-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AZblN4AFMvOZFTNHUdCuQ8tGkDjRH9Y/9P9WFqSp3Bc7yA/RPjbY0zsjpZjcz08l XHlp4RFb2kecjRriMgBL2Q== 0000898432-98-000370.txt : 19980424 0000898432-98-000370.hdr.sgml : 19980424 ACCESSION NUMBER: 0000898432-98-000370 CONFORMED SUBMISSION TYPE: N-2/A PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19980423 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DREYFUS HIGH YIELD STRATEGIES FUND CENTRAL INDEX KEY: 0001057861 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FILING VALUES: FORM TYPE: N-2/A SEC ACT: SEC FILE NUMBER: 333-48117 FILM NUMBER: 98599135 FILING VALUES: FORM TYPE: N-2/A SEC ACT: SEC FILE NUMBER: 811-08703 FILM NUMBER: 98599136 BUSINESS ADDRESS: STREET 1: 200 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10166 BUSINESS PHONE: 2129226789 MAIL ADDRESS: STREET 1: 200 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10166 N-2/A 1 Securities Act File No. 333-48117 Investment Company File No. 811-08703 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM N-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/ PRE-EFFECTIVE AMENDMENT NO. 1 /X/ POST-EFFECTIVE AMENDMENT NO. / / AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/ AMENDMENT NO. 1 /X/ (Check appropriate box or boxes) --------------- DREYFUS HIGH YIELD STRATEGIES FUND (Exact Name of Registrant as Specified in Charter) 200 Park Avenue, New York, New York 10166 (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code: 1-888-338-8084 --------------- Mark N. Jacobs General Counsel The Dreyfus Corporation Legal Department 200 Park Avenue - 8th Floor West New York, New York 10166 (Name and address of agent for service) --------------- Copies to: Thomas A. Hale Clifford J. Alexander Skadden, Arps, Slate, Kirkpatrick & Lockhart LLP Meagher & Flom (Illinois) 1800 Massachusetts Avenue 333 Wacker Drive Second Floor Chicago, Illinois 60606 Washington, DC 20036 --------------- Approximate Date of Proposed Public Offering: As soon as practicable after this Registration Statement becomes effective. ---------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933 ======================================================================================================= Proposed Proposed Amount Being Maximum Aggregate Amount of Registered(1) Offering Price Maximum Offering Registration Fee per Unit Price(1) - ------------------------------------------------------------------------------------------------------ Shares of Beneficial Interest 57,500,000 $15.00 $862,500,000 $254,438* - ------------------------------------------------------------------------------------------------------ *$20,355.00 has been previously paid (1)Includes 7,500,000 Shares which may be offered by the Underwriters pursuant to an option to cover over allotments. =======================================================================================================
Dreyfus High Yield Strategies Fund Cross Reference Sheet Pursuant to Rule 404(c) Under the Securities Act of 1933 Parts A and B of the Prospectus*
Item No. Registration Statement Caption Location in Prospectus - -------- ------------------------------ ---------------------- 1 Outside Front Cover......................... Outside Front Cover 2 Inside Front and Outside back Cover Page.... Inside Front and Outside Back Cover Page 3 Fee Table and Synopsis...................... Prospectus Summary; Expenses Summary 4 Financial Highlights........................ Not Applicable 5 Plan of Distribution........................ Cover Page; Outside Front Cover Page; Prospectus Summary; Underwriting 6 Selling Shareholders........................ Not Applicable 7 Use of Proceeds............................. Outside Front Cover; Inside Front Cover; Prospectus Summary; Use of Proceeds; Investment Restrictions 8 General Description of Registrant........... Outside Front Cover; Inside Front Cover; Prospectus Summary; The Fund; Investment Practices; Special Considerations and Risk Factors; Investment Restrictions; Dividends and Distributions; Taxes; Portfolio Transactions; Determination of Net Asset Value 9 Management.................................. Inside Front Cover; Prospectus Summary; Management of the Fund; Investment Adviser; Trustees and Officers of the Fund; Investment Management Contract; Portfolio Transactions; Custodian; Transfer Agent, Shareholder Servicing Agent, Custodian and Transfer and Dividend Paying Agent; 10. Capital Stock, Long-term Debt, and Other Securities.................................. Prospectus Summary; Dividends and Distributions; Taxes; Automatic Dividend Reinvestment Plan 11 Defaults and Arrears on Senior Securities... Not Applicable 12 Legal Proceedings........................... Not Applicable 13. Table of Contents of Statement of Additional Information................................. Not Applicable 14 Cover Page.................................. Not Applicable 15 Table of Contents........................... Not Applicable 16 General Information......................... Not Applicable 17 Investment Objectives and Policies.......... Outside Front Cover; Inside Front Cover; Prospectus Summary; Restrictions; Investment Considerations and Risks 18 Management.................................. Trustees and Officers of the Fund 19. Control Persons and Principal Holders of Securities.................................. Not Applicable 20 Investment and Advisory and Other Services.. Prospectus Summary; Investment Advisor; Trustees and Officers of the Fund; Management Contract; Portfolio Transactions; Shareholder Servicing Agent, Custodian and Transfer and Dividend Paying Agent 21 Brokerage Allocation and Other Practices.... Portfolio Transactions 22 Tax Status.................................. Dividends and Distributions; Taxes; Independent Auditor's Report 23 Financial Statements........................ Not Applicable
- ---------------- *Pursuant to General Instruction H of Form N-2, all information required to be set forth in Part B: Statement of Additional Information has been included in Part A: The Prospectus. PART C The information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C to this Registration Statement. SHARES LOGO DREYFUS HIGH YIELD STRATEGIES FUND ---------------- Dreyfus High Yield Strategies Fund (the "Fund") is a newly organized, non- diversified, closed-end management investment company. The Fund's primary investment objective is to seek high current income. The Fund will also seek capital growth as a secondary objective, to the extent consistent with its objective of seeking high current income. Under normal market conditions, the Fund will invest at least 65% of its total assets in income securities of U.S. issuers rated below investment grade quality (lower than Baa by Moody's Investors Service, Inc. or lower than BBB by Standard & Poor's Ratings Group or comparably rated by another nationally recognized securities organization) or in unrated income securities that The Dreyfus Corporation ("Dreyfus"), the Fund's investment manager, determines to be of comparable quality. The Fund may invest up to 25% of its total assets in securities of issuers domiciled outside the United States or that are denominated in various foreign currencies and multinational foreign currency units. There is no assurance that the Fund will achieve its objectives. Investments in lower grade securities are subject to special risks, including greater price volatility and a greater risk of loss of principal and interest. As a non-diversified investment company, the Fund may invest a greater portion of its assets in a small number of issuers. The Fund may engage in various portfolio strategies to seek to enhance income and hedge its portfolio against investment and interest rate risks, including the use of leverage and the use of derivative financial instruments. The Fund is designed for investors willing to assume additional risk in return primarily for the potential for high current income and secondarily capital growth. An investment in the Fund may be speculative in that it involves a high degree of risk and should not constitute a complete investment program. Investors should carefully assess the risks associated with an investment in the Fund. SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS." ---------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Price to Proceeds to Public Sales Load (1) Fund (2) - ------------------------------------------------------------------------------------------- Per Share...................................... $15.00 None $15.00 - ------------------------------------------------------------------------------------------- Total.......................................... $ None $ - ------------------------------------------------------------------------------------------- Total Assuming Full Exercise of Over-Allotment Option (3).................................... $ None $ - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
(Footnotes on the following page) ---------------- The Shares are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to their right to reject orders in whole or in part. It is expected that delivery of the Shares will be made in New York City on or about April 29, 1998. ---------------- PAINEWEBBER INCORPORATED MERRILL LYNCH & CO. SALOMON SMITH BARNEY FAHNESTOCK & CO. INC. INTERSTATE/JOHNSON LANE CORPORATION ---------------- THE DATE OF THIS PROSPECTUS IS APRIL 23, 1998. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF THE FUND AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE NASDAQ MARKET OR OTHERWISE. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ---------------- (Continued from Cover Page) Dreyfus will serve as investment manager to the Fund. The Fund's address is 200 Park Avenue, New York, New York 10166, and its telephone number is 1-888- 338-8084. At times, the Fund expects to utilize financial leverage through borrowings, including the issuance of debt securities, or the issuance of preferred shares or through other transactions, such as reverse repurchase agreements, which have the effect of financial leverage. The Fund intends to utilize financial leverage in an initial amount equal to approximately 25% of its total assets (including the amount obtained through leverage). The Fund generally will not utilize leverage if it anticipates that the Fund's leveraged capital structure would result in a lower return to common shareholders than that obtainable over time with an unleveraged capital structure. Use of financial leverage creates an opportunity for increased income and capital growth for the common shareholders but, at the same time, creates special risks, and there can be no assurance that a leveraging strategy will be successful during any period in which it is employed. SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS--LEVERAGE." The Fund is offering its shares of beneficial interest, par value $.001 per share (the "Shares"). Prior to this offering, there has been no market for the Fund's Shares. The Shares have been approved for listing, subject to notice of issuance, on the New York Stock Exchange under the symbol "DHF." Shares of closed-end management investment companies have in the past frequently traded at discounts from their net asset values and the Fund's Shares may likewise trade at such a discount. The risks associated with this characteristic of closed-end management investment companies may be greater for investors expecting to sell shares of a closed-end management investment company soon after completion of an initial public offering of the company's shares. The minimum investment in this offering is 100 Shares ($1,500). This Prospectus sets forth in concise form information about the Fund that a prospective investor should know before investing in the Fund. Investors are advised to read this Prospectus carefully and to retain it for future reference. The Fund's Shares do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. ---------------- (Footnotes from cover page) (1) Dreyfus or an affiliate (not the Fund) from its own assets will pay a commission to the Underwriters in the amount of 5% of the Price to Public per Share in connection with the sale of the Shares offered hereby. The Fund and Dreyfus have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. See "Underwriting." (2) Before deducting organizational and offering expenses payable by the Fund, including payment of $250,000 to the Underwriters in partial reimbursement of their expenses, estimated at $61,000 and $1,039,000, respectively. Offering expenses will be deducted from net proceeds, and organizational expenses will be capitalized and amortized against income over a five-year period. (3) Assuming exercise in full of the 60-day option granted by the Fund to the Underwriters to purchase up to additional Shares, on the same terms, solely to cover over-allotments. See "Underwriting." ii PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information appearing elsewhere in this Prospectus. Investors should carefully consider information set forth under the heading "Risk Factors and Special Considerations." THE FUND.................... Dreyfus High Yield Strategies Fund ("Fund") is a newly organized, non-diversified, closed-end man- agement investment company. The Fund is managed by The Dreyfus Corporation ("Dreyfus"). See "The Fund." THE OFFERING................ The Fund is offering Shares of Beneficial In- terest, par value $.001 per share ("Shares"), through a group of underwriters ("Underwriters") led by PaineWebber Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney,Fahnestock & Co. Inc., and Interstate/Johnson Lane Corporation. The Under- writers have been granted an option to purchase up to additional Shares solely to cover over- allotments, if any. The initial public offering price is $15 per share. The minimum investment in the offering is 100 Shares ($1,500). See "Under- writing." NO SALES CHARGE............. The Shares will be sold during the initial public offering without any sales load or underwriting discounts payable by investors or the Fund. Drey- fus or an affiliate (not the Fund) from its own assets will pay a commission to the Underwriters in connection with sales of the Shares in this offering. See "Underwriting." INVESTMENT OBJECTIVES AND The Fund's primary investment objective is to POLICIES................... seek high current income. The Fund will also seek capital growth as a secondary objective, to the extent consistent with its objective of seeking high current income. The Fund is designed for in- vestors willing to assume additional risk in re- turn for the potential for high current income and capital growth. The Fund is not intended to be a complete investment program and there is no assurance that the Fund will achieve its objec- tives. Under normal market conditions, the Fund will in- vest at least 65% of its total assets in income securities of U.S. issuers rated below investment grade quality (lower than Baa by Moody's Invest- ors Service, Inc. ("Moody's") or lower than BBB by Standard & Poor's Ratings Group ("S&P") or comparably rated by another nationally recognized securities organization (each, a "Rating Agen- cy")) or in unrated income securities that Drey- fus determines to be of comparable quality. Lower grade income securities are commonly known as "junk bonds." The Fund may invest up to 25% of its total assets in securities of issuers domi- ciled outside the United States or that are de- nominated in various foreign currencies and mul- tinational currency units. The Fund may also in- vest up to 10% of its total assets in securities that are the subject of bankruptcy proceedings or otherwise in default or in significant risk of being in default ("Distressed Securities"). The Fund may engage in various portfolio strategies to seek to enhance income and hedge its portfo- 1 lio against investment and interest rate risks, including the use of leverage and the use of de- rivative financial instruments. Of course, there can be no assurance that the Fund's strategies will be successful. The Fund is designed for in- vestors willing to assume additional risk in re- turn primarily for the potential for high current income and secondarily capital growth. An invest- ment in the Fund may be speculative in that it involves a high degree of risk. At times, the Fund expects to utilize financial leverage through borrowings, including the issu- ance of debt securities, or the issuance of pre- ferred shares or through other transactions, such as reverse repurchase agreements, which have the effect of financial leverage. The Fund intends to utilize financial leverage in an initial amount equal to approximately 25% of its total assets (including the amount obtained through leverage). The Fund generally will not utilize leverage if it anticipates that the Fund's leveraged capital structure would result in a lower return to hold- ers of Shares ("Shareholders") than that obtain- able over time with an unleveraged capital struc- ture. Use of financial leverage creates an oppor- tunity for increased income and capital growth for the Shareholders but, at the same time, cre- ates special risks, and there can be no assurance that a leveraging strategy will be successful during any period in which it is employed. See "Risk Factors and Special Considerations--Lever- age." In selecting investments for the Fund's portfo- lio, Dreyfus will seek to identify issuers and industries that Dreyfus believes are likely to experience stable or improving financial condi- tions. Dreyfus believes that this strategy should enhance the Fund's ability to earn high current income while also providing opportunities for capital growth. Dreyfus's analysis may include consideration of general industry trends, the is- suer's managerial strength, changing financial condition, borrowing requirements or debt matu- rity schedules, and its responsiveness to changes in business conditions and interest rates. Drey- fus may also consider relative values based on anticipated cash flow, interest or dividend cov- erage, asset coverage and earnings prospects. Of course there can be no assurances that this strategy will be successful. The Fund will seek its secondary objective of capital growth by investing in securities that Dreyfus expects may appreciate in value as a re- sult of favorable developments affecting the business or prospects of the issuer, which may improve the issuer's financial condition and credit rating, or as a result of declines in long-term interest rates. In certain market conditions, Dreyfus may deter- mine that securities rated investment grade (i.e., at least Baa by Moody's or BBB by S&P or comparably rated by another Rating Agency) offer significant opportunities for high income and capital growth. In such conditions, the Fund may invest less than 65% of its total assets in lower grade income securities of U.S. issuers. In addi- tion, the Fund may implement various temporary "defensive" strategies at times when Dreyfus de- termines that conditions in the markets make pur- 2 suing the Fund's basic investment strategy incon- sistent with the best interests of its Sharehold- ers. These strategies may include investing all or a portion of the Fund's assets in higher-qual- ity debt securities. See "Investment Objectives and Policies." INVESTMENT MANAGER AND ADMINISTRATOR.............. Dreyfus is the Fund's investment manager and ad- ministrator. Dreyfus provides investment manage- ment and/or administration services to the Drey- fus Family of Funds. Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A. ("Mellon Bank"). As of December 31, 1997, aggregate assets under the management of Mellon Bank and its affiliates worldwide exceeded $305 billion. The companies comprising Mellon Bank and its affiliates are di- rect and indirect subsidiaries of Mellon Bank Corporation. As of March 31, 1998, Dreyfus man- aged or administered assets of approximately $100 billion. LISTING..................... Prior to this offering, there has been no market for the Shares. The Shares have been approved for listing, subject to notice of issuance, on the New York Stock Exchange, Inc. ("NYSE") under the symbol "DHF," subject to notice of issuance. DIVIDENDS AND OTHER The Fund intends to pay monthly distributions to DISTRIBUTIONS.............. Shareholders from net investment income. The ini- tial distribution to Shareholders is expected to be paid approximately 60 days after the comple- tion of the offering of the Fund's Shares. See "Dividends and Other Distributions." AUTOMATIC DIVIDEND REINVESTMENT PLAN.......... The Fund has established an Automatic Dividend Reinvestment Plan (the "Plan"). Under the Plan, all dividend and capital gain distributions will be automatically reinvested in additional Shares of the Fund either purchased in the open market or issued by the Fund if the Shares are trading at or above their net asset value, in either case unless the Shareholder elects to receive cash. Shareholders who intend to hold their Shares through a broker or nominee should contact such broker or nominee to determine whether or how they may participate in the Plan. See "Automatic Dividend Reinvestment Plan." STOCK REPURCHASES AND TENDER OFFERS; CONVERSION TO OPEN-END INVESTMENT COMPANY.................... In recognition of the possibility that the Shares might trade at a discount to net asset value and that any such discount may not be in the interest of Shareholders, the Fund's Board of Trustees, in consultation with Dreyfus, from time to time may review the possibility of open market repurchases or tender offers for Shares at net asset value. There can be no assurance that the Board of Trustees will decide to undertake either of these actions or that, if undertaken, such actions would result in the Shares trading at a price equal to or close to net asset value per Share. The Board of Trustees from time to time also may consider the conversion of the Fund to an open- end investment company. See "Description of Shares." 3 INVESTMENT MANAGEMENT AND ADMINISTRATION FEE......... As the Fund's investment manager, Dreyfus will determine the composition of the Fund's portfo- lio, place all orders for the purchase and sale of securities and for other transactions, and oversee the settlement of the Fund's securities and other portfolio transactions. Dreyfus will also provide administration services to the Fund. These will include, among other things, furnish- ing office space, arranging for persons to serve as Fund officers, preparing or assisting in pre- paring materials for Shareholders and regulatory bodies and overseeing the provision to the Fund of custodial and accounting services. For these investment management and administration servic- es, the Fund will pay Dreyfus a monthly fee at the annual rate of .90% of the Fund's average weekly value of the total assets of the Fund mi- nus the sum of accrued liabilities (other than the aggregate indebtedness constituting financial leverage) (the "Managed Assets"). This fee is higher than fees paid by other comparable invest- ment companies. During periods in which the Fund is utilizing financial leverage, the management and administration fee, which is payable to Drey- fus as a percentage of the Fund's Managed Assets, will be higher than if the Fund did not utilize a leveraged capital structure because the fee is calculated as a percentage of the Fund's Managed Assets including those purchased with leverage. See "Management of the Fund." SHAREHOLDER SERVICING AGENT, CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT........... PaineWebber Incorporated will act as Shareholder Servicing Agent for the Fund. The Fund will pay a monthly fee at the annual rate of .10% of the Fund's average weekly Managed Assets (as defined above) for such services. Mellon Bank, the parent company of Dreyfus, will act as custodian for the Fund and may employ sub-custodians outside the U.S. approved by the Trustees of the Fund in ac- cordance with regulations of the Securities and Exchange Commission. ChaseMellon Shareholder Services, LLC will act as the Fund's Transfer and Dividend Disbursing Agent. See "Shareholder Ser- vicing Agent, Custodian and Transfer and Dividend Disbursing Agent." RISK FACTORS AND SPECIAL CONSIDERATIONS............. Investors are advised to consider carefully the special risks involved in investing in the Fund. General. The Fund is a newly organized, non-di- versified, closed-end management investment com- pany and has no operating history. Shares of closed-end management investment companies fre- quently trade at a discount from their net asset value. This risk of loss associated with this characteristic may be greater for investors ex- pecting to sell their Shares in a relatively short period after completion of the public of- fering. Accordingly, the Shares are designed pri- marily for long-term investors and should not be considered a vehicle for trading purposes. The net asset value of the Fund's Shares will fluctu- ate with interest rate changes as well as with price changes of the Fund's portfolio securities and these fluctuations are likely to be 4 greater during periods in which the Fund utilizes a leveraged capital structure. See "Other Invest- ment Practices--Leverage." Lower Grade Securities. Lower grade securities are regarded as being predominantly speculative as to the issuer's ability to make payments of principal and interest. Investment in such secu- rities involves substantial risk. Lower grade se- curities are commonly referred to as "junk bonds." Issuers of lower grade securities may be highly leveraged and may not have available to them more traditional methods of financing. Therefore, the risks associated with acquiring the securities of such issuers generally are greater than is the case with higher-rated secu- rities. For example, during an economic downturn or a sustained period of rising interest rates, issuers of lower grade securities may be more likely to experience financial stress, especially if such issuers are highly leveraged. During pe- riods of economic downturn, such issuers may not have sufficient revenues to meet their interest payment obligations. The issuer's ability to service its debt obligations also may be ad- versely affected by specific issuer developments, the issuer's inability to meet specific projected business forecasts or the unavailability of addi- tional financing. Therefore, there can be no as- surance that in the future there will not exist a higher default rate relative to the rates cur- rently existing in the market for lower grade se- curities. The risk of loss due to default by the issuer is significantly greater for the holders of lower grade securities because such securities may be unsecured and may be subordinate to other creditors of the issuer. Other than with respect to Distressed Securities, discussed below, the lower grade securities in which the Fund may in- vest do not include instruments which, at the time of investment, are in default or the issuers of which are in bankruptcy. However, there can be no assurance that such events will not occur af- ter the Fund purchases a particular security, in which case the Fund may experience losses and in- cur costs. Lower grade securities frequently have call or redemption features that would permit an issuer to repurchase the security from the Fund. If a call were exercised by the issuer during a period of declining interest rates, the Fund is likely to have to replace such called security with a lower yielding security, thus decreasing the net investment income to the Fund and dividends to Shareholders. Lower grade securities tend to be more volatile than higher-rated fixed-income securities, so that adverse economic events may have a greater impact on the prices of lower grade securities than on higher-rated fixed-income securities. Factors adversely affecting the market value of such securities are likely to affect adversely the Fund's net asset value. Recently, demand for lower grade securities has increased signifi- cantly and the difference between the yields paid by lower grade securities and investment grade bonds (i.e., the "spread") has narrowed. To the extent this differential increases, the value of lower grade securities in the Fund's portfolio could be adversely affected. 