"):
S&P
Bond Ratings
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, B, CCC, CC, C
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the least degree of speculation and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB
Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payment.
B
Debt rated B has a greater vulnerability to default but presently has 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
Debt rated CCC has a current identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to
meet timely payments of principal. In the event of adverse business,
financial or economic conditions, it is 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.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major ratings categories.
Commercial Paper Rating
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted with
a plus sign (+) designation.
Moody's
Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally 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
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 ratings categories, except in the Aaa category
and in 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.
Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating assigned
by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins
in earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound,
will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings
take into consideration special features of the issue, its relationship to
other obligations of the issuer, the current financial condition and
operative performance of the issuer and of any guarantor, as well as the
political and economic environment that might affect the issuer's future
financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service
requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if not
remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default payment of interest
and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual or imminent default of interest
and/or principal payments. Such bonds are extremely speculative and should
be valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for
recovery on these bonds and D represents the lowest potential for
recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category covering 12-36
months or the DDD, DD or D categories.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the
existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not
as great as the F-1+ and F-1 categories.
Duff
AAA
Bonds rated AAA are considered highest credit quality. The risk factors
are negligible, being only slightly more than for risk-free U.S. Treasury
debt.
AA
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated BBB are considered to have below average protection factors
but still considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
BB
Bonds rated BB are below investment grade but are deemed by Duff as
likely to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within the
category.
B
Bonds rated B are below investment grade and possess the risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in quality rating
within this category or into a higher or lower quality rating grade.
CCC
Bonds rated CCC are well below investment grade securities. Such bonds
may be in default or have considerable uncertainty as to timely payment of
interest, preferred dividends and/or principal. Protection factors are
narrow and risk can be substantial with unfavorable economic or industry
conditions and/or with unfavorable company developments.
DD
Defaulted debt obligations. Issuer has failed to meet scheduled
principal and/or interest payments.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA)
to indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of
timely payment with excellent liquidity factors which are supported by
ample asset protection. Risk factors are minor.
DREYFUS GLOBAL BOND FUND, INC.
Statement of Assets and Liabilities
February 18, 1994
ASSETS
Cash $100,000
Deferred organization and initial offering
expenses 66,500
------
Total Assets 166,500
LIABILITIES
Accrued organization and initial offering
expenses 66,500
------
NET ASSETS applicable to 8,000 shares of common
stock ($.001 par value) issued and out-
standing (300 million shares authorized) $100,000
=======
NET ASSET VALUE, offering and redemption price per
share ($100,000 / 8,0000 shares) $ 12.50
=======
NOTE - Dreyfus Global Bond Fund, Inc. (the "Fund") was organized as a
Maryland corporation on September 8, 1993 and has had no operations since
that date other than matters relating to its organization and registration
as a non-diversified, open-end investment company under the Investment
Company Act of 1940 and the Securities Act of 1933 and the sale and
issuance of 8,000 shares of common stock to The Dreyfus Corporation
("Initial Shares"). Organization expenses payable by the Fund have been
deferred and will be amortized from the date operations commence over a
period which it is expected that a benefit will be realized, not to exceed
five years. If any of the Initial Shares are redeemed during the
amortization period by any holder thereof, the redemption proceeds will be
reduced by any unamortized organization expenses in the same proportion as
the number of Initial Shares being redeemed bears to the number of Initial
Shares outstanding at the time of the redemption.
REPORT OF INDEPENDENT AUDITORS
Shareholder and Board of Directors
Dreyfus Global Bond Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Dreyfus Global Bond Fund, Inc. as of February 18, 1994. This statement of
assets and liabilities is the responsibility of the Fund's management.
Our responsibility is to express an opinion on this statement of assets
and liabilities 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 this statement of assets and
liabilities is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the statement of assets and liabilities. An audit 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
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 Global Bond Fund, Inc. at February 18, 1994, in conformity with
generally accepted accounting principles.
New York, New York
February 22, 1994
ERNST & YOUNG