5 Like higher-rated fixed-income securities, lower grade securities generally are purchased and sold through dealers who make a market in such securi- ties for their own accounts. However, there are fewer dealers in the lower grade securities mar- ket, which market may be less liquid than the market for higher-rated fixed-income securities, even under normal economic conditions. Also, there may be significant disparities in the prices quoted for lower grade securities by vari- ous dealers. As a result, during periods of high demand in the lower grade securities market, it may be difficult to acquire lower grade securi- ties appropriate for investment by the Fund. Ad- verse economic conditions and investor percep- tions thereof (whether or not based on economic reality) may impair liquidity in the lower grade securities market and may cause the prices the Fund receives for its lower grade securities to be reduced. In addition, the Fund may experience difficulty in liquidating a portion of its port- folio when necessary to meet the Fund's liquidity needs or in response to a specific economic event such as deterioration in the creditworthiness of the issuers. Under such conditions, judgment may play a greater role in valuing certain of the Fund's portfolio instruments than in the case of instruments trading in a more liquid market. In addition, the Fund may incur additional expense to the extent that it is required to seek recov- ery upon a default on a portfolio holding or to participate in the restructuring of the obliga- tion. See "Investment Objectives and Policies." Distressed Securities. The Fund may invest up to 10% of its total assets in securities that are the subject of bankruptcy proceedings or other- wise in default as to the repayment of principal and/or payment of interest at the time of acqui- sition by the Fund or are rated in the lower rat- ing categories (Ca or lower by Moody's and CC or lower by S&P) or which, if unrated, are in the judgment of Dreyfus of equivalent quality ("Dis- tressed Securities"). Investment in Distressed Securities is speculative and involves signifi- cant risk. Distressed Securities frequently do not produce income while they are outstanding and may require the Fund to bear certain extraordi- nary expenses in order to protect and recover its investment. Therefore, to the extent the Fund pursues its secondary objective of capital growth through investment in Distressed Securities, the Fund's ability to achieve current income for its Shareholders may be diminished. Leverage. The use of leverage by the Fund creates an opportunity for increased net income and capi- tal growth for the Shares, but, at the same time, creates special risks. There can be no assurance that a leveraging strategy will be successful during any period in which it is employed. The Fund intends to utilize leverage to provide the holders of Shares with a potentially higher re- turn. Leverage creates risks for holders of Shares including the likelihood of greater vola- tility of net asset value and market price of the Shares and the risk that fluctuations in interest rates on borrowings and debt or in the dividend rates on any preferred shares may affect the re- turn to the holders of Shares. To the extent the income or capital growth derived 6 from securities purchased with funds received from leverage exceeds the cost of leverage, the Fund's return will be greater than if leverage had not been used. Conversely, if the income or capital growth from the securities purchased with such funds is not sufficient to cover the cost of leverage, the return to the Fund will be less than if leverage had not been used, and therefore the amount available for distribution to Share- holders as dividends and other distributions will be reduced. In the latter case, Dreyfus in its best judgment may nevertheless determine to main- tain the Fund's leveraged position if it deems such action to be appropriate under the circum- stances. During periods in which the Fund is utilizing financial leverage, the investment man- agement and administration fee, which is payable to Dreyfus as a percentage of the Fund's Managed Assets, will be higher than if the Fund did not utilize a leveraged capital structure. Certain types of borrowings by the Fund may result in the Fund being subject to covenants in credit agree- ments, including those relating to asset coverage and portfolio composition requirements. The Fund may be subject to certain restrictions on invest- ments imposed by guidelines of one or more Rating Agencies, which may issue ratings for the debt securities or preferred shares issued by the Fund. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the Invest- ment Company Act of 1940, as amended (the "In- vestment Company Act"). It is not anticipated that these covenants or guidelines will impede Dreyfus in managing the Fund's portfolio in ac- cordance with the Fund's investment objectives and policies. The Fund at times may borrow from affiliates of Dreyfus, provided that the terms of such borrowings are no less favorable than those available from comparable sources of funds in the marketplace. As discussed under "Management of the Fund," the fee paid to Dreyfus will be calcu- lated on the basis of the Fund's assets including proceeds from borrowings for leverage and the is- suance of preferred shares. See "Other Investment Policies--Leverage." Foreign Securities. The Fund may invest up to 25% of its total assets in securities of issuers dom- iciled outside of the United States or that are denominated in various foreign currencies and multinational foreign currency units. Investing in securities of foreign entities and securities denominated in foreign currencies involves cer- tain risks not involved in domestic investments, including, but not limited to, fluctuations in foreign exchange rates, future foreign political and economic developments, different legal sys- tems and the possible imposition of exchange con- trols or other foreign governmental laws or re- strictions. Securities prices in different coun- tries are subject to different economic, finan- cial, political and social factors. Since the Fund may invest in securities denominated or quoted in currencies other than the U.S. dollar, changes in foreign currency exchange rates may affect the value of securities in the Fund and the unrealized appreciation or depreciation of investments. Currencies of certain countries may be volatile and therefore may affect the 7 value of securities denominated in such curren- cies. The Fund may engage in certain transactions to hedge the currency-related risks of investing in non-U.S. dollar denominated securities. See "Other Investment Practices." In addition, with respect to certain foreign countries, there is the possibility of expropriation of assets, con- fiscatory taxation, difficulty in obtaining or enforcing a court judgment, economic, political or social instability or diplomatic developments that could affect investments in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic prod- uct, rates of inflation, capital reinvestment, resources, self-sufficiency and balance of pay- ments position. Certain foreign investments also may be subject to foreign withholding taxes. These risks often are heightened for investments in smaller, emerging capital markets. As a result of these potential risks, Dreyfus may determine that, notwithstanding otherwise favora- ble investment criteria, it may not be practica- ble or appropriate to invest in a particular country. The Fund may invest in countries in which foreign investors, including Dreyfus, have had no or limited prior experience. Other Investment Management Techniques. The Fund may use various other investment management tech- niques that also involve special considerations, including engaging in interest rate transactions, utilization of options and futures transactions, making forward commitments and lending its port- folio securities. For further discussion of these and other practices and the associated risks and special considerations, see "Other Investment Policies." Illiquid Securities. The Fund may invest in secu- rities for which no readily available market ex- ists or which are otherwise illiquid. The Fund may not be able readily to dispose of such secu- rities at prices that approximate those at which the Fund could sell such securities if they were more widely traded and, as a result of such illi- quidity, the Fund may have to sell other invest- ments or engage in borrowing transactions if nec- essary to raise cash to meet its obligations. Non-Diversified Status. The Fund is classified as a "non-diversified" management investment company under the Investment Company Act, which means that the Fund may invest a greater portion of its assets in a limited number of issuers than would be the case if the Fund were classified as a "di- versified" management investment company. Accord- ingly, the Fund may be subject to greater risk with respect to its portfolio securities than a management investment company that is "diversi- fied" because changes in the financial condition or market assessment of a single issuer may cause greater fluctuations in the net asset value of the Shares. Market Price, Discount and Net Asset Value of Shares. Shares of closed-end management invest- ment companies in the past frequently have traded at a discount to their net asset values. The risk of loss 8 associated with this characteristic of closed-end management investment companies may be greater for investors purchasing Shares in the initial public offering and expecting to sell the Shares soon after the completion thereof. Whether in- vestors will realize gains or losses upon the sale of Shares will not depend directly upon the Fund's net asset value, but will depend upon the market price of the Shares at the time of sale. Since the market price of the Shares will be de- termined by such factors as relative demand for and supply of the Shares in the market, general market and economic conditions and other factors beyond the control of the Fund, the Fund cannot predict whether the Shares will trade at, below or above net asset value or at, below or above the initial offering price. The Shares are de- signed primarily for long-term investors, and in- vestors in the Shares should not view the Fund as a vehicle for trading purposes. See "Risk Factors and Special Considerations" and "Description of Shares." Anti-Takeover Provisions. The Fund's Declaration of Trust contains provisions limiting (i) the ability of other entities or persons to acquire control of the Fund, (ii) the Fund's freedom to engage in certain transactions, and (iii) the ability of the Fund's Trustees or Shareholders to amend the Declaration of Trust. These provisions of the Declaration of Trust may be regarded as "anti-takeover" provisions. These provisions could have the effect of depriving the Sharehold- ers of opportunities to sell their Shares at a premium over prevailing market prices by discour- aging a third party from seeking to obtain con- trol of the Fund in a tender offer or similar transaction. See "Investment Objectives and Poli- cies," "Risk Factors and Special Considerations" and "Description of Shares." 9 FEE TABLE The following tables are intended to assist investors in understanding the various costs and expenses that an investor in the Fund will bear, directly or indirectly. SHAREHOLDER TRANSACTION EXPENSES Sales Load (as a percentage of offering price).......................... None Automatic Dividend Reinvestment Plan Fees............................... None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS ATTRIBUTABLE TO SHARES)(1)(2) Management and Administration Fee....................................... 0.90% Interest Payments on Borrowed Funds..................................... None Shareholder Servicing Fee............................................... 0.10% Other Expenses.......................................................... 0.36% ----- Total Annual Fund Expenses............................................ 1.36% =====
- -------- (1) See "Management of the Fund" for additional information. In the event the Fund utilizes leverage by borrowing in an amount equal to approximately 25% of the Fund's total assets (including the amount obtained from leverage), it is estimated that, as a percentage of net assets attributable to the Shares, the Management and Administration Fee would be 1.20%, Interest Payments on Borrowed Funds (assuming an interest rate of 6.00%) would be 2.00%, the Shareholder Servicing Fee would be 0.13%, Other Expenses would be 0.36% and Total Annual Fund Expenses would be 3.69%. "Other Expenses" have been estimated. The Fund may utilize leverage up to 33 1/3% of the Fund's total assets (including the amount obtained from the leverage), depending on economic conditions. See "Risk Factors and Considerations--Leverage" and "Other Investment Policies--Leverage." (2) The Fund may reimburse the Underwriters up to $250,000 for expenses. A portion of the management and administrative fee may be used by Dreyfus or an affiliate of Dreyfus as reimbursement for compensation paid to the Underwriters. EXAMPLE The following Example demonstrates the projected dollar amount of total cumulative expense that would be incurred over various periods with respect to a hypothetical investment in the Fund. These amounts are based upon payment by the Fund of operating expenses at the levels set forth in the above table.
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- An investor would directly or indirectly pay the following expenses on a $1,000 investment in the Fund, assuming (i) total annual expenses of 1.36% (assuming no leverage) and 3.69% (assuming leverage of 25% of the Fund's total assets) and (ii) a 5% annual return throughout the periods and reinvestment of all dividends and other distributions at net asset value: Assuming No Leverage........................ 14 43 74 164 Assuming 25% Leverage....................... 37 113 191 394
This Example assumes that the percentage amounts listed under Total Annual Fund Expenses remain the same in the years shown, except, as to Ten Years, for the completion of organizational expense amortization. The above tables and the assumption in the Example of a 5% annual return and reinvestment at net asset value are required by regulation of the Securities and Exchange Commission applicable to all investment companies; the assumed 5% annual return is not a prediction of, and does not represent, the projected or actual performance of the Shares. Actual expenses and annual rates of return may be more or less than those assumed for purposes of the Example. In addition, although the Example assumes reinvestment of all dividends and other distributions at net asset value, participants in the Fund's Automatic Dividend Reinvestment Plan may receive Shares obtained by the Plan Agent at or based on the market price in effect at that time, which may be at, above or below net asset value. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. 10 THE FUND Dreyfus High Yield Strategies Fund ("Fund") is registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as a non-diversified, closed-end management investment company. The Fund was organized as a business trust under the laws of the Commonwealth of Massachusetts on March 16, 1998 and has no operating history. The Fund's principal office is located at 200 Park Avenue, New York, New York 10166, and its telephone number is 1-888-338-8084 . The Dreyfus Corporation ("Dreyfus") is the Fund's investment manager. The Fund has been organized as a closed-end management investment company. Closed-end management investment companies differ from open-end investment companies (commonly referred to as mutual funds) in that closed-end management investment companies do not redeem their securities at the option of the shareholder, whereas mutual funds issue securities redeemable at net asset value at any time at the option of the shareholder and typically engage in a continuous offering of their shares. Mutual funds are subject to continuous asset in-flows and out-flows that can complicate portfolio management, whereas closed-end funds generally can stay more fully invested. To facilitate redemption obligations, mutual funds are subject to more stringent regulatory limitations on certain investments, such as investments in illiquid securities, than are closed-end funds. However, shares of closed-end companies frequently trade at a discount from net asset value. This risk may be greater for investors expecting to sell their shares in a relatively short period after the completion of the public offering. USE OF PROCEEDS The proceeds of this initial public offering are estimated at $ ($ if the Underwriters' over-allotment option is exercised in full) before payment of organizational and offering expenses (estimated at $61,000 and $1,039,000, respectively). The proceeds will be invested in accordance with the Fund's investment objectives and policies during a period not to exceed six months from the closing of the initial public offering. Pending such investment, the proceeds may be invested in U.S. dollar-denominated, high quality, short-term instruments. A portion of the Fund's organizational and offering expenses has been advanced by Dreyfus and will be repaid by the Fund upon completion of the initial public offering. There is no sales load or underwriting discount imposed on sales of Shares in the initial public offering. Dreyfus or its affiliate (not the Fund) from its own assets will pay a commission to the Underwriters in connection with sales of Shares in this offering. See "Underwriting." 11 INVESTMENT OBJECTIVES AND POLICIES INVESTMENT OBJECTIVES The Fund's primary investment objective is to seek high current income. The Fund will also seek capital growth as a secondary objective to the extent consistent with its objective of seeking high current income. The Fund is designed for investors willing to assume additional risk in return primarily for the potential for high current income and secondarily capital growth. The Fund is not intended to be a complete investment program and there is no assurance that the Fund will achieve its objectives. The Fund's investment objectives cannot be changed without approval by the holders of a majority (as defined in the Investment Company Act) of the Fund's outstanding voting securities. INVESTMENT POLICIES Under normal market conditions, the Fund will invest at least 65% of its total assets in income securities of U.S. issuers rated below investment grade quality (lower than Baa by Moody's Investors Service, Inc. ("Moody's") or lower than BBB by Standard & Poor's Ratings Group ("S&P") or comparably rated by another nationally recognized securities organization (each, a "Rating Agency")) or in unrated income securities that Dreyfus determines to be of comparable quality. Lower grade income securities are commonly known as "junk bonds." The Fund may invest up to 25% of its total assets in securities of issuers domiciled outside the United States or that are denominated in various foreign currencies and multinational currency units. The Fund may also invest up to 10% of its total assets in securities that are the subject of bankruptcy proceedings or otherwise in default or in significant risk of being in default ("Distressed Securities"). At times, the Fund expects to utilize financial leverage through borrowings, including the issuance of debt securities, or the issuance of preferred shares or through other transactions, such as reverse repurchase agreements, which have the effect of financial leverage. The Fund intends to utilize financial leverage in an initial amount equal to approximately 25% of its total assets (including the amount obtained through leverage). The Fund generally will not utilize leverage if it anticipates that the Fund's leveraged capital structure would result in a lower return to Shareholders than that obtainable over time with an unleveraged capital structure. Use of financial leverage creates an opportunity for increased income and capital growth for the Shareholders but, at the same time, creates special risks, and there can be no assurance that a leveraging strategy will be successful during any period in which it is employed. See "Other Investment Practices--Leverage" and "Risk Factors and Special Considerations--Leverage." In certain market conditions, Dreyfus may determine that securities rated investment grade (i.e., at least Baa by Moody's or BBB by S&P or comparably rated by another Rating Agency) offer significant opportunities for high income and capital growth. In such conditions, the Fund may invest less than 65% of its total assets in lower grade income securities of U.S. issuers. In addition, the Fund may implement various temporary "defensive" strategies at times when Dreyfus determines that conditions in the markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of its Shareholders. These strategies may include an increase in the portion of the Fund's assets invested in higher-quality debt securities. The Fund may invest in money market instruments consisting of U.S. Government securities, certificates of deposit, time deposits, bankers' acceptances, short-term investment grade corporate bonds and other short-term debt instruments, and repurchase agreements. Under normal market conditions, the Fund does not expect to have a substantial portion of its assets invested in money market instruments. However, when Dreyfus determines that adverse market conditions exist, the Fund may adopt a temporary defensive posture and invest all or a portion of its assets in money market instruments. In selecting investments for the Fund's portfolio, Dreyfus will seek to identify issuers and industries that Dreyfus believes are likely to experience stable or improving financial conditions. Dreyfus believes that this strategy should enhance the Fund's ability to earn high current income while also providing opportunities for capital growth. Dreyfus's analysis may include consideration of general industry trends, the issuer's managerial strength, changing financial condition, borrowing requirements or debt maturity schedules, and its responsiveness to changes in business conditions and interest rates. Dreyfus may also consider relative values based on 12 anticipated cash flow, interest or dividend coverage, asset coverage and earnings prospects. The Fund will seek its secondary objective of capital growth by investing in securities that Dreyfus expects may appreciate in value as a result of favorable developments affecting the business or prospects of the issuer which may improve the issuer's financial condition and credit rating or as a result of declines in long-term interest rates. Of course there is no assurance the Fund's strategies will be successful. The market for lower grade income securities, as measured by the ML High- Yield Master Index, posted total annual returns of 39.17%, 17.44%, 16.69%, (1.03)%, 20.46%, 11.27% and 13.27% for the calendar years 1991, 1992, 1993, 1994, 1995, 1996 and 1997, respectively. By comparison, the market for investment grade income securities, as measured by the ML Long-Term Corporate Index, posted total annual returns of 17.60%, 8.59%, 11.57%, (3.91)%, 21.66%, 2.76% and 10.43% for calendar years 1991, 1992, 1993, 1994, 1995, 1996 and 1997, respectively. The U.S. Treasury Bill market, as measured by the ML U.S. Treasury 91-Day Index, posted total returns of 6.38%, 3.93%, 3.19%, 4.19%, 6.03%, 5.31% and 5.33% for calendar years 1991, 1992, 1993, 1994, 1995, 1996 and 1997, respectively. The ML High-Yield Master Index is an unmanaged composite index of securities rated below BBB that are not in default. The ML Long-Term Corporate Index is an unmanaged index which includes fixed coupon domestic corporate bonds with at least $100 million par amount outstanding that are rated between BBB and AAA. The ML U.S. Treasury 91-Day Index is an average price based on all three-month Treasury bill auctions over the course of the previous month. Treasury Bills are guaranteed as to principal by the U.S. Government. The Fund will have no direct investment in, nor will its performance be indicative of, these unmanaged indices. The market of outstanding lower grade income securities has increased over the years. The outstanding principal amounts of lower grade income securities of U.S. issuers in 1984 was $59 billion, in 1989 was $244 billion, in 1994 was $270 billion and in 1997 was over $450 billion. The default rates on lower grade income securities of U.S. issuers for the calendar years 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996 and 1997 were 5.8%, 8.7%, 10.5%, 4.6%, 3.3%, 1.8%, 3.2%, 1.4% and 1.1%, respectively. The statistical information with respect to the principal amounts of outstanding securities and with respect to historical default rates is based on information the Fund obtained from Chase Securities, Inc. For the period January 1, 1989 through December 31, 1997, the cumulative default rate for lower grade corporate bonds was 38.34%. This figure represents the probability that a lower grade bond issued on January 1, 1989 would default by December 31, 1997. The rate is based on the ratio of the number of issuers that defaulted on lower grade bonds outstanding on January 1, 1989 to the number of issuers at risk of defaulting on such bonds as of such date, and is based only on bonds which have been rated by Moody's. The foregoing is derived from information obtained by the Fund from the February 1998 issue of a Moody's publication entitled "Historical Default Rates of Corporate Bond Issuers, 1920-1997." The Fund will invest primarily in bonds, debentures, notes and other debt instruments. The Fund's portfolio securities may have fixed or variable rates of interest and may include zero coupon securities, payment in kind securities or other deferred payment securities, convertible debt obligations and convertible preferred stock, participation interests in commercial loans, mortgage-related securities, asset-backed securities, municipal obligations, government securities, stripped securities, commercial paper and other short- term debt obligations. The issuers of the Fund's portfolio securities may include domestic and foreign corporations, partnerships, trusts or similar entities, and governmental entities or their political subdivisions, agencies or instrumentalities. The Fund may invest in companies in, or governments of, developing countries. The Fund may invest up to 25% of its total assets in securities of issuers domiciled outside the United States or that are denominated in various foreign currencies and multinational foreign currency units. The Fund's portfolio will be invested without regard to maturity. In connection with its investments in corporate debt securities, or restructuring of investments owned by the Fund, the Fund may receive warrants or other non- income producing equity securities. The Fund may retain such securities, including equity shares received upon conversion of convertible securities, until Dreyfus determines it is appropriate in light of current market conditions to effect a disposition of such securities. 13 PORTFOLIO SECURITIES LOWER GRADE SECURITIES. Under normal market conditions, the Fund will invest at least 65% of its total assets in income securities of U.S. issuers rated below investment grade quality (lower than Baa by Moody's or lower than BBB by S&P or comparably rated by another Rating Agency) or in unrated income securities that Dreyfus determines to be of comparable quality. Securities rated Ba by Moody's are judged to have speculative elements; their future cannot be considered as well assured and often the protection of interest and principal payments may be very moderate. Securities rated BB by S&P are regarded as having predominantly speculative characteristics and, while such obligations have less near-term vulnerability to default than other speculative grade debt, in the opinion of S&P they face major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. Securities rated C by Moody's are regarded by Moody's as having extremely poor prospects of ever attaining any real investment standing. Securities rated D by S&P are in default and the payment of interest and/or repayment of principal is in arrears. See "Appendix A--Ratings of Corporate Bonds" for additional information concerning rating categories of Moody's and S&P. Lower grade securities, though high yielding, are characterized by high risk. They may be subject to certain risks with respect to the issuing entity and to greater market fluctuations than certain lower yielding, higher rated securities. The retail secondary market for lower grade securities may be less liquid than that of higher rated securities; adverse conditions could make it difficult at times for the Fund to sell certain securities or could result in lower prices than those used in calculating the Fund's net asset value. Bond prices generally are inversely related to interest rate changes; however, bond price volatility also is inversely related to coupon. Accordingly, lower grade securities may be relatively less sensitive to interest rate changes than higher quality securities of comparable maturity, because of their higher coupon. This higher coupon is what the investor receives in return for bearing greater credit risk. The higher credit risk associated with lower grade securities potentially can have a greater effect on the value of such securities than may be the case with higher quality issues of comparable maturity, and will be a substantial factor in the Fund's relative Share price volatility. Lower grade securities may be particularly susceptible to economic downturns. It is likely that an economic recession could disrupt severely the market for such securities and may have an adverse impact on the value of such securities. In addition, it is likely that any such economic downturn could adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon and increase the incidence of default for such securities. The ratings of Moody's, S&P and the other Rating Agencies represent their opinions as to the quality of the obligations which they undertake to rate. Ratings are relative and subjective and, although ratings may be useful in evaluating the safety of interest and principal payments, they do not evaluate the market value risk of such obligations. Although these ratings may be an initial criterion for selection of portfolio investments, Dreyfus also will evaluate these securities and the ability of the issuers of such securities to pay interest and principal. To the extent that the Fund invests in lower grade securities that have not been rated by a Rating Agency, the Fund's ability to achieve its investment objectives will be more dependent on Dreyfus' credit analysis than would be the case when the Fund invests in rated securities. The Fund may also invest in zero coupon, pay-in-kind or deferred payment securities, including those that are lower grade securities. Zero coupon securities are securities that are sold at a discount to par value and on which interest payments are not made during the life of the security. Upon maturity, the holder is entitled to receive the par value of the security. While interest payments are not made on such securities, holders of such securities are deemed annually to have received "phantom income." Because the Fund will distribute this "phantom income" to Shareholders, to the extent that Shareholders elect to receive dividends in cash rather than reinvesting such dividends in additional Shares, the Fund will have fewer assets with which to purchase income-producing securities. Such distributions may require the Fund to sell other securities and incur a gain or loss at a time it may otherwise not want to in order to obtain the cash needed for these distributions. The Fund accrues income with respect to these securities prior to the receipt of cash payments. Pay-in-kind securities are securities that have interest payable by delivery of additional securities. Upon maturity, the holder is entitled to receive the 14 aggregate par value of the securities. Deferred payment securities are securities that remain zero coupon securities until a predetermined date, at which time the stated coupon rate becomes effective and interest becomes payable at regular intervals. Zero coupon, pay-in-kind and deferred payment securities are subject to greater fluctuation in value and may have less liquidity in the event of adverse market conditions than comparably rated securities paying cash interest at regular interest payment periods. CONVERTIBLE SECURITIES. Convertible securities may be converted at either a stated price or stated rate into underlying shares of common stock. Convertible securities have characteristics similar to both fixed-income and equity securities. Convertible securities generally are subordinated to other similar but non-convertible securities of the same issuer, although convertible bonds, as corporate debt obligations, enjoy seniority in right of payment to all equity securities, and convertible preferred stock is senior to shares of common stock, of the same issuer. Because of the subordination feature, however, convertible securities typically have lower ratings than similar non-convertible securities. Although to a lesser extent than with fixed-income securities, the market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion feature, the market value of convertible securities tends to vary with fluctuations in the market value of the underlying common stock. A unique feature of convertible securities is that as the market price of the underlying common stock declines, convertible securities tend to trade increasingly on a yield basis, and so may not experience market value declines to the same extent as the underlying common stock. When the market price of the underlying common stock increases, the prices of the convertible securities tend to rise as a reflection of the value of the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. Convertible securities are investments that provide for a stable stream of income with generally higher yields than common stock. There can be no assurance of current income because the issuers of the convertible securities may default on their obligations. A convertible security, in addition to providing fixed income, offers the potential for capital growth through the conversion feature, which enables the holder to benefit from increases in the market price of the underlying common stock. There can be no assurance of capital growth, however, because securities prices fluctuate. Convertible securities, however, generally offer lower interest or dividend yields than non-convertible securities of similar quality because of the potential for capital growth. PARTICIPATION INTERESTS. The Fund may invest in corporate obligations denominated in U.S. and foreign currencies that are originated, negotiated and structured by a syndicate of lenders ("Co-Lenders") consisting of commercial banks, thrift institutions, insurance companies, financial companies or other financial institutions one or more of which administer the security on behalf of the syndicate (the "Agent Bank"). Co-Lenders may sell such securities to third parties called "Participants." The Fund may invest in such securities either by participating as a Co-Lender at origination or by acquiring an interest in the security from a Co-Lender or a Participant (collectively, "participation interests"). Co-Lenders and Participants interposed between the Fund and the corporate borrower (the "Borrower"), together with Agent Banks, are referred to herein as "Intermediate Participants." The Fund also may purchase a participation interest in a portion of the rights of an Intermediate Participant, which would not establish any direct relationship between the Fund and the Borrower. In such cases, the Fund would be required to rely on the Intermediate Participant that sold the participation interest not only for the enforcement of the Fund's rights against the Borrower but also for the receipt and processing of payments due to the Fund under the security. Because it may be necessary to assert through an Intermediate Participant such rights as may exist against the Borrower, in the event the Borrower fails to pay principal and interest when due, the Fund may be subject to delays, expenses and risks that are greater than those that would be involved if the Fund would enforce its rights directly against the Borrower. Moreover, under the terms of a participation interest, the Fund may be regarded as a creditor of the Intermediate Participant (rather than of the Borrower), so that the Fund may also be subject to the risk that the Intermediate Participant may become insolvent. Similar risks may arise with respect to the Agent Bank if, for example, assets held by the Agent Bank for the benefit of the Fund were determined by the appropriate regulatory authority or court to be subject to the claims of the Agent Bank's creditors. In such case, the Fund might incur certain costs and delays 15 in realizing payment in connection with the participation interest or suffer a loss of principal and/or interest. Further, in the event of the bankruptcy or insolvency of the Borrower, the obligation of the Borrower to repay the loan may be subject to certain defenses that can be asserted by such Borrower as a result of improper conduct by the Agent Bank or Intermediate Participant. DISTRESSED SECURITIES. The Fund may invest up to 10% of its total assets in securities, including participation interests purchased in the secondary market, which are the subject of bankruptcy proceedings or otherwise in default as to the repayment of principal and/or payment of interest at the time of acquisition by the Fund or are rated in the lower rating categories (Ca or lower by Moody's and CC or lower by S&P) or which, if unrated, are in the judgment of Dreyfus of equivalent quality ("Distressed Securities"). Investment in Distressed Securities is speculative and involves significant risk. Distressed Securities frequently do not produce income while they are outstanding and may require the Fund to bear certain extraordinary expenses in order to protect and recover its investment. Therefore, to the extent the Fund pursues its secondary objective of capital growth through investment in Distressed Securities, the Fund's ability to achieve current income for its Shareholders may be diminished. The Fund also will be subject to significant uncertainty as to when and in what manner and for what value the obligations evidenced by the Distressed Securities will eventually be satisfied (e.g., through a liquidation of the obligor's assets, an exchange offer or plan of reorganization involving the Distressed Securities or a payment of some amount in satisfaction of the obligation). In addition, even if an exchange offer is made or plan of reorganization is adopted with respect to Distressed Securities held by the Fund, there can be no assurance that the securities or other assets received by the Fund in connection with such exchange offer or plan of reorganization will not have a lower value or income potential than may have been anticipated when the investment was made. Moreover, any securities received by the Fund upon completion of an exchange offer or plan of reorganization may be restricted as to resale. As a result of the Fund's participation in negotiations with respect to any exchange offer or plan of reorganization with respect to an issuer of Distressed Securities, the Fund may be restricted from disposing of such securities. See "Risk Factors and Special Considerations." FOREIGN SECURITIES. The Fund may invest up to 25% of its total assets in securities of issuers domiciled outside the United States or that are denominated in various foreign currencies and multinational foreign currency units. Foreign securities markets generally are not as developed or efficient as those in the United States. Securities of some foreign issuers are less liquid and more volatile than securities of comparable U.S. issuers. Similarly, volume and liquidity in most foreign securities markets are less than in the United States and, at times, volatility of price can be greater than in the United States. Because evidences of ownership of such securities usually are held outside the United States, the Fund will be subject to additional risks which include possible adverse political and economic developments, seizure or nationalization of foreign deposits and adoption of governmental restrictions which might adversely affect or restrict the payment of principal and interest on the foreign securities to investors located outside the country of the issuer, whether from currency blockage or otherwise. Developing countries have economic structures that are generally less diverse and mature, and political systems that are less stable, than those of developed countries. The markets of developing countries may be more volatile than the markets of more mature economies; however, such markets may provide higher rates of return to investors. Many developing countries providing investment opportunities for the Fund have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have adverse effects on the economies and securities markets of certain of these countries. Since foreign securities often are purchased with and payable in currencies of foreign countries, the value of these assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in currency rates and exchange control regulations. The Fund may engage in certain transactions to hedge the currency-related risks of investing in non-U.S. dollar denominated securities. See "Other Investment Practices." VARIABLE AND FLOATING RATE SECURITIES. Variable and floating rate securities provide for a periodic adjustment in the interest rate paid on the obligations. The terms of such obligations must provide that interest 16 rates are adjusted periodically based upon an interest rate adjustment index as provided in the respective obligations. The adjustment intervals may be regular, and range from daily up to annually, or may be event based, such as based on a change in the prime rate. The Fund may invest in floating rate debt instruments ("floaters"). The interest rate on a floater is a variable rate which is tied to another interest rate, such as a money-market index or Treasury bill rate. The interest rate on a floater resets periodically, typically every six months. Because of the interest rate reset feature, floaters provide the Fund with a certain degree of protection against rises in interest rates, although the Fund will participate in any declines in interest rates as well. The Fund also may invest in inverse floating rate debt instruments ("inverse floaters"). The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed or inversely to a multiple of the applicable index. An inverse floating rate security may exhibit greater price volatility than a fixed rate obligation of similar credit quality. MORTGAGE-RELATED SECURITIES. Mortgage-related securities are a form of derivative collateralized by pools of commercial or residential mortgages. Pools of mortgage loans are assembled as securities for sale to investors by various governmental, government-related and private organizations. These securities may include complex instruments such as collateralized mortgage obligations, stripped mortgage-backed securities, mortgage pass-through securities, interests in real estate mortgage investment conduits ("REMICs"), adjustable rate mortgages, interests in real estate investment trusts ("REITs"), including debt and preferred stock issued by REITs, as well as other real estate-related securities. The mortgage-related securities in which the Fund may invest include those with fixed, floating or variable interest rates, those with interest rates that change based on multiples of changes in a specified index of interest rates and those with interest rates that change inversely to changes in interest rates, as well as those that do not bear interest. Mortgage-related securities are subject to credit risks associated with the performance of the underlying mortgage properties. Adverse changes in economic conditions and circumstances are more likely to have an adverse impact on mortgage-related securities secured by loans on certain types of commercial properties than on those secured by loans on residential properties. In addition, these securities are subject to prepayment risk, although commercial mortgages typically have shorter maturities than residential mortgages and prepayment protection features. In certain instances, the credit risk associated with mortgage-related securities can be reduced by third-party guarantees or other forms of credit support. Improved credit risk does not reduce prepayment risk which is unrelated to the rating assigned to the mortgage-related security. Prepayment risk can lead to fluctuations in value of the mortgage-related security which may be pronounced. If a mortgage- related security is purchased at a premium, all or part of the premium may be lost if there is a decline in the market value of the security, whether resulting from changes in interest rates or prepayments on the underlying mortgage collateral. Certain mortgage-related securities that may be purchased by the Fund, such as inverse floating rate collateralized mortgage obligations, have coupons that move inversely to a multiple of a specific index which may result in a form of leverage. As with other interest-bearing securities, the prices of certain mortgage-related securities are inversely affected by changes in interest rates. However, although the value of a mortgage-related security may decline when interest rates rise, the converse is not necessarily true, since in periods of declining interest rates the mortgages underlying the security are more likely to be prepaid. For this and other reasons, a mortgage-related security's stated maturity may be shortened by unscheduled prepayments on the underlying mortgages, and, therefore, it is not possible to predict accurately the security's return to the Fund. Moreover, with respect to certain stripped mortgage-backed securities, if the underlying mortgage securities experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment even if the securities are rated in the highest rating category by a Rating Agency. During periods of rapidly rising interest rates, prepayments of mortgage- related securities may occur at slower than expected rates. Slower prepayments effectively may lengthen a mortgage-related security's expected maturity which generally would cause the value of such security to fluctuate more widely in response to changes in interest rates. Were the prepayments on the Fund's mortgage-related securities to decrease broadly, the Fund's effective duration, and thus sensitivity to interest rate fluctuations, would increase. 17 Government-Agency Securities. Mortgage-related securities issued by the Government National Mortgage Association ("GNMA") include GNMA Mortgage Pass- Through Certificates (also known as "Ginnie Maes") which are guaranteed as to the timely payment of principal and interest by GNMA and such guarantee is backed by the full faith and credit of the United States. GNMA is a wholly- owned U.S. Government corporation within the Department of Housing and Urban Development. GNMA certificates also are supported by the authority of GNMA to borrow funds from the U.S. Treasury to make payments under its guarantee. Government-Related Securities. Mortgage-related securities issued by the Federal National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes") which are solely the obligations of FNMA and are not backed by or entitled to the full faith and credit of the United States. FNMA is a government-sponsored organization owned entirely by private shareholders. Fannie Maes are guaranteed as to timely payment of principal and interest by FNMA. Mortgage- related securities issued by the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also known as "Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the United States created pursuant to an Act of Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States or by any Federal Home Loan Bank and do not constitute a debt or obligation of the United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment of interest, which is guaranteed by FHLMC. FHLMC guarantees either ultimate collection or timely payment of all principal payments on the underlying mortgage loans. When FHLMC does not guarantee timely payment of principal, FHLMC may remit the amount due on account of its guarantee of ultimate payment of principal at any time after default on an underlying mortgage, but in no event later than one year after it becomes payable. Private Entity Securities. These mortgage-related securities are issued by commercial banks, savings and loan institutions, mortgage bankers, private mortgage insurance companies and other non-governmental issuers. Timely payment of principal and interest on mortgage-related securities backed by pools created by non-governmental issuers often is supported partially by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance. The insurance and guarantees are issued by government entities, private insurers and the mortgage poolers. There can be no assurance that the private insurers or mortgage poolers can meet their obligations under the policies, so that if the issuers default on their obligations the holders of the security could sustain a loss. No insurance or guarantee covers the Fund or the price of the Fund's Shares. Mortgage-related securities issued by non-governmental issuers generally offer a higher rate of interest than government-agency and government-related securities because there are no direct or indirect government guarantees of payment. Commercial Mortgage-Related Securities. Commercial mortgage-related securities generally are multi-class debt or pass-through certificates secured by mortgage loans on commercial properties. These mortgage-related securities generally are structured to provide protection to the senior classes of investors against potential losses on the underlying mortgage loans. This protection generally is provided by having the holders of subordinated classes of securities ("Subordinated Securities") take the first loss if there are defaults on the underlying commercial mortgage loans. Other protection, which may benefit all of the classes or particular classes, may include issuer guarantees, reserve funds, additional Subordinated Securities, cross- collateralization and over-collateralization. The Fund may invest in Subordinated Securities issued or sponsored by commercial banks, savings and loan institutions, mortgage bankers, private mortgage insurance companies and other non-governmental issuers. Subordinated Securities have no governmental guarantee, and are subordinated in some manner as to the payment of principal and/or interest to the holders of more senior mortgage-related securities arising out of the same pool of mortgages. The holders of Subordinated Securities typically are compensated with a higher stated yield than are the holders of more senior mortgage-related securities. On the other hand, Subordinated Securities typically subject the holder to greater risk than senior mortgage-related securities and tend to be rated in a lower rating category, and frequently a substantially lower rating category, than the senior mortgage-related securities issued in respect of the same pool of mortgages. Subordinated Securities generally are likely to be more sensitive to 18 changes in prepayment and interest rates and the market for such securities may be less liquid than is the case for traditional fixed-income securities and senior mortgage-related securities. The market for commercial mortgage-related securities developed more recently and in terms of total outstanding principal amount of issues is relatively small compared to the market for residential single-family mortgage-related securities. In addition, commercial lending generally is viewed as exposing the lender to a greater risk of loss than one- to four- family residential lending. Commercial lending, for example, typically involves larger loans to single borrowers or groups of related borrowers than residential one- to four-family mortgage loans. In addition, the repayment of loans secured by income producing properties typically is dependent upon the successful operation of the related real estate project and the cash flow generated therefrom. Consequently, adverse changes in economic conditions and circumstances are more likely to have an adverse impact on mortgage-related securities secured by loans on commercial properties than on those secured by loans on residential properties. Collateralized Mortgage Obligations ("CMOs"). A CMO is a multi-class bond backed by a pool of mortgage pass-through certificates or mortgage loans. CMOs may be collateralized by (a) Ginnie Mae, Fannie Mae, or Freddie Mac pass- through certificates, (b) unsecuritized mortgage loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans' Affairs, (c) unsecuritized conventional mortgages, (d) other mortgage-related securities, or (e) any combination thereof. Each class of CMOs, often referred to as a "tranche," is issued at a specific coupon rate and has a stated maturity or final distribution date. Principal prepayments on collateral underlying a CMO may cause it to be retired substantially earlier than the stated maturities or final distribution dates. The principal and interest on the underlying mortgages may be allocated among the several classes of a series of a CMO in many ways. One or more tranches of a CMO may have coupon rates which reset periodically at a specified increment over an index, such as the London Interbank Offered Rate ("LIBOR") (or sometimes more than one index). These floating rate CMOs typically are issued with lifetime caps on the coupon rate thereon. The Fund also may invest in inverse floating rate CMOs. Inverse floating rate CMOs constitute a tranche of a CMO with a coupon rate that moves in the reverse direction to an applicable index such as LIBOR. Accordingly, the coupon rate thereon will increase as interest rates decrease. Inverse floating rate CMOs are typically more volatile than fixed or floating rate tranches of CMOs. Many inverse floating rate CMOs have coupons that move inversely to a multiple of the applicable indexes. The effect of the coupon varying inversely to a multiple of an applicable index creates a leverage factor. Inverse floaters based on multiples of a stated index are designed to be highly sensitive to changes in interest rates and can subject the holders thereof to extreme reductions of yield and loss of principal. The markets for inverse floating rate CMOs with highly leveraged characteristics at times may be very thin. The Fund's ability to dispose of its positions in such securities will depend on the degree of liquidity in the markets for such securities. It is impossible to predict the amount of trading interest that may exist in such securities, and therefore the future degree of liquidity. Stripped Mortgage-Backed Securities. The Fund also may invest in stripped mortgage-backed securities. Stripped mortgage-backed securities are created by segregating the cash flows from underlying mortgage loans or mortgage securities to create two or more new securities, each with a specified percentage of the underlying security's principal or interest payments. Mortgage securities may be partially stripped so that each investor class receives some interest and some principal. When securities are completely stripped, however, all of the interest is distributed to holders of one type of security, known as an interest-only security, or IO, and all of the principal is distributed to holders of another type of security known as a principal-only security, or PO. Strips can be created in a pass-through structure or as tranches of a CMO. The yields to maturity on IOs and POs are very sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Fund may not fully recoup its initial investment in IOs. Conversely, if the underlying mortgage assets experience less than anticipated prepayments of principal, the yield on POs could be materially and adversely affected. Real Estate Investment Trusts. A REIT is a corporation or a business trust that would otherwise be taxed as a corporation, which meets the definitional requirements of the Internal Revenue Code of 1986, as amended (the "Code"). The Code permits a qualifying REIT to deduct dividends paid, thereby effectively eliminating 19 corporate-level Federal income tax and making the REIT a pass-through vehicle for Federal income tax purposes. To meet the definitional requirements of the Code, a REIT must, among other things, invest substantially all of its assets in interests in real estate (including mortgages and other REITs) or cash and government securities, derive most of its income from rents from real property or interest on loans secured by mortgages on real property, and distribute to shareholders annually a substantial portion of its otherwise taxable income. REITs are characterized as equity REITs, mortgage REITs and hybrid REITs. Equity REITs, which may include operating or finance companies, own real estate directly and the value of, and income earned by, the REITs depends upon the income of the underlying properties and the rental income they earn. Equity REITs also can realize capital gains (or losses) by selling properties that have appreciated (or depreciated) in value. Mortgage REITs can make construction, development or long-term mortgage loans and are sensitive to the credit quality of the borrower. Mortgage REITs derive their income from interest payments on such loans. Hybrid REITs combine the characteristics of both equity and mortgage REITs, generally by holding both ownership interests and mortgage interests in real estate. The value of securities issued by REITs are affected by tax and regulatory requirements and by perceptions of management skill. They also are subject to heavy cash flow dependency, defaults by borrowers or tenants, self-liquidation and the possibility of failing to qualify for conduit status under the Code or to maintain exemption from the Investment Company Act. Adjustable-Rate Mortgage Loans ("ARMs"). ARMs eligible for inclusion in a mortgage pool will generally provide for a fixed initial mortgage interest rate for a specified period of time, generally for either the first three, six, twelve, thirteen, thirty-six, or sixty scheduled monthly payments. Thereafter, the interest rates are subject to periodic adjustment based on changes in an index. ARMs typically have minimum and maximum rates beyond which the mortgage interest rate may not vary over the lifetime of the loans. Certain ARMs provide for additional limitations on the maximum amount by which the mortgage interest rate may adjust for any single adjustment period. Negatively amortizing ARMs may provide limitations on changes in the required monthly payment. Limitations on monthly payments can result in monthly payments that are greater or less than the amount necessary to amortize a negatively amortizing ARM by its maturity at the interest rate in effect during any particular month. Other Mortgage-Related Securities. Other mortgage-related securities include securities other than those described above that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property, including CMO residuals. Other mortgage-related securities may be equity or debt securities issued by agencies or instrumentalities of the U.S. Government or by private originators of, or investors in, mortgage loans, including savings and loan associations, homebuilders, mortgage banks, commercial banks, investment banks, partnerships, trusts and special purpose entities of the foregoing. ASSET-BACKED SECURITIES. Asset-backed securities are a form of derivative securities. The securitization techniques used for asset-backed securities are similar to those used for mortgage-related securities. The collateral for these securities has included home equity loans, automobile and credit card receivables, boat loans, computer leases, airplane leases, mobile home loans, recreational vehicle loans and hospital account receivables. The Fund may invest in these and other types of asset-backed securities that may be developed in the future. Asset-backed securities present certain risks that are not presented by mortgage-backed securities. Primarily, these securities may provide the Fund with a less effective security interest in the related collateral than do mortgage-backed securities. Therefore, there is the possibility that recoveries on the underlying collateral may not, in some cases, be available to support payments on these securities. MUNICIPAL OBLIGATIONS. Municipal obligations generally include debt obligations issued to obtain funds for various public purposes as well as certain industrial development bonds issued by or on behalf of public authorities. Municipal obligations are classified as general obligation bonds, revenue bonds and notes. General obligation bonds are secured by the issuer's pledge of its faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable from the revenue derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source, but not from the general taxing power. Industrial development bonds, in most cases, are revenue bonds that generally do not carry the pledge of the credit of the issuing municipality, but generally are guaranteed by the corporate entity on 20 whose behalf they are issued. Notes are short-term instruments which are obligations of the issuing municipalities or agencies and are sold in anticipation of a bond sale, collection of taxes or receipt of other revenues. Municipal obligations include municipal lease/purchase agreements which are similar to installment purchase contracts for property or equipment issued by municipalities. Municipal obligations bear fixed, floating or variable rates of interest. Certain municipal obligations are subject to redemption at a date earlier than their stated maturity pursuant to call options, which may be separated from the related municipal obligations and purchased and sold separately. The Fund also may acquire call options on specific municipal obligations. The Fund generally would purchase these call options to protect the Fund from the issuer of the related municipal obligation redeeming, or other holder of the call option from calling away, the municipal obligation before maturity. While, in general, municipal obligations are tax-exempt securities having relatively low yields as compared to taxable, non-municipal obligations of similar quality, certain municipal obligations are taxable obligations, offering yields comparable to, and in some cases greater than, the yields available on other permissible Fund investments. Dividends received by Shareholders from the Fund that are attributable to interest income received by the Fund from municipal obligations generally will be subject to Federal income tax. The Fund may invest in municipal obligations, the ratings of which correspond with the ratings of other permissible Fund investments. The Fund currently intends to invest no more than 25% of its total assets in municipal obligations. U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities include U.S. Treasury securities that differ in their interest rates, maturities and times of issuance. Some obligations issued or guaranteed by U.S. Government agencies and instrumentalities are supported by the full faith and credit of the U.S. Treasury; others by the right of the issuer to borrow from the Treasury; others by discretionary authority of the U.S. Government to purchase certain obligations of the agency or instrumentality; and others only by the credit of the agency or instrumentality. These securities bear fixed, floating or variable rates of interest. While the U.S. Government provides financial support to such U.S. Government-sponsored agencies and instrumentalities, no assurance can be given that it will always do so since it is not so obligated by law. FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES. The Fund may invest in obligations issued or guaranteed by one or more foreign governments or any of their political subdivisions, agencies or instrumentalities that are determined by Dreyfus to be of comparable quality to the other obligations in which the Fund may invest. Supranational entities include international organizations designated or supported by governmental entities to promote economic reconstruction or development and international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (the World Bank), the European Coal and Steel Community, the Asian Development Bank and the InterAmerican Development Bank. STRIPPED SECURITIES. The Fund may invest in zero coupon U.S. Treasury securities, which are Treasury Notes and Treasury Bonds that have been stripped of their unmatured interest coupons, the coupons themselves and receipts or certificates representing interests in such stripped debt obligations and coupons. Such stripped securities also are issued by corporations and financial institutions which constitute a proportionate ownership of the issuer's pool of underlying securities. A stripped security pays no interest to its holder during its life and is sold at a discount to its face value at maturity. The market prices of such securities generally are more volatile than the market prices of securities that pay interest periodically and are likely to respond to a greater degree to changes in interest rates than coupon securities having similar maturities and credit qualities. MONEY MARKET INSTRUMENTS. The Fund may invest in the following types of money market instruments. Repurchase Agreements. In a repurchase agreement, the Fund buys, and the seller agrees to repurchase, a security at a mutually agreed upon time and price (usually within seven days). The repurchase agreement thereby determines the yield during the purchaser's holding period, while the seller's obligation to repurchase is secured by the value of the underlying security. Repurchase agreements could involve risks in the event of a default or 21 insolvency of the other party to the agreement, including possible delays or restrictions upon the Fund's ability to dispose of the underlying securities. The Fund may enter into repurchase agreements with certain banks or non-bank dealers. Bank Obligations. The Fund may purchase certificates of deposit, time deposits, bankers' acceptances and other short-term obligations issued by domestic banks, foreign subsidiaries or foreign branches of domestic banks, domestic and foreign branches of foreign banks, domestic savings and loan associations and other banking institutions. With respect to such securities issued by foreign subsidiaries or foreign branches of domestic banks, and domestic and foreign branches of foreign banks, the Fund may be subject to additional investment risks that are different in some respects from those incurred by the Fund, which invests only in debt obligations of U.S. domestic issuers. Certificates of deposit are negotiable certificates evidencing the obligation of a bank to repay funds deposited with it for a specified period of time. Time deposits are non-negotiable deposits maintained in a banking institution for a specified period of time (in no event longer than seven days) at a stated interest rate. Bankers' acceptances are credit instruments evidencing the obligation of a bank to pay a draft drawn on it by a customer. These instruments reflect the obligation both of the bank and the drawer to pay the face amount of the instrument upon maturity. The other short-term obligations may include uninsured, direct obligations bearing fixed, floating or variable interest rates. Commercial Paper. Commercial paper consists of short-term, unsecured promissory notes issued to finance short-term credit needs. The commercial paper purchased by the Fund will consist only of direct obligations which, at the time of their purchase, are (a) rated not lower than Prime-1 by Moody's or A-1 by S&P, (b) issued by companies having an outstanding unsecured debt issue currently rated at least A3 by Moody's or A- by S&P, or (c) if unrated, determined by Dreyfus to be of comparable quality to those rated obligations which may be purchased by the Fund. Other Short-Term Corporate Obligations. These instruments include variable amount master demand notes, which are obligations that permit the Fund to invest fluctuating amounts at varying rates of interest pursuant to direct arrangements between the Fund, as lender, and the borrower. These notes permit daily changes in the amounts borrowed. Because these obligations are direct lending arrangements between the lender and borrower, it is not contemplated that such instruments generally will be traded, and there generally is no established secondary market for these obligations, although they are redeemable at face value, plus accrued interest, at any time. Accordingly, where these obligations are not secured by letters of credit or other credit support arrangements, the Fund's right to redeem is dependent on the ability of the borrower to pay principal and interest on demand. Such obligations frequently are not rated by credit rating agencies, and the Fund may invest in them only if at the time of an investment the borrower meets the criteria set forth in the Fund's Prospectus for other commercial paper issuers. OTHER INVESTMENT PRACTICES The Fund may utilize other investment practices and portfolio management techniques as set forth below. LEVERAGE. At times, the Fund expects to utilize leverage through borrowings or issuance of debt securities or preferred shares. The Fund intends to utilize leverage in an initial amount equal to approximately 25% of its total assets (including the amount obtained from leverage); however, the Fund has the ability to utilize leverage in an amount up to 33 1/3% of its total assets (including the amount obtained from leverage). The Fund generally will not utilize leverage if it anticipates that the Fund's leveraged capital structure would result in a lower return to holders of the Shares than that obtainable if the Shares were unleveraged for any significant amount of time. The Fund also may borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities transactions which otherwise may require untimely dispositions of Fund securities. The Fund at times may borrow from affiliates of Dreyfus, provided that the terms 22 of such borrowings are no less favorable than those available from comparable sources of funds in the marketplace. The concept of leveraging is based on the premise that the cost of the assets to be obtained from leverage will be based on short-term rates which normally will be lower than the return earned by the Fund on its longer term portfolio investments. Since it is anticipated that the total assets of the Fund (including the assets obtained from leverage) will be invested in the higher yielding portfolio investments or portfolio investments with the potential for capital growth, the holders of Shares should be the beneficiaries of any incremental return. Should the differential between the underlying assets and cost of leverage narrow, the incremental return "pick up" will be reduced. Furthermore, if long-term rates rise, the net asset value of the Shares will reflect the decline in the value of portfolio holdings resulting therefrom. Leverage creates risks for holders of the Shares, including the likelihood of greater volatility of net asset value and market price of the Shares, and the risk that fluctuations in interest rates on borrowings and short-term debt or in the dividend rates on any preferred shares may affect the return to the holders of the Shares. To the extent the income or capital growth derived from securities purchased with funds received from leverage exceeds the cost of leverage, the Fund's return will be greater than if leverage had not been used. Conversely, if the income or capital growth from the securities purchased with such funds is not sufficient to cover the cost of leverage, the return on the Fund will be less than if leverage had not been used, and therefore the amount available for distribution to Shareholders as dividends and other distributions will be reduced. In the latter case, Dreyfus in its best judgment nevertheless may determine to maintain the Fund's leveraged position if it deems such action to be appropriate under the circumstances. As discussed under "Management of the Fund," the fee paid to Dreyfus will be calculated on the basis of the Fund's assets including proceeds from borrowings for leverage and the issuance of preferred shares. Capital raised through leverage will be subject to interest costs or dividend payments which may not exceed the income and appreciation on the assets purchased. The Fund, among other things, also may be required to maintain minimum average balances in connection with borrowings or to pay a commitment or other fee to maintain a line of credit; either of these requirements will increase the cost of borrowing over the stated interest rate. The issuance of additional classes of preferred shares involves offering expenses and other costs and may limit the Fund's freedom to pay dividends on Shares or to engage in other activities. Borrowings and the issuance of a class of preferred shares having priority over the Fund's Shares create an opportunity for greater return per Share, but at the same time such borrowing is a speculative technique in that it will increase the Fund's exposure to capital risk. Unless the income and appreciation, if any, on assets acquired with borrowed funds or offering proceeds exceed the cost of borrowing or issuing additional classes of securities, the use of leverage will diminish the investment performance of the Fund compared with what it would have been without leverage. Certain types of borrowings may result in the Fund being subject to covenants in credit agreements, including those relating to asset coverage and portfolio composition requirements. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more Rating Agencies which may issue ratings for the corporate debt securities or preferred shares issued by the Fund. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the Investment Company Act. It is not anticipated that these covenants or guidelines will impede Dreyfus from managing the Fund's portfolio in accordance with the Fund's investment objectives and policies. The Fund currently is in preliminary negotiations with a commercial bank to arrange a syndicated credit facility pursuant to which the Fund would be entitled to borrow up to an amount to be determined. Any such borrowings would constitute financial leverage as described herein. The terms of any agreements relating to credit facility, including commitment and facility fees and the rate of interest charged on such borrowings, have not been determined and are subject to definitive agreement and other conditions. Under the Investment Company Act, the Fund is not permitted to incur indebtedness unless immediately after such incurrence the Fund has an asset coverage of at least 300% of the aggregate outstanding principal balance of indebtedness (i.e., such indebtedness may not exceed 33 1/3% of the Fund's total assets). Additionally, 23 under the Investment Company Act, the Fund may not declare any dividend or other distribution upon any class of its capital shares, or purchase any such capital shares, unless the aggregate indebtedness of the Fund has, at the time of the declaration of any such dividend or distribution or at the time of any such purchase, an asset coverage of at least 300% after deducting the amount of such dividend, distribution, or purchase price, as the case may be. Under the Investment Company Act, the Fund is not permitted to issue preferred shares unless immediately after such issuance the net asset value of the Fund's portfolio is at least 200% of the liquidation value of the outstanding preferred shares (i.e., such liquidation value may not exceed 50% of the Fund's total assets). In addition, the Fund is not permitted to declare any cash dividend or other distribution on its Shares unless, at the time of such declaration, the net asset value of the Fund's portfolio (determined after deducting the amount of such dividend or other distribution) is at least 200% of such liquidation value. If preferred shares are issued, the Fund intends, to the extent possible, to purchase or redeem preferred shares from time to time to maintain coverage of any preferred shares of at least 200%. The Fund's willingness to borrow money and issue new securities for investment purposes, and the amount the Fund will borrow or issue, will depend on many factors, the most important of which are investment outlook, market conditions and interest rates. Successful use of a leveraging strategy depends on Dreyfus' ability to predict correctly interest rates and market movements, and there is no assurance that a leveraging strategy will be successful during any period in which it is employed. Assuming the utilization of leverage by borrowings in the amount of approximately 25% of the Fund's total assets, and an annual interest rate of 6.00% payable on such leverage based on market rates as of the date of this Prospectus, the annual return that the Fund's portfolio must experience (net of expenses) in order to cover such interest payments would be 2.00%. The Fund's actual cost of leverage will be based on market rates at the time the Fund undertakes a leveraging strategy and such actual cost of leverage may be higher or lower than that assumed in the previous example. The following table is designed to illustrate the effect on the return to a holder of the Fund's Shares of the leverage obtained by borrowings in the amount of approximately 25% of the Fund's total assets, assuming hypothetical annual returns of the Fund's portfolio of minus 10% to plus 10%. As the table shows, the leverage generally increases the return to Shareholders when portfolio return is positive and greater than the cost of leverage and decreases the return when the portfolio return is negative or less than the cost of leverage. The figures appearing in the table are hypothetical and actual returns may be greater or less than those appearing in the table. Assumed Portfolio Return (net of expenses).............. (10)% (5)% 0 % 5% 10% Corresponding Share Return.............................. (15)% (9)% (2)% 5% 11%
Until the Fund borrows or issues preferred shares, the Fund's Shares will not be leveraged, and the risks and special considerations related to leverage described in this Prospectus will not apply. Such leveraging of the Shares cannot be fully achieved until the proceeds resulting from the use of leverage have been invested in longer-term debt instruments in accordance with the Fund's investment objectives and policies. SHORT-SELLING. In these transactions, the Fund sells a security it does not own in anticipation of a decline in the market value of the security. To complete the transaction, the Fund must borrow the security to make delivery to the buyer. The Fund is obligated to replace the security borrowed by purchasing it subsequently at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the Fund, which would result in a loss or gain, respectively. Securities will not be sold short if, after effect is given to any such short sale, the total market value of all securities sold short would exceed 25% of the value of the Fund's net assets. The Fund may not make a short sale which results in the Fund having sold short in the aggregate more than 5% of the outstanding securities of any class of an issuer. The Fund also may make short sales "against the box," in which the Fund enters into a short sale of a security it owns. See "Taxes." 24 Until the Fund closes its short position or replaces the borrowed security, it will: (a) maintain a segregated account, containing permissible liquid assets, at such a level that the amount deposited in the account plus the amount deposited with the broker as collateral always equals the current value of the security sold short; or (b) otherwise cover its short position. LENDING PORTFOLIO SECURITIES. The Fund may lend securities from its portfolio to brokers, dealers and other financial institutions needing to borrow securities to complete certain transactions. The Fund continues to be entitled to payments in amounts equal to the interest, dividends or other distributions payable on the loaned securities, which affords the Fund an opportunity to earn interest on the amount of the loan and on the loaned securities' collateral. Loans of portfolio securities may not exceed 33 1/3% of the value of the Fund's total assets, and the Securities and Exchange Commission ("SEC") currently requires the Fund to receive collateral consisting of cash, U.S. Government securities or irrevocable letters of credit which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. According to the SEC, such loans currently must be terminable by the Fund at any time upon specified notice. The Fund might experience risk of loss if the institution with which it has engaged in a portfolio loan transaction breaches its agreement with the Fund. In connection with its securities lending transactions, the Fund may return to the borrower or a third party which is acting as a "placing broker," a part of the interest earned from the investment of collateral received for securities loaned. Generally, the SEC currently requires that the following conditions must be met whenever portfolio securities are loaned: (1) the Fund must receive at least 100% cash collateral from the borrower; (2) the borrower must increase such collateral whenever the market value of the securities rises above the level of such collateral; (3) the Fund must be able to terminate the loan at any time; (4) the Fund must receive reasonable interest on the loan, as well as any dividends, interest or other distributions payable on the loaned securities, and any increase in market value; (5) the Fund may pay only reasonable custodian fees in connection with the loan; and (6) while voting rights on the loaned securities may pass to the borrower, the Fund's Board must terminate the loan and regain the right to vote the securities if a material event adversely affecting the investment occurs. If the regulatory requirements pertaining to portfolio securities lending were to change, the Fund would employ with such changes as required. ILLIQUID SECURITIES. When purchasing securities that have not been registered under the Securities Act of 1933, as amended, and are not readily marketable, the Fund will endeavor, to the extent practicable, to obtain the right to registration at the expense of the issuer. Generally, there will be a lapse of time between the Fund's decision to sell any such security and the registration of the security permitting sale. During any such period, the price of the securities will be subject to market fluctuations. However, where a substantial market of qualified institutional buyers has developed for certain unregistered securities purchased by the Fund pursuant to Rule 144A under the Securities Act of 1933, as amended, the Fund intends to treat such securities as liquid securities in accordance with procedures approved by the Fund's Board. Because it is not possible to predict with assurance how the market for specific restricted securities sold pursuant to Rule 144A will develop, the Fund's Board has directed Dreyfus to monitor carefully the Fund's investments in such securities with particular regard to trading activity, availability of reliable price information and other relevant information. To the extent that, for a period of time, qualified institutional buyers cease purchasing restricted securities pursuant to Rule 144A, the Fund's investing in such securities may have the effect of increasing the level of illiquidity in its investment portfolio during such period. REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase agreements with respect to its portfolio investments subject to the investment restrictions set forth herein. Reverse repurchase agreements involve the sale of securities held by the Fund with an agreement by the Fund to repurchase the securities at an agreed upon price, date and interest payment. The use by the Fund of reverse repurchase agreements involves many of the same risks of leverage described under "Risk Factors and Special Considerations" and "-- Leverage" since the proceeds derived from such reverse repurchase agreements may be invested in additional securities. At the time the Fund enters into a reverse repurchase agreement, it may establish and maintain a segregated account with the custodian containing liquid instruments having a value not less than the repurchase price (including accrued interest). If the Fund establishes and maintains such a segregated account, a 25 reverse repurchase agreement will not be considered a borrowing by the Fund; however, under circumstances in which the Fund does not establish and maintain such a segregated account, such reverse repurchase agreement will be considered a borrowing for the purpose of the Fund's limitation on borrowings. Reverse repurchase agreements involve the risk that the market value of the securities acquired in connection with the reverse repurchase agreement may decline below the price of the securities the Fund has sold but is obligated to repurchase. Also, reverse repurchase agreements involve the risk that the market value of the securities retained in lieu of sale by the Fund in connection with the reverse repurchase agreement may decline in price. If the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may receive an extension of time to determine whether to enforce the Fund's obligation to repurchase the securities, and the Fund's use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such decision. Also, the Fund would bear the risk of loss to the extent that the proceeds of the reverse repurchase agreement are less than the value of the securities subject to such agreement. DERIVATIVES. The Fund may invest in, or use, derivatives ("Derivatives"). These are financial instruments that derive their performance, at least in part, from the performance of an underlying asset, index or interest rate. The Derivatives the Fund may use include options, futures contracts, forward contracts, mortgage-related securities, asset-backed securities and swaps. The Fund may invest in, or enter into, Derivatives for a variety of reasons, including to hedge certain market risks, to provide a substitute for purchasing or selling particular securities or to increase potential income gain. Derivatives may provide a cheaper, quicker or more specifically focused way for the Fund to invest than "traditional" securities would. Derivatives can be volatile and involve various types and degrees of risk, depending upon the characteristics of the particular Derivative and the portfolio as a whole. Derivatives permit the Fund to increase or decrease the level of risk, or change the character of the risk, to which its portfolio is exposed in much the same way as the Fund can increase or decrease the level of risk, or change the character of the risk, of its portfolio by purchasing or selling specific securities. Derivatives may entail investment exposures that are greater than their cost would suggest, meaning that a small investment in Derivatives could have a large potential impact on the Fund's performance. If the Fund invests in Derivatives at inopportune times or judges market conditions incorrectly, such investments may lower the Fund's return or result in a loss. The Fund also could experience losses if its Derivatives were poorly correlated with its other investments, or if the Fund were unable to liquidate its position because of an illiquid secondary market. The market for many Derivatives is, or suddenly can become, illiquid. Changes in liquidity may result in significant, rapid and unpredictable changes in the prices for Derivatives. Derivatives may be purchased on established exchanges or through privately negotiated transactions referred to as over-the-counter Derivatives. Exchange- traded Derivatives generally are guaranteed by the clearing agency that is the issuer or counterparty to such Derivatives. This guarantee usually is supported by a daily payment system (i.e., variation margin requirements) operated by the clearing agency in order to reduce overall credit risk. As a result, unless the clearing agency defaults, there is relatively little counterparty credit risk associated with Derivatives purchased on an exchange. By contrast, no clearing agency guarantees over-the-counter Derivatives. Therefore, each party to an over-the-counter Derivative bears the risk that the counterparty will default. Accordingly, Dreyfus will consider the creditworthiness of counterparties to over-the-counter Derivatives in the same manner as it would review the credit quality of a security to be purchased by the Fund. Over-the-counter Derivatives are less liquid than exchange-traded Derivatives since the other party to the transaction may be the only investor with sufficient understanding of the Derivative to be interested in bidding for it. Futures and Options on Futures Transactions--In General. The Fund may enter into futures contracts and options on futures contracts in U.S. domestic markets, such as the Chicago Board of Trade and the International Monetary Market of the Chicago Mercantile Exchange or on exchanges located outside the United States, such as the London International Financial Futures Exchange and the Sydney Futures Exchange Limited. Foreign 26 markets may offer advantages such as trading opportunities or arbitrage possibilities not available in the United States. Foreign markets, however, may have greater risk potential than domestic markets. For example, some foreign exchanges are principal markets so that no common clearing facility exists and an investor may look only to the broker for performance of the contract. In addition, any profits that the Fund might realize in trading could be eliminated by adverse changes in the exchange rate, or the Fund could incur losses as a result of those changes. Transactions on foreign exchanges may include both commodities which are traded on domestic exchanges and those that are not. Unlike trading on domestic commodity exchanges, trading on foreign commodity exchanges is not regulated by the Commodity Futures Trading Commission ("CFTC"). Engaging in these transactions involves risk of loss to the Fund that could adversely affect the value of the Fund's net assets. Although the Fund intends to purchase or sell futures contracts and options thereon only if there is an active market for such contracts, no assurance can be given that a liquid market will exist for any particular contract at any particular time. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract or option prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified periods during the trading day. Futures contract or option prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures or option positions and potentially subjecting the Fund to substantial losses. Successful use of futures and options on futures by the Fund also is subject to the ability of Dreyfus to predict correctly movements in the direction of the relevant market and, to the extent the transaction is entered into for hedging purposes, to ascertain the appropriate correlation between the transaction being hedged and the price movements of the futures contract or option thereon. For example, if the Fund uses futures to hedge against the possibility of a decline in the market value of securities held in its portfolio and the prices of such securities instead increase, the Fund will lose part or all of the benefit of the increased value of securities that it has hedged because it will have offsetting losses in its futures positions. Furthermore, if in such circumstances the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements. The Fund may have to sell such securities at a time when it may be disadvantageous to do so. Pursuant to regulations and/or published positions of the Securities and Exchange Commission, the Fund may be required to segregate cash or other liquid assets in connection with its futures and options on futures transactions in an amount generally equal to the value of the underlying commodity. The segregation of such assets will have the effect of limiting the Fund's ability otherwise to invest those assets. To the extent that the Fund enters into futures contracts, options on futures contracts and options on foreign currencies traded on a CFTC-regulated exchange, that are not for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums required to establish these positions (excluding the amount by which options are "in-the-money" at the time of purchase) may not exceed 5% of the liquidation value of the Fund's portfolio, after taking into account unrealized profits and unrealized losses on any contracts the Fund has entered into. (In general, a call option on a futures contract is "in-the-money" if the value of the underlying futures contract exceeds the exercise ("strike") price of the call; a put option on a futures contract is "in-the-money" if the value of the underlying futures contract is exceeded by the strike price of the put.) This policy does not limit to 5% the percentage of the Fund's assets that are at risk in futures contracts, options on futures contracts and currency options. Specific Futures Transactions. The Fund may purchase and sell interest rate futures contracts. An interest rate future obligates the Fund to purchase or sell an amount of a specific debt security at a future date at a specific price. The Fund may purchase and sell currency futures. A foreign currency future obligates the Fund to purchase or sell an amount of a specific currency at a future date at a specific price. The Fund may purchase and sell stock index and debt futures contracts. An index future obligates the Fund to pay or receive an amount of cash equal to a fixed dollar amount specified in the futures contract multiplied by the difference between the settlement price of the contract on the contract's last trading day and the value of the index based on the prices of the securities that comprise it at the opening of trading in such securities on the next business day. 27 The Fund may also purchase and sell options on interest rate, currency and index futures. When the Fund writes an option on a futures contract, it becomes obligated, in return for the premium paid, to assume a position in the futures contract at a specified exercise price at any time during the terms of the option. If the Fund writes a call, it assumes a short futures position. If it writes a put, it assumes a long futures position. When the Fund purchases an option on a futures contract, it acquires the right, in return for the premium it pays, to assume a position in the futures contract (a long position if the option is a call and a short position if the option is a put). Forward Currency Contracts. The Fund may enter into forward currency contracts to purchase or sell foreign currencies for a fixed amount of U.S. dollars or another foreign currency. A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days (term) from the date of the forward currency contract agreed upon by the parties, at a price set at the time the forward currency contract is entered into. Forward currency contracts are traded directly between currency traders (usually large commercial banks) and their customers. The Fund may purchase a forward currency contract to lock in the U.S. dollar price of a security denominated in a foreign currency that the Fund intends to acquire. The Fund may sell a forward currency contract to lock in the U.S. dollar equivalent of the proceeds from the anticipated sale of a security or a dividend or interest payment denominated in a foreign currency. The Fund may also use forward currency contracts to shift the Fund's exposure to foreign currency exchange rate changes from one currency to another. For example, if the Fund owns securities denominated in a foreign currency and Dreyfus believes that currency will decline relative to another currency, it might enter into a forward currency contract to sell the appropriate amount of the first foreign currency with payment to be made in the second currency. The Fund may also purchase forward currency contracts to enhance income when Dreyfus anticipates that the foreign currency will appreciate in value but securities denominated in that currency do not present attractive investment opportunities. The Fund may also use forward currency contracts to hedge against a decline in the value of existing investments denominated in foreign currency. Such a hedge would tend to offset both positive and negative currency fluctuations, but would not offset changes in security values caused by other factors. The Fund could also hedge the position by entering into a forward currency contract to sell another currency expected to perform similarly to the currency in which the Fund's existing investments are denominated. This type of hedge could offer advantages in terms of cost, yield or efficiency, but may not hedge currency exposure as effectively as a simple hedge into U.S. dollars. This type of hedge may result in losses if the currency used to hedge does not perform similarly to the currency in which the hedged securities are denominated. The Fund may also use forward currency contracts in one currency or a basket of currencies to attempt to hedge against fluctuations in the value of securities denominated in a different currency if Dreyfus anticipates that there will be a correlation between the two currencies. The cost to the Fund of engaging in forward currency contracts varies with factors such as the currency involved, the length of the contract period and the market conditions then prevailing. Because forward currency contracts are usually entered into on a principal basis, no fees or commissions are involved. When the Fund enters into a forward currency contract, it relies on the counterparty to make or take delivery of the underlying currency at the maturity of the contract. Failure by the counterparty to do so would result in the loss of some or all of any expected benefit of the transaction. Secondary markets generally do not exist for forward currency contracts, with the result that closing transactions generally can be made for forward currency contracts only by negotiating directly with the counterparty. Thus, there can be no assurance that the Fund will in fact be able to close out a forward currency contract at a favorable price prior to maturity. In addition, in the event of insolvency of the counterparty, the Fund might be unable to close out a forward currency contract. In either event, the Fund would continue to be subject to market risk with respect to the position, and would continue to be required to maintain a position in securities denominated in the foreign currency or to maintain cash or liquid assets in a segregated account. The precise matching of forward currency contract amounts and the value of the securities involved generally will not be possible because the value of such securities, measured in the foreign currency, will change 28 after the forward currency contract has been established. Thus, the Fund might need to purchase or sell foreign currencies in the spot (cash) market to the extent such foreign currencies are not covered by forward currency contracts. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. Interest Rate Swaps. Interest rate swaps involve the exchange by the Fund with another party of their respective commitments to pay or receive interest (for example, an exchange of floating rate payments for fixed-rate payments). The exchange commitments can involve payments to be made in the same currency or in different currencies. The use of interest rate swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. If Dreyfus is incorrect in its forecasts of market values, interest rates and other applicable factors, the investment performance of the Fund would diminish compared with what it would have been if these investment techniques were not used. Moreover, even if Dreyfus is correct in its forecasts, there is a risk that the swap position may correlate imperfectly with the price of the asset or liability being hedged. There is no limit on the amount of interest rate swap transactions that may be entered into by the Fund. These transactions do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate swaps is limited to the net amount of interest payments that the Fund is contractually obligated to make. If the other party to an interest rate swap defaults, the Fund's risk of loss consists of the net amount of interest payments that the Fund contractually is entitled to receive. Credit Derivatives. The Fund may engage in credit derivative transactions. There are two broad categories of credit derivatives: default price risk derivatives and market spread derivatives. Default price risk derivatives are linked to the price of reference securities or loans after a default by the issuer or borrower, respectively. Market spread derivatives are based on the risk that changes in market factors, such as credit spreads, can cause a decline in the value of a security, loan or index. There are three basic transactional forms for credit derivatives: swaps, options and structured instruments. The use of credit derivatives is a highly specialized activity which involves strategies and risks different from those associated with ordinary portfolio security transactions. If Dreyfus is incorrect in its forecasts of default risks, market spreads or other applicable factors, the investment performance of the Fund would diminish compared with what it would have been if these techniques were not used. Moreover, even if Dreyfus is correct in its forecasts, there is a risk that a credit derivative position may correlate imperfectly with the price of the asset or liability being hedged. There is no limit on the amount of credit derivative transactions that may be entered into by the Fund. The Fund's risk of loss in a credit derivative transaction varies with the form of the transaction. For example, if the Fund purchases a default option on a security, and if no default occurs with respect to the security, the Fund's loss is limited to the premium it paid for the default option. In contrast, if there is a default by the grantor of a default option, the Fund's loss will include both the premium that it paid for the option and the decline in value of the underlying security that the default option hedged. Options--In General. The Fund may purchase and write (i.e., sell) call or put options with respect to specific securities. A call option gives the purchaser of the option the right to buy, and obligates the writer to sell, the underlying security or securities at the exercise price at any time during the option period, or at a specific date. Conversely, a put option gives the purchaser of the option the right to sell, and obligates the writer to buy, the underlying security or securities at the exercise price at any time during the option period, or at a specific date. A covered call option written by the Fund is a call option with respect to which the Fund owns the underlying security or otherwise covers the transaction by segregating cash or other liquid assets. A put option written by the Fund is covered when, among other things, cash or liquid assets having a value equal to or greater than the exercise price of the option are placed in a segregated account with the Fund's custodian to fulfill the obligation undertaken. The principal reason for writing covered call and put options is to realize, through the receipt of premiums, a greater return than would be realized on the underlying securities alone. The Fund receives a premium from writing covered call or put options which it retains whether or not the option is exercised. 29 There is no assurance that sufficient trading interest to create a liquid secondary market on a securities exchange will exist for any particular option or at any particular time, and for some options no such secondary market may exist. A liquid secondary market in an option may cease to exist for a variety of reasons. In the past, for example, higher than anticipated trading activity or order flow, or other unforeseen events, at times have rendered certain of the clearing facilities inadequate and resulted in the institution of special procedures, such as trading rotations, restrictions on certain types of orders or trading halts or suspensions in one or more options. There can be no assurance that similar events, or events that may otherwise interfere with the timely execution of customers' orders, will not recur. In such event, it might not be possible to effect closing transactions in particular options. If, as a covered call option writer, the Fund is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise or it otherwise covers its position. Specific Options Transactions. The Fund may purchase and sell call and put options on foreign currency. These options convey the right to buy or sell the underlying currency at a price which is expected to be lower or higher than the spot price of the currency at the time the option is exercised or expires. The Fund may purchase and sell call and put options in respect of specific securities (or groups or "baskets" of specific securities) or indices listed on national securities exchanges or traded in the over-the-counter market. An option on an index is similar to an option in respect of specific securities, except that settlement does not occur by delivery of the securities comprising the index. Instead, the option holder receives an amount of cash if the closing level of the index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. Thus, the effectiveness of purchasing or writing index options will depend upon price movements in the level of the index rather than the price of a particular security. The Fund also may purchase cash-settled options on swaps in pursuit of its investment objectives. A cash-settled option on a swap gives the purchaser the right, but not the obligation, in return for the premium paid, to receive an amount of cash equal to the value of the underlying swap as of the exercise date. These options typically are purchased in privately negotiated transactions from financial institutions, including securities brokerage firms. Successful use by the Fund of options will be subject to the ability of Dreyfus to predict correctly movements in the prices of individual securities, the securities markets generally, foreign currencies, or interest rates. To the extent such predictions are incorrect, the Fund may incur losses. Future Developments. The Fund may take advantage of opportunities in the area of options and futures contracts and options on futures contracts and any other Derivatives that are not presently contemplated for use by the Fund or that are not currently available but that may be developed, to the extent such opportunities are both consistent with the Fund's investment objectives and legally permissible for the Fund. FORWARD COMMITMENTS; WHEN-ISSUED SECURITIES. The Fund may purchase securities on a forward commitment or when-issued basis, which means that delivery and payment take place a number of days after the date of the commitment to purchase. The payment obligation and the interest rate receivable on a forward commitment or when-issued security are fixed when the Fund enters into the commitment, but the Fund does not make payment until it receives delivery from the counterparty. The Fund will commit to purchase such securities only with the intention of actually acquiring the securities, but the Fund may sell these securities before the settlement date if it is deemed advisable. The Fund will set aside in a segregated account of the Fund permissible liquid assets at least equal at all times to the amount of the commitments. Securities purchased on a forward commitment or when-issued basis are subject to changes in value (generally changing in the same way, i.e., appreciating when interest rates decline and depreciating when interest rates rise) based upon the public's perception of the creditworthiness of the issuer and changes, real or anticipated, in the level of interest rates. Securities purchased on a forward commitment or when-issued basis 30 may expose the Fund to risks because they may experience such fluctuations prior to their actual delivery. Purchasing securities on a when-issued basis can involve the additional risk that the yield available in the market when the delivery takes place actually may be higher than that obtained in the transaction itself. Purchasing securities on a forward commitment or when- issued basis when the Fund is fully or almost fully invested may result in greater potential fluctuation in the value of the Fund's net assets and its net asset value per share. RISK FACTORS AND SPECIAL CONSIDERATIONS Investors are advised to consider carefully the special risks involved in investing in the Fund. GENERAL The Fund is a newly organized, non-diversified, closed-end management investment company and has no operating history. Shares of closed-end management investment companies frequently trade at a discount from their net asset value. This risk may be greater for investors expecting to sell their shares in a relatively short period after completion of the public offering. Accordingly, the Shares are designed primarily for long-term investors and should not be considered a vehicle for trading purposes. The net asset value of the Fund's Shares will fluctuate with interest rate changes as well as with price changes of the Fund's portfolio securities and these fluctuations are likely to be greater in the case of a fund having a leveraged capital structure, as contemplated for the Fund. LOWER GRADE SECURITIES Lower grade securities are regarded as being predominantly speculative as to the issuer's ability to make payments of principal and interest. Investment in such securities involves substantial risk. Lower grade securities are commonly referred to as "junk bonds." Issuers of lower grade securities may be highly leveraged and may not have available to them more traditional methods of financing. Therefore, the risks associated with acquiring the securities of such issuers generally are greater than is the case with higher-rated securities. For example, during an economic downturn or a sustained period of rising interest rates, issuers of lower grade securities may be more likely to experience financial stress, especially if such issuers are highly leveraged. During periods of economic downturn, such issuers may not have sufficient revenues to meet their interest payment obligations. The issuer's ability to service its debt obligations also may be adversely affected by specific issuer developments, the issuer's inability to meet specific projected business forecasts or the unavailability of additional financing. Therefore, there can be no assurance that in the future there will not exist a higher default rate relative to the rates currently existing in the market for lower grade securities. The risk of loss due to default by the issuer is significantly greater for the holders of lower grade securities because such securities may be unsecured and may be subordinate to other creditors of the issuer. Other than with respect to Distressed Securities, discussed below, the lower grade securities in which the Fund may invest do not include instruments which, at the time of investment, are in default or the issuers of which are in bankruptcy. However, there can be no assurance that such events will not occur after the Fund purchases a particular security, in which case the Fund may experience losses and incur costs. Lower grade securities frequently have call or redemption features that would permit an issuer to repurchase the security from the Fund. If a call were exercised by the issuer during a period of declining interest rates, the Fund is likely to have to replace such called security with a lower yielding security, thus decreasing the net investment income to the Fund and dividends to Shareholders. Lower grade securities tend to be more volatile than higher-rated fixed- income securities, so that adverse economic events may have a greater impact on the prices of lower grade securities than on higher-rated fixed-income securities. Factors adversely affecting the market value of such securities are likely to affect adversely the Fund's net asset value. Recently, demand for lower grade securities has increased significantly and the difference between the yields paid by lower grade securities and investment grade bonds (i.e., the "spread") has narrowed. To the extent this differential increases, the value of lower grade securities in the Fund's portfolio could be adversely affected. 31 Like higher-rated fixed-income securities, lower grade securities generally are purchased and sold through dealers who make a market in such securities for their own accounts. However, there are fewer dealers in the lower grade securities market, which market may be less liquid than the market for higher- rated fixed-income securities, even under normal economic conditions. Also, there may be significant disparities in the prices quoted for lower grade securities by various dealers. As a result, during periods of high demand in the lower grade securities market, it may be difficult to acquire lower grade securities appropriate for investment by the Fund. Adverse economic conditions and investor perceptions thereof (whether or not based on economic reality) may impair liquidity in the lower grade securities market and may cause the prices the Fund receives for its lower grade securities to be reduced. In addition, the Fund may experience difficulty in liquidating a portion of its portfolio when necessary to meet the Fund's liquidity needs or in response to a specific economic event such as deterioration in the creditworthiness of the issuers. Under such conditions, judgment may play a greater role in valuing certain of the Fund's portfolio instruments than in the case of instruments trading in a more liquid market. In addition, the Fund may incur additional expense to the extent that it is required to seek recovery upon a default on a portfolio holding or to participate in the restructuring of the obligation. DISTRESSED SECURITIES The Fund may invest up to 10% of its total assets in securities which are the subject of bankruptcy proceedings or otherwise in default as to the repayment of principal and/or payment of interest at the time of acquisition by the Fund or are rated in the lower rating categories (Ca or lower by Moody's and CC or lower by S&P) or which, if unrated, are in the judgment of Dreyfus of equivalent quality ("Distressed Securities"). Investment in Distressed Securities is speculative and involves significant risk. Distressed Securities frequently do not produce income while they are outstanding and may require the Fund to bear certain extraordinary expenses in order to protect and recover its investment. Therefore, to the extent the Fund pursues its secondary objective of capital growth through investment in Distressed Securities, the Fund's ability to achieve current income for its Shareholders may be diminished. LEVERAGE The use of leverage by the Fund creates an opportunity for increased net income and capital growth for the Shares, but, at the same time, creates special risks, and there can be no assurance that a leveraging strategy will be successful during any period in which it is employed. The Fund intends to utilize leverage to provide the holders of Shares with a potentially higher return. Leverage creates risks for holders of Shares including the likelihood of greater volatility of net asset value and market price of the Shares and the risk that fluctuations in interest rates on borrowings and short-term debt or in the dividend rates on any preferred shares may affect the return to the holders of Shares. To the extent the income or capital growth derived from securities purchased with funds received from leverage exceeds the cost of leverage, the Fund's return will be greater than if leverage had not been used. Conversely, if the income or capital growth from the securities purchased with such funds is not sufficient to cover the cost of leverage, the return to the Fund will be less than if leverage had not been used, and therefore the amount available for distribution to Shareholders as dividends and other distributions will be reduced. In the latter case, Dreyfus in its best judgment nevertheless may determine to maintain the Fund's leveraged position if it deems such action to be appropriate under the circumstances. During periods in which the Fund is utilizing financial leverage, the management and administration fee, which is payable to Dreyfus as a percentage of the Fund's Managed Assets, will be higher than if the Fund did not utilize a leveraged capital structure because the fee is calculated as a percentage of the Fund's Managed Assets including those purchased with leverage. Certain types of borrowings by the Fund may result in the Fund's being subject to covenants in credit agreements, including those relating to asset coverage and portfolio composition requirements. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more Rating Agencies, which may issue ratings for the corporate debt securities or preferred shares issued by the Fund. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the Investment Company Act. It is not anticipated that these covenants or guidelines will impede Dreyfus in managing the Fund's portfolio in accordance with the Fund's investment objectives and policies. The Fund at times may borrow from affiliates of Dreyfus, provided that the terms of such borrowings are no less favorable 32 than those available from comparable sources of funds in the marketplace. As discussed under "Management of the Fund," the fee paid to Dreyfus will be calculated on the basis of the Fund's assets including proceeds from borrowings for leverage and the issuance of preferred shares. FOREIGN SECURITIES The Fund may invest up to 25% of its total assets in securities of issuers domiciled outside of the United States or that are denominated in various foreign currencies and multinational foreign currency units. Investing in securities of foreign entities and securities denominated in foreign currencies involves certain risks not involved in domestic investments, including, but not limited to, fluctuations in foreign exchange rates, future foreign political and economic developments, different legal systems and the possible imposition of exchange controls or other foreign governmental laws or restrictions. Securities prices in different countries are subject to different economic, financial, political and social factors. Since the Fund may invest in securities denominated or quoted in currencies other than the U.S. dollar, changes in foreign currency exchange rates may affect the value of securities in the Fund and the unrealized appreciation or depreciation of investments. Currencies of certain countries may be volatile and therefore may affect the value of securities denominated in such currencies. In addition, with respect to certain foreign countries, there is the possibility of expropriation of assets, confiscatory taxation, difficulty in obtaining or enforcing a court judgment, economic, political or social instability or diplomatic developments that could affect investments in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rates of inflation, capital reinvestment, resources, self-sufficiency and balance of payments position. Certain foreign investments also may be subject to foreign withholding taxes. These risks often are heightened for investments in smaller, emerging capital markets. As a result of these potential risks, Dreyfus may determine that, notwithstanding otherwise favorable investment criteria, it may not be practicable or appropriate to invest in a particular country. The Fund may invest in countries in which foreign investors, including Dreyfus, have had no or limited prior experience. ILLIQUID SECURITIES The Fund may invest in securities for which no readily available market exists or are otherwise considered illiquid. The Fund may not be able readily to dispose of such securities at prices that approximate those at which the Fund could sell such securities if they were more widely traded and, as a result of such illiquidity, the Fund may have to sell other investments or engage in borrowing transactions if necessary to raise cash to meet its obligations. NON-DIVERSIFIED STATUS The Fund is classified as a "non-diversified" management investment company under the Investment Company Act, which means that the Fund may invest a greater portion of its assets in a limited number of issuers than would be the case if the Fund were classified as a "diversified" management investment company. Accordingly, the Fund may be subject to greater risk with respect to its portfolio securities than a management investment company that is "diversified" because changes in the financial condition or market assessment of a single issuer may cause greater fluctuations in the net asset value of the Shares. MARKET PRICE, DISCOUNT AND NET ASSET VALUE OF SHARES Shares of closed-end management investment companies in the past frequently have traded at a discount to their net asset values. The risk of loss associated with this characteristic of closed-end management investment companies may be greater for investors purchasing Shares in the initial public offering and expecting to sell the Shares soon after the completion thereof. Whether investors will realize gains or losses upon the sale of Shares will not depend directly upon the Fund's net asset value, but will depend upon the market price of the Shares at the time of sale. Since the market price of the Shares will be determined by such factors as relative demand for and supply of the Shares in the market, general market and economic conditions and other factors beyond the control of the Fund, the Fund cannot predict whether the Shares will trade at, below or above net asset value or 33 at, below or above the initial offering price. The Shares are designed primarily for long-term investors, and investors in the Shares should not view the Fund as a vehicle for trading purposes. ANTI-TAKEOVER PROVISIONS The Fund's Declaration of Trust contains provisions limiting (i) the ability of other entities or persons to acquire control of the Fund, (ii) the Fund's freedom to engage in certain transactions, and (iii) the ability of the Fund's Trustees or Shareholders to amend the Declaration of Trust. These provisions of the Declaration of Trust may be regarded as "anti-takeover" provisions. These provisions could have the effect of depriving the Shareholders of opportunities to sell their Shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund in a tender offer or similar transaction. YEAR 2000 RISKS Like other investment companies, financial and business organizations and individuals around the world, the Fund could be adversely affected if the computer systems used by Dreyfus and the Fund's other service providers do not properly process and calculate date-related information and data from and after January 1, 2000. This is commonly known as the "Year 2000 Problem." Dreyfus is taking steps to address the Year 2000 Problem with respect to the computer systems that it uses and to obtain assurances that comparable steps are being taken by the Fund's other major service providers. At this time, however, there can be no assurance that these steps will be sufficient to avoid any adverse impact on the Fund. INVESTMENT RESTRICTIONS The Fund has adopted investment restrictions numbered 2 through 7 as fundamental policies, which cannot be changed without approval by the holders of a majority (as defined in the Investment Company Act) of the Fund's outstanding voting shares. Unless expressly designated as fundamental, the policies of the Fund may be changed by the Board of Trustees without shareholder approval. 1. Make any investment inconsistent with the Fund's classification as a non-diversified company under the Investment Company Act. 2. Invest more than 25% of the value of its total assets in the securities of issuers in any single industry, provided that there shall be no limitation on the purchase of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. 3. Invest in commodities or commodity contracts, except that the Fund may purchase and sell futures contracts and options thereon. 4. Purchase, hold or deal in real estate, or oil, gas or other mineral leases or exploration or development programs, but the Fund may purchase and sell securities that are secured by real estate or issued by companies that invest or deal in real estate or real estate investment trusts. 5. Issue senior securities or borrow money except as permitted by the Investment Company Act. 6. Make loans to others, except through the purchase of debt obligations and the entry into repurchase agreements. However, the Fund may lend its portfolio securities in an amount not to exceed 33 1/3% of the value of its total assets. Any loans of portfolio securities will be made according to guidelines established by the Securities and Exchange Commission and the Fund's Board. 7. Act as an underwriter of securities of other issuers, except to the extent the Fund may be deemed an underwriter under the Securities Act of 1933, as amended, by virtue of disposing of portfolio securities. 8. Invest in the securities of a company for the purpose of exercising management or control, but the Fund will vote the securities it owns in its portfolio as a shareholder in accordance with its views. 9. Pledge, mortgage or hypothecate its assets, except to the extent necessary to secure permitted borrowings and to the extent related to the purchase of securities on a when-issued or forward commitment basis and the deposit of assets in escrow in connection with writing covered put and call options and collateral and initial or variation margin arrangements with respect to options, forward contracts, futures contracts, options on futures contracts, swaps, caps, collars and floors. 10. Purchase securities of other investment companies, except to the extent permitted under the Investment Company Act. 34 MANAGEMENT OF THE FUND INVESTMENT MANAGER. The Dreyfus Corporation ("Dreyfus"), located at 200 Park Avenue, New York, New York 10166, was formed in 1947 and serves as the Fund's investment manager and administrator. Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A. ("Mellon Bank"), which is a wholly-owned subsidiary of Mellon Bank Corporation ("Mellon Bank Corporation"). As of March 31, 1998, Dreyfus managed or administered assets of approximately $100 billion for approximately 1.7 million investor accounts nationwide. Dreyfus has been an innovator in the fixed-income securities market, and introduced what Dreyfus believes to be the first retail-oriented money market mutual fund, the first incorporated municipal bond mutual fund and the first short-term and limited- term no load and load high yield bond mutual funds. Mellon Bank Corporation is a publicly owned multibank holding company incorporated under Pennsylvania law in 1971 and registered under the Federal Bank Holding Company Act of 1956, as amended. Mellon Bank Corporation provides a comprehensive range of financial products and services in domestic and selected international markets. Mellon Bank Corporation is among the twenty- five largest bank holding companies in the United States based on total assets. Mellon Bank Corporation's principal wholly-owned subsidiaries are Mellon Bank, Mellon Bank (DE) National Association, Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation, Buck Consultants, Inc., and a number of companies known as Mellon Financial Services Corporations. Through its subsidiaries, including Dreyfus, Mellon Bank Corporation managed more than $305 billion in assets as of December 31, 1997 including approximately $104 billion in proprietary mutual fund assets. As of December 31, 1997, Mellon Bank Corporation, through various subsidiaries, provided non-investment services, such as custodial or administration services, for more than $1.532 trillion in assets, including approximately $60 billion in mutual fund assets. Dreyfus supervises and assists in the overall management of the Fund's affairs under a Management and Administration Agreement with the Fund, subject to the authority of the Fund's Board in accordance with Massachusetts law. The Fund's primary portfolio manager is Roger E. King. He has held that position since the Fund's inception, and has been employed by Dreyfus since February 1996. Prior thereto, Mr. King was a Vice President of High Yield Research and, most recently, Director of High Yield Research at Citibank Securities, Inc. In 1995, Mr. King was named by Institutional Investor to its All America Fixed Income Research Second Team--High Yield Securities--Manufacturing/Aviation and Defense. Dreyfus also provides research services for the Fund and for other funds advised by Dreyfus through a professional staff of portfolio managers and securities analysts. Other portfolio managers of the Fund are Kevin M. McClintock, Head of Taxable Fixed Income, Michael Hoeh, Senior Portfolio Manager, and Gerald E. Thunelius, Senior Portfolio Manager and Head of Fixed- Income Trading. The Dreyfus taxable fixed-income team adheres to a clearly defined process. Emphasis is placed on sector and issue selection with portfolio managers and analysts focusing on specific areas of the credit market. Each area conducts detailed research in order to identify attractively priced securities within their respective sectors. INVESTMENT MANAGEMENT AND ADMINISTRATION AGREEMENT. Dreyfus provides investment management and administrative services pursuant to the Investment Management and Administration Agreement (the "Agreement") dated April 23, 1998 with the Fund. As compensation for Dreyfus's services to the Fund, the Fund has agreed to pay Dreyfus a monthly investment management and administration fee at the annual rate of .90 of 1% of the value of the average weekly value of the total assets of the Fund minus the sum of accrued liabilities (other than the aggregate indebtedness constituting financial leverage) (the "Managed Assets"). This fee is higher than fees paid by other comparable investment companies. During the period in which the Fund is utilizing financial leverage, the management and administration fee payable to Dreyfus will be higher than if the Fund did not utilize a leveraged capital structure because the fee is calculated as a percentage of the Fund's Managed Assets including those purchased with leverage. The Agreement is subject to annual approval by (i) the Fund's Board or (ii) vote of a majority (as defined in the Investment Company Act) of the outstanding voting securities of the Fund, provided that in either event the continuance also is approved by a majority of the Board members who are not "interested persons" (as defined in the Investment Company Act) of the Fund or Dreyfus, 35 by vote cast in person at a meeting called for the purpose of voting on such approval. The Agreement was approved by the Fund's Board, including a majority of the Board members who are not "interested persons" of any party to the Agreement, at a meeting held on April 22, 1998. The Agreement was approved by the Fund's initial shareholder on April 22, 1998. The Agreement is terminable without penalty, on 60 days' notice, by the Fund's Board or by vote of the holders of a majority of the Fund's Shares, or, on not less than 90 days' notice, by Dreyfus. The Agreement will terminate automatically in the event of its assignment (as defined in the Investment Company Act). The following persons are officers and/or directors of Dreyfus: W. Keith Smith, Chairman of the Board; Christopher M. Condron, President, Chief Executive Officer, Chief Operating Officer and a director; Stephen E. Canter, Vice Chairman, Chief Investment Officer and a director; Lawrence S. Kash, Vice Chairman--Distribution and a director; Ronald P. O'Hanley, III, Vice Chairman; J. David Officer, Vice Chairman; William T. Sandalls, Jr., Senior Vice President and Chief Financial Officer; Mark N. Jacobs, Vice President, General Counsel and Secretary; Patrice M. Kozlowski, Vice President--Corporate Communications; Mary Beth Leibig, Vice President--Human Resources; Jeffrey N. Nachman, Vice President--Mutual Fund Accounting; Andrew S. Wasser, Vice President--Information Systems; William V. Healey, Assistant Secretary; and Mandell L. Berman, Burton Borgelt, Frank V. Cahouet and Richard F. Syron, directors. Dreyfus manages the Fund's investments in accordance with the stated policies of the Fund, subject to the approval of the Fund's Board. Dreyfus is responsible for investment decisions, and provides the Fund with portfolio managers who are authorized by the Board to execute purchases and sales of securities. Dreyfus also maintains a research department with a professional staff of portfolio managers and securities analysts who provide research services for the Fund as well as for other funds advised by Dreyfus. Mellon Bank, Dreyfus's parent, and its affiliates may have deposit, loan and commercial banking or other relationships with the issuers of securities purchased by the Fund. Dreyfus has informed the Fund that in making its investment decisions it does not obtain or use material non-public information that Mellon Bank, or its affiliates, may possess with respect to such issuers. Dreyfus maintains office facilities on behalf of the Fund, and furnishes statistical and research data, clerical help, accounting, data processing, bookkeeping and internal auditing and certain other required services to the Fund. Dreyfus also may make such advertising and promotional expenditures, using its own resources, as it deems appropriate. EXPENSES. All expenses incurred in the operation of the Fund are borne by the Fund, except to the extent specifically assumed by Dreyfus. The expenses borne by the Fund include: organizational costs, taxes, interest, brokerage fees and commissions, if any, fees of Board members who are not officers, trustees, employees or holders of 5% or more of the outstanding voting securities of Dreyfus or any of its affiliates, Securities and Exchange Commission fees, state Blue Sky qualification fees, advisory and administration fees, shareholder servicing fees, charges of custodians, transfer and dividend disbursing agents' fees, certain insurance premiums, industry association fees, outside auditing and legal expenses, costs of maintaining the Fund's existence, expenses of reacquiring Shares, expenses in connection with the Fund's Automatic Dividend Reinvestment Plan, costs of maintaining the required books and accountings (including the costs of calculating the net asset value of the Fund's Shares), costs of independent pricing services, costs attributable to investor services (including, without limitation, telephone and personnel expenses), costs of preparing and printing prospectuses, and mailing Share certificates, proxy statements and costs of Shareholders' reports and meetings, and any extraordinary expenses. FEDERAL LAW AFFECTING MELLON BANK. The Glass-Steagall Act of 1933 prohibits national banks from engaging in the business of underwriting, selling or distributing securities and prohibits a member bank of the Federal Reserve System from having certain affiliations with an entity engaged primarily in that business. The activities of Mellon Bank in informing its customers of, and performing, investment and reception services in connection with the Fund, and in providing services to the Fund as custodian, as well as Dreyfus's investment advisory activities, may raise issues under these provisions. Mellon Bank has been advised by counsel that the activities contemplated under these arrangements are consistent with statutory and regulatory obligations. 36 Changes in either Federal or state statutes and regulations relating to the permissible activities of banks and their subsidiaries or affiliates, as well as further judicial or administrative decisions or interpretations of such future statutes and regulations, could prevent Mellon Bank or Dreyfus from continuing to perform all or a part of the above services for its customers and/or the Fund. If Mellon Bank or Dreyfus were prohibited from serving the Fund in any of its present capacities, the Board of Trustees would seek an alternative provider(s) of such services. TRUSTEES AND OFFICERS OF THE FUND The Fund has a Board composed of eleven Trustees which supervises the Fund's investment activities and reviews contractual arrangements with companies that provide the Fund with services. The following lists the Trustees and officers and their positions with the Fund and their present and principal occupations during the past five years. Each Trustee who is an "interested person" of the Fund (as defined in the Investment Company Act) is indicated by an asterisk (*). Each of the Trustees also serves as a Trustee of The Dreyfus/Laurel Funds Trust and The Dreyfus/Laurel Tax-Free Municipal Funds, and as a Director of The Dreyfus/Laurel Funds, Inc. (collectively, with the Fund, the "Dreyfus/Laurel Funds"). Each Trustee serves on the Audit Committee of the Board. Each Trustee who is not an "interested person" serves on the Nominating Committee of the Board. Each of the Fund's officers listed below also serves as an officer for other investment companies advised by or administered by Dreyfus, including The Dreyfus/Laurel Funds Trust, The Dreyfus/Laurel Funds, Inc. and The Dreyfus/Laurel Tax-Free Municipal Funds. RUTH MARIE ADAMS. Trustee of the Fund; Professor of English and Vice President Emeritus, Dartmouth College; Senator, United Chapters of Phi Beta Kappa; Trustee, Woods Hole Oceanographic Institution; from November 1995 to January 1997, Director, Access Capital Strategic Community Investment Fund, Inc.--Institutional Investment Portfolio. Age: 83 years old. Address: 1026 Kendal Lyme Road, Hanover, New Hampshire 03755. FRANCIS P. BRENNAN. Chairman of the Board of Trustees of the Fund; Director and Chairman, Massachusetts Business Development Corp.; and from November 1995 to January 1997, Director, Access Capital Strategic Community Investment Fund, Inc.--Bank Portfolio. Age: 80 years old. Address: Massachusetts Business Development Corp., 50 Milk Street, Boston, Massachusetts 02109. JOSEPH S. DIMARTINO. Trustee of the Fund. Since January 1995, Mr. DiMartino has served as Chairman of the Board for various funds in the Dreyfus Family of Funds. He also serves as a Director of The Muscular Dystrophy Association, The Noel Group, Inc., a venture capital company, Staffing Resources, Inc., a temporary placement agency, HealthPlan Services Corporation, a provider of marketing, administrative and risk management services to health and other benefit programs, Carlyle Industries, Inc. (formerly Belding Heminway Company, Inc.), a button packager and distributor, and Century Business Services, Inc., a provider of various outsourcing functions for small and medium sized companies. Mr. DiMartino is also a Board member of 151 other funds in the Dreyfus Family of Funds. From November 1995 to January 1997, Director, Access Capital Strategic Community Investment Fund, Inc.--Institutional Investment Portfolio and Bank Portfolio. For more than five years prior to January 1995, he was President, a director and, until August 24, 1994, Chief Operating Officer of Dreyfus and Executive Vice President and a director of Dreyfus Service Corporation (DSC), a wholly-owned subsidiary of Dreyfus. From August 1994 to December 31, 1994, he was a director of Mellon Bank Corporation. Age: 54 years old. Address: 200 Park Avenue, New York, New York 10166. JAMES M. FITZGIBBONS. Trustee of the Fund; Chairman, Howes Leather Company, Inc.; Director, Fiduciary Trust Company; Chairman, CEO and Director, Fieldcrest-Cannon Inc.; Director, Lumber Mutual Insurance Company; Director, Barrett Resources, Inc.; from November 1995 to January 1997, Director, Access Capital Strategic Community Investment Fund, Inc.-- Bank Portfolio. Age: 63 years old. Address: 40 Norfolk Road, Brookline, Massachusetts 02167. 37 J. TOMLINSON FORT.* Trustee of the Fund; Partner, Reed, Smith & McClay (law firm). From November 1995 to January 1997, Director, Access Capital Strategic Community Investment Fund, Inc.--Bank Portfolio. Age: 69 years old. Address: 204 Woodcock Drive, Pittsburgh, Pennsylvania 15215. ARTHUR L. GOESCHEL. Trustee of the Fund; Director, Calgon Carbon Corporation; Director, Cerex Corporation; Director, National Picture Frame Corporation; former Chairman of the Board and Director, Rexene Corporation; Chairman of the Board and Director, Tetra Corporation 1991-1993; Director, Medalist Corporation 1992-1993. From November 1995 to January 1997, Director, Access Capital Strategic Community Investment Fund, Inc.-- Institutional Investment Portfolio. Age: 76 years old. Address: Way Hallow Road and Woodland Road, Sewickley, Pennsylvania 15143. KENNETH A. HIMMEL. Trustee of the Fund; Former Director, The Boston Company, Inc. ("TBC") and Boston Safe Deposit and Trust Company; President and Chief Executive Officer, Himmel & Co., Inc.; Vice Chairman, Sutton Place Gourmet, Inc.; Managing Partner, Franklin Federal Partners. From November 1995 to January 1997, Director, Access Capital Strategic Community Investment Fund, Inc.--Bank Portfolio. Age: 51 years old. Address: Himmel and Company, Inc., 399 Boylston Street, 11th Floor, Massachusetts 02116. ARCH S. JEFFERY.* Trustee of the Fund; Financial Consultant. From November 1995 to January 1997, Director, Access Capital Strategic Community Investment Fund, Inc.--Institutional Investment Portfolio. Age: 80 years old. Address: 1817 Foxcroft Lane, Unit 306, Allison Park, Pennsylvania 15101. STEPHEN J. LOCKWOOD. Trustee of the Fund; President and CEO, LDG Management Company Inc.; CEO, LDG Reinsurance Underwriters, SRRF Management Inc. and Medical Reinsurance Underwriters Inc.; from November 1995 to January 1997, Director, Access Capital Strategic Community Investment Fund, Inc.--Institutional Investment Portfolio. Age: 50 years old. Address: 401 Edgewater Place, Wakefield, Massachusetts 01880. JOHN J. SCIULLO. Trustee of the Fund; Dean Emeritus and Professor of Law, Duquesne University Law School; Director, Urban Redevelopment Authority of Pittsburgh; from November 1975 to January 1997, Director, Access Capital Strategic Community Investment Fund, Inc.--Institutional Investment Portfolio. Age: 66 years old. Address: 321 Gross Street, Pittsburgh, Pennsylvania 15224. ROSLYN M. WATSON. Trustee of the Fund; Principal, Watson Ventures, Inc., Director, American Express Centurion Bank; Director, Harvard/Pilgrim Community Health Plan, Inc.; from November 1995 to January 1997, Director, Access Capital Strategic Community Investment Fund, Inc.--Bank Portfolio; Director, Massachusetts Electric Company; Director, the Hymans Foundation, Inc., prior to February, 1993; Real Estate Development Project Manager and Vice President, The Gunwyn Company. Age: 48 years old. Address: 25 Braddock Park, Boston, Massachusetts 02116-5816. BENAREE PRATT WILEY. Trustee of the Fund; President and CEO of The Partnership, an organization dedicated to increasing the representation of African-Americans in positions of leadership, influence and decision-making in Boston, MA; Trustee, Boston College; Trustee, WGBH Educational Foundation; Trustee, Children's Hospital; Director, The Greater Boston Chamber of Commerce; Director, The First Albany Companies, Inc.; from April 1995 to March 1998, Director, The Boston Company, an affiliate of Dreyfus. Age: 51 years old. Address: 334 Boylston Street, Suite 400, Boston, MA. MARIE E. CONNOLLY. President and Treasurer of the Fund. President, Chief Executive Officer, Chief Compliance Officer and a director of Funds Distributor Inc., the ultimate parent of which is Boston Industrial Group, Inc. Age: 40 years old. DOUGLAS C. CONROY. Vice President and Assistant Secretary of the Fund. Assistant Vice President of Funds Distributor Inc. From April 1993 to January 1995, he was a Senior Fund Accountant for Investors Bank & Trust Company. From December 1991 to March 1993, he was employed as the Fund Accountant at TBC. Age: 28 years old. RICHARD W. INGRAM. Vice President and Assistant Treasurer of the Fund. Executive Vice President of Funds Distributor Inc. From March 1994 to November 1995, he was Vice President and 38 Division Manager for First Data Investor Services Group. From 1989 to 1994, he was Vice President, Assistant Treasurer and Tax Director--Mutual Funds of TBC. Age: 42 years old. MARY A. NELSON. Vice President and Assistant Treasurer of the Fund. Vice President of Funds Distributor Inc. From September 1989 to July 1994, she was an Assistant Vice President and Client Manager of TBC. Age: 33 years old. MICHAEL S. PETRUCELLI. Vice President and Assistant Treasurer of the Fund. Senior Vice President of Funds Distributor Inc. From December 1989 through November 1996, he was employed by GE Investment Services where he held various financial, business development and compliance positions. He also served as Treasurer of the GE Funds and as Director of GE Investment Services. Age: 36 years old. JOSEPH F. TOWER, III. Vice President and Assistant Treasurer of the Fund. Senior Vice President, Treasurer and Chief Financial Officer of Funds Distributor Inc. From July 1988 to August 1994, he was employed by TBC where he held various positions in the Corporate Finance and Treasury areas. Age: 35 years old. ELBA VASQUEZ. Vice President and Assistant Secretary. Assistant Vice President of Funds Distributor Inc. From March 1990 to May 1996, she was employed by U.S. Trust Company of New York. As an officer of U.S. Trust, she held various positions in sales and marketing. Age: 36 years old. KATHLEEN K. MORRISEY. Vice President and Assistant Secretary. Vice President and Assistant Secretary of Funds Distributor Inc. From July 1994 to November 1995, she was a Fund Accountant for Investors Bank & Trust Company. Age: 25 years old. CHRISTOPHER J. KELLEY. Vice President and Assistant Secretary. Vice President and Senior Associate General Counsel of Funds Distributor Inc. and Premier Mutual Fund Services, Inc., and an officer of other investment companies advised or administered by Dreyfus. From April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial Group. From October 1992 to March 1994, Mr. Kelley was employed by Putnam Investments in legal and compliance capacities. Age: 33 years old. The address of each officer of the Fund is 200 Park Avenue, New York, New York 10166. The officers and Trustees of the Fund as a group owned beneficially less than 1% of the total shares of the Fund outstanding as of April 22, 1998. No officer or employee of the Fund receives any compensation from the Fund for serving as an officer or Trustee of the Fund. In addition, no officer or employee of Dreyfus (or of any parent, subsidiary or affiliate thereof) serves as an officer or Trustee of the Fund. The Fund pays each Trustee $1,500 per annum. In addition, the Fund pays each Trustee $250 per Board meeting attended and reimburses each Trustee for travel and out-of-pocket expenses. 39
ESTIMATED AGGREGATE TOTAL COMPENSATION FROM THE COMPENSATION FUND AND FUND COMPLEX NAME OF BOARD MEMBER FROM FUND PAID TO BOARD MEMBER*** - -------------------- ------------------- --------------------------- Ruth Marie Adams................ $2,500 $ 31,500 Francis P. Brennan*............. $2,500 $ 63,750 Joseph S. DiMartino**........... $2,500 $517,075 James M. Fitzgibbons............ $2,500 $ 31,500 J. Tomlinson Fort**............. $2,500 none Arthur L. Goeschel.............. $2,500 $ 37,500 Kenneth A. Himmel............... $2,500 $ 32,500 Arch S. Jeffery**............... $2,500 none Stephen J. Lockwood............. $2,500 $ 33,250 John J. Sciullo................. $2,500 $ 32,500 Roslyn M. Watson................ $2,500 $ 32,500 Benaree Pratt Wiley............. $2,500 none
- -------- * Compensation of Francis Brennan includes $25,000 paid by the other Dreyfus/Laurel Funds to be Chairman of the Board. ** J. Tomlinson Fort and Arch S. Jeffery are paid directly by Dreyfus for serving as Board members of the other Dreyfus/Laurel Funds. For the fiscal year ended October 31, 1997, the aggregate amount of fees and expenses received by Joseph DiMartino, J. Tomlinson Fort and Arch S. Jeffery from Dreyfus for serving as a Board member of the other Dreyfus/Laurel Funds were $35,500, $35,500 and $34,500, respectively. *** As of January 31, 1998, the Dreyfus Family of Funds consists of 151 funds. Except for Mr. DiMartino, the amounts represent the total compensation received from the Fund Complex for the twelve months ended October 31, 1997. For Mr. DiMartino, the amount represents total compensation for the twelve months ending December 31, 1997. PORTFOLIO TRANSACTIONS Dreyfus assumes general supervision over placing orders on behalf of the Fund for the purchase or sale of portfolio securities. Allocation of brokerage transactions, including their frequency, is made in the best judgment of Dreyfus and in a manner deemed fair and reasonable to shareholders. The primary consideration is prompt execution of orders at the most favorable net price. Subject to this consideration, the brokers selected will include those that supplement Dreyfus's research facilities with statistical data, investment information, economic facts and opinions. Information so received is in addition to and not in lieu of services required to be performed by Dreyfus and Dreyfus's fees are not reduced as a consequence of the receipt of such supplemental information. Such information may be useful to Dreyfus in serving both the Fund and other funds which it advises and, conversely, supplemental information obtained by the placement of business of other clients may be useful to Dreyfus in carrying out its obligations to the Fund. In allocating brokerage transactions, Dreyfus seeks to obtain the best execution of orders at the most favorable net price. Subject to this determination, Dreyfus may consider, among other things, the receipt of research services and/or the sale of Shares of the Fund or other funds managed, advised or administered by Dreyfus as factors in the selection of broker-dealers to execute portfolio transactions for the Fund. Sales of Fund Shares by a broker may be taken into consideration, and brokers also will be selected because of their ability to handle special executions such as are involved in large block trades or broad distributions, provided the primary consideration is met. Large block trades may, in certain cases, result from two or more funds advised or administered by Dreyfus being engaged simultaneously in the purchase or sale of the same security. Certain of the Fund's transactions in securities of foreign issuers may not benefit from the negotiated commission rates available to the Fund for transactions in securities of domestic issuers. When transactions are executed in the over- the-counter market, the Fund will deal with the primary market makers unless a more favorable price or execution otherwise is obtainable. Foreign exchange transactions are made with banks or institutions in the interbank market at prices reflecting a mark-up or mark-down and/or commission. 40 Portfolio turnover may vary from year to year as well as within a year. It is anticipated that in any fiscal year the turnover rate may approach the 300% level for the Fund. In periods in which extraordinary market conditions prevail, Dreyfus will not be deterred from changing the Fund's investment strategy as rapidly as needed, in which case higher turnover rates can be anticipated which would result in greater brokerage expenses. The overall reasonableness of brokerage commissions paid is evaluated by Dreyfus based upon its knowledge of available information as to the general level of commissions paid by other institutional investors for comparable services. A turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of a year. Higher portfolio turnover rates usually generate additional brokerage commissions and expenses, and the short-term gains realized from these transactions are taxable to Shareholders as ordinary income when distributed to them. Investment decisions for the Fund are made independently from those of the other investment companies advised by Dreyfus. If, however, such other investment companies desire to invest in, or dispose of, the same securities as the Fund, available investments or opportunities for sales will be allocated equitably to each investment company. In some cases, this procedure may adversely affect the size of the position obtained for or disposed of by the Fund or the price paid or received by the Fund. DETERMINATION OF NET ASSET VALUE The Fund's investments are valued after the close of regular trading on the New York Stock Exchange on the last business day of each week and each month, using available market quotations or at fair value. Substantially all of the Fund's fixed-income investments (excluding short-term investments) are valued by one or more independent pricing services (the "Service") approved by the Board. Securities valued by the Service for which quoted bid prices in the judgment of the Service are readily available and are representative of the bid side of the market are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other investments valued by the Service are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. Short-term investments are not valued by the Service and are valued at the mean price or yield equivalent for such securities or for securities of comparable maturity, quality and type as obtained from market makers. Other investments that are not valued by the Service are valued at the last sales price for securities traded primarily on an exchange or the national securities market or otherwise at the average of the most recent bid and asked prices. Bid price is used when no asked price is available. Any assets or liabilities initially expressed in terms of foreign currency will be translated into U.S. dollars at the prevailing rates of exchange or, if no such rate is quoted on such date, at the exchange rate utilized on the previous business day or at such other quoted market exchange rate as may be determined to be appropriate by Dreyfus. Expenses and fees, including the management and administration fee (reduced by the expense limitation, if any), are accrued weekly and taken into account for the purpose of determining the net asset value of the Fund's Shares. Restricted securities, as well as securities or other assets for which recent market quotations are not readily available, or are not valued by the Service, are valued at fair value as determined in good faith by the Board of Trustees. The Board will review the method of valuation on a current basis. In making their good faith valuation of restricted securities, the Board members generally will take the following factors into consideration: restricted securities which are, or are convertible into, securities of the same class of securities for which a public market exists usually will be valued at market value less the same percentage discount at which purchased. This discount will be revised periodically by the Board if it believes that the discount no longer reflects the value of the restricted securities. Restricted securities not of the same class as securities for which a public market exists usually will be valued initially at cost. Any subsequent adjustment from cost will be based upon considerations deemed relevant by the Board. The holidays (as observed) on which the New York Stock Exchange is closed currently are: New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. 41 DIVIDENDS AND OTHER DISTRIBUTIONS The Fund intends to distribute substantially all of its net investment income monthly. All net realized capital gains, if any, either will be distributed to the Fund's Shareholders at least annually or will be retained by the Fund, and subject to Fund-level associated tax liabilities thereon. The Fund will distribute to the Shareholders at least annually all net realized gains from foreign currency transactions, if any. The Fund may make additional distributions if necessary to avoid a 4% excise tax on certain undistributed income and capital gain. See "Taxes." The Fund may change the foregoing distribution policy if its experience indicates, or its Board of Trustees for any reason determines, that changes are desirable. Under the Investment Company Act, the Fund is not permitted to incur indebtedness unless after such incurrence the Fund has an asset coverage of at least 300% of the aggregate outstanding principal balance of indebtedness. Additionally, under the Investment Company Act, the Fund may not declare any dividend or other distribution upon any class of its capital shares, or purchase any such capital shares, unless the aggregate indebtedness of the Fund has, at the time of the declaration of any such dividend or other distribution or at the time of any such purchase, an asset coverage of at least 300% after deducting the amount of such dividend, other distribution, or purchase price, as the case may be. While any preferred shares are outstanding, the Fund may not declare any cash dividend or other distribution on its Shares, unless at the time of such declaration, (1) all accumulated preferred share dividends have been paid and (2) the net asset value of the Fund's portfolio (determined after deducting the amount of such dividend or other distribution) is at least 200% of the liquidation value of the outstanding preferred shares (expected to be equal to the original purchase price per share plus any accumulated and unpaid dividends thereon). In addition to the limitations imposed by the Investment Company Act as described in this paragraph, certain lenders may impose additional restrictions on the payment of dividends or other distributions on the Fund's Shares in the event of a default on the Fund's borrowings. Any limitation on the Fund's ability to make distributions on its Shares could in certain circumstances impair the ability of the Fund to maintain its qualification for taxation as a regulated investment company. See "Other Investment Practices--Leverage" and "Taxes." See "Automatic Dividend Reinvestment Plan" for information concerning the manner in which dividends and other distributions to holders of Shares may be automatically reinvested in Shares of the Fund. Dividends and other distributions may be taxable to Shareholders whether they are reinvested in Shares of the Fund or received in cash. The Fund expects that it will commence paying dividends within 60 days of the date of this Prospectus. TAXES The Fund intends to elect to be, and to qualify to be treated as, a regulated investment company ("RIC") under the Internal Revenue Code of 1986, as amended (the "Code"). For each taxable year that the Fund so qualifies, the Fund (but not its Shareholders) will be relieved of federal income tax on that part of its investment company taxable income (consisting generally of net investment income, net short-term capital gain and net gains from certain foreign currency transactions) and net capital gain that is distributed to its Shareholders. In order to qualify for treatment as a RIC under the Code, the Fund must make an election to be so treated and must distribute to its Shareholders for each taxable year at least 90% of its investment company taxable income ("Distribution Requirement") and must meet several additional requirements. These requirements include the following: (1) the Fund must derive at least 90% of its gross income each taxable year from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of securities or foreign currencies, or other income (including gains from options, futures or forward contracts) derived with respect to its business of investing in securities or those currencies ("Income Requirement"); (2) at the close of each quarter of the Fund's taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities that 42 are limited, in respect of any one issuer, to an amount that does not exceed 5% of the value of the Fund's total assets and that does not represent more than 10% of the issuer's outstanding voting securities; and (3) at the close of each quarter of the Fund's taxable year, not more than 25% of the value of its total assets may be invested in securities (other than U.S. government securities or the securities of other RICs) of any one issuer. The Fund will be subject to a non-deductible 4% excise tax ("Excise Tax") to the extent it fails to distribute by the end of any calendar year substantially all of its ordinary income for that year and capital gain net income for the one-year period ending on October 31st of that year, plus certain other amounts. For these purposes, any such income retained by the Fund, and on which it pays federal income tax, will be treated as having been distributed. The Fund may acquire zero coupon or other securities issued with original issue discount. As the holder of such securities, the Fund must include in its gross income the original issue discount that accrues on the securities during the taxable year, even if it receives no corresponding payment on the securities during the year. The Fund also must include in its gross income each year any "interest" distributed in the form of additional securities on payment-in-kind securities. Because the Fund annually must distribute substantially all of its investment company taxable income, including any accrued original issue discount and other non-cash income, to satisfy the Distribution Requirement and to avoid imposition of the Excise Tax, the Fund may be required in a particular year to distribute as a dividend an amount that is greater than the total amount of cash it actually receives. Those distributions will be made from the Fund's cash assets or from the proceeds of sales of portfolio securities, if necessary. The Fund may recognize capital gains or losses from those sales, which would increase or decrease its investment company taxable income and/or net capital gain. The use of certain Derivatives, such as selling (writing) and purchasing options and futures and entering into forward currency contracts, involves complex rules that will determine for federal income tax purposes the amount, character and timing of recognition of the gains and losses the Fund realizes in connection therewith. These rules also may require the Fund to "mark to market" (that is, treat as sold for their fair market value) at the end of each taxable year certain positions in its portfolio, which may cause the Fund to recognize income or gain without receiving cash with which to make distributions necessary to satisfy the Distribution Requirement and to avoid imposition of the Excise Tax. Gains from the disposition of foreign currencies, and gains from options, futures and forward currency contracts derived by the Fund with respect to its business of investing in securities or foreign currencies, will be treated as qualifying income under the Income Requirement. Under section 988 of the Code, foreign currency gains or losses from certain forward contracts not traded in the interbank market as well as certain other gains or losses attributable to currency exchange rate fluctuations are typically treated as ordinary income or loss. Such income or loss may increase or decrease (or possibly eliminate) the Fund's income available for distribution. If, under the rules governing the tax treatment of foreign currency gain and losses, the Fund's income available for distribution is decreased or eliminated, all or a portion of the distributions by the Fund may be treated for federal income tax purposes as a return of capital or, in some circumstances, as capital gain. Income received by the Fund from investments in foreign securities may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions. Such taxes will not be deductible or creditable by Shareholders. Tax conventions between certain countries and the United States may reduce or eliminate those taxes. If the Fund has an "appreciated financial position"--generally, an interest (including an interest through an option, futures or forward currency contract, or short sale) with respect to any stock, debt instrument (other than "straight debt") or partnership interest the fair market value of which exceeds its adjusted basis--and enters into a "constructive sale" of the same or substantially similar property, the Fund will be treated as having made an actual sale thereof, with the result that gain will be recognized at that time. A constructive sale generally consists of a short sale, an offsetting notional principal contract or futures or forward currency contract entered into by the Fund or a related person with respect to the same or substantially similar property. In addition, if the 43 appreciated financial position is itself a short sale or such a contract, acquisition of the underlying property or substantially similar property will be deemed a constructive sale. Dividends from the Fund's investment company taxable income (whether received in cash or reinvested in additional Fund Shares) generally are taxable to its Shareholders as ordinary income to the extent of the Fund's earnings and profits. Distributions of the Fund's net capital gain (whether received in cash or reinvested in additional Fund Shares), when designated as such, are taxable to its Shareholders as long-term capital gain, regardless of how long they have held their Fund Shares. See below for a summary of the tax rates applicable to capital gain distributions. A participant in the Automatic Dividend Reinvestment Plan will be treated as having received a distribution in the amount of the cash used to purchase Shares on his or her behalf, including a pro rata portion of the brokerage fees incurred by the Transfer Agent. Distributions by the Fund to its Shareholders in any year that exceed the Fund's earnings and profits generally may be applied by each Shareholder against his or her basis for the Shares and will be taxable at capital gains rates (assuming the Shares are held as a capital asset) to any Shareholder only to the extent the distributions to the Shareholder exceed the Shareholder's basis for his or her Shares. The Fund may retain for investment its net capital gain. However, if the Fund does so, it will be subject to a tax of 35% on the amount retained. In that event, the Fund expects to designate the retained amount as undistributed capital gain in a notice to its Shareholders, who (i) will be required to include in income for tax purposes, as long-term capital gain, their proportionate shares of such undistributed amount, (ii) will be entitled to credit their proportionate shares of the 35% tax paid by the Fund against their federal income tax liabilities, if any, and to claim refunds to the extent the credit exceeds those liabilities, and (iii) will increase the tax basis of their Fund Shares by an amount equal to 65% of the amount of undistributed capital gain included in their gross income. The Fund will notify its Shareholders following the end of each calendar year of the amounts of dividends and capital gain distributions paid (or deemed paid) that year and undistributed capital gain designated for that year. The information regarding capital gain distributions and undistributed capital gain will designate the portion thereof subject to the different maximum rates of tax applicable to noncorporate taxpayers' net capital gain indicated below. Shareholders who are not liable for tax on their income and whose Shares are not debt-financed generally are not required to pay tax on dividends or other distributions they receive from the Fund. Dividends and other distributions declared by the Fund in December of any year and payable to Shareholders of record on a date in that month will be deemed to have been paid by the Fund and received by the Shareholders on December 31st if the distributions are paid by the Fund during the following January. Accordingly, those distributions will be taxed to Shareholders for the year in which that December 31st falls. An investor should be aware that, if Shares are purchased shortly before the record date for any dividend or other distribution, the investor will pay full price for the Shares and will receive some portion of the purchase price back as a taxable distribution. Upon the sale or exchange of Shares (including a sale pursuant to a Share repurchase or tender offer by the Fund), a Shareholder generally will recognize a taxable gain or loss equal to the difference between his or her adjusted basis for the Shares and the amount received. Any such gain or loss will be treated as a capital gain or loss if the Shares are capital assets in the Shareholder's hands and will be long-term capital gain or loss if the Shares have been held for more than one year. See below for a discussion of the tax rates applicable to capital gains. Any loss recognized on a sale or exchange of Shares that were held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any capital gain distributions previously received thereon. A loss realized on a sale or exchange of Shares will be disallowed to the extent those Shares are replaced by other Shares within a period of 61 days beginning 30 days before and ending 30 days after the date of disposition of the Shares (which could occur, for example, as a result of participation in the Automatic Dividend Reinvestment Plan). In that event, the basis of the replacement Shares will be adjusted to reflect the disallowed loss. 44 Under the Taxpayer Relief Act of 1997 ("1997 Tax Act"), the maximum tax rates applicable to net capital gains recognized by individuals and other non- corporate taxpayers are (i) the same as ordinary income rates for capital assets held for one year or less; (ii) 28% for capital assets held for more than one year but not more than 18 months and (iii) 20% (10% for taxpayers in the 15% marginal tax bracket) for capital assets held for more than 18 months. The 1997 Tax Act did not affect the maximum net capital gain tax rate for corporations, which remains at 35%. The tax rates described above will apply to distributions of net capital gain by the Fund (if, as expected, the Fund designates net capital gain distributions as 28% rate gain distributions or 20% rate gain distributions, in accordance with its holding periods for the securities it sold that generated the distributed gains) as well as to sales and exchanges of Shares. With respect to capital losses recognized on dispositions of Shares held six months or less where such losses are treated as long-term capital losses to the extent of prior capital gain distributions received thereon (see discussion in the preceding paragraph), it is unclear how such capital losses offset the capital gains referred to above. Shareholders should consult their own tax advisers as to the application of the new capital gains rates to their particular circumstances. The Fund is required to withhold 31% of all dividends, capital gain distributions and repurchase proceeds payable to any individual Shareholders and certain other non-corporate Shareholders who do not provide the Fund with a correct taxpayer identification number. The Fund is also required to withhold 31% of all dividends and capital gain distributions payable to such Shareholders who otherwise are subject to backup withholding. The foregoing is only a brief summary of some of the important federal income tax considerations generally affecting the Fund and its Shareholders. There may be other federal, state, local or foreign tax considerations applicable to a particular investor. Prospective investors are urged to consult their tax advisers regarding the specific federal income tax consequences of purchasing, holding and disposing of Shares, as well as the effects of state, local and foreign tax laws and any proposed tax law changes. AUTOMATIC DIVIDEND REINVESTMENT PLAN Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "Plan"), unless a Shareholder otherwise elects, all dividends and capital gain distributions will be automatically reinvested by ChaseMellon Shareholder Services, L.L.C. as agent for Shareholders in administering the Plan (the "Plan Agent"), in additional Shares of the Fund. Shareholders who elect not to participate in the Plan will receive all dividends and other distributions in cash paid by check mailed directly to the shareholder of record (or, if the Shares are held in street or other nominee name, then to such nominee) by ChaseMellon Shareholder Services, L.L.C. as dividend disbursing agent. Such participants may elect not to participate in the Plan and to receive all dividends and capital gain distributions in cash by sending written instructions to ChaseMellon Shareholder Services, L.L.C., as dividend disbursing agent, at the address set forth below. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by written notice if received by the Plan Agent not less than ten days prior to any dividend record date; otherwise such termination will be effective with respect to any subsequently declared dividend or other distribution. Whenever the Fund declares an income dividend or a capital gain distribution (collectively referred to as "dividends") payable either in Shares or in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in Shares. The Shares will be acquired by the Plan Agent or an independent broker-dealer for the participants' accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized Shares from the Fund ("newly issued shares") or (ii) by purchase of outstanding Shares on the open market ("open- market purchases") on the New York Stock Exchange or elsewhere. If on the payment date for the dividend, the net asset value per Share is equal to or less than the market price per Share plus estimated brokerage commissions (such condition being referred to herein as "market premium"), the Plan Agent will invest the dividend amount in newly issued Shares on behalf of the participants. The number of newly issued Shares to be credited to each participant's account will be determined by dividing the dollar amount of the dividend by the net asset value per Share on the date the Shares are issued, provided that the maximum discount from the then current market price per Share on the date of issuance may 45 not exceed 5%. If on the dividend payment date the net asset value per Share is greater than the market value (such condition being referred to herein as "market discount"), the Plan Agent will invest the dividend amount in Shares acquired on behalf of the participants in open-market purchases. In the event of a market discount on the dividend payment date, the Plan Agent will have until the last business day before the next date on which the Shares trade on an "ex-dividend" basis or in no event more than 30 days after the dividend payment date (the "last purchase date") to invest the dividend amount in Shares acquired in open-market purchases. It is contemplated that the Fund will pay monthly income dividends. Therefore, the period during which open-market purchases can be made will exist only from the payment date of the dividend through the date before the next "ex-dividend" date which typically will be approximately ten days. If, before the Plan Agent has completed its open-market purchases, the market price of a Share exceeds the net asset value per Share, the average per Share purchase price paid by the Plan Agent may exceed the net asset value of the Fund's Shares, resulting in the acquisition of fewer Shares than if the dividend had been paid in newly issued Shares on the dividend payment date. Because of the foregoing difficulty with respect to open-market purchases, the Plan provides that if the Plan Agent is unable to invest the full dividend amount in open-market purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent will cease making open-market purchases and will invest the uninvested portion of the dividend amount in newly issued Shares at the close of business on the last purchase date. The Plan Agent maintains all Shareholders' accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by Shareholders for tax records. Shares in the account of each Plan participant will be held by the Plan Agent on behalf of the Plan participant, and each Shareholder proxy will include those Shares purchased or received pursuant to the Plan. The Plan Agent will forward all proxy solicitation materials to participants and vote proxies for Shares held pursuant to the Plan in accordance with the instructions of the participants. In the case of Shareholders such as banks, brokers or nominees that hold Shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of Shares certified from time to time by the record Shareholder's name and held for the account of beneficial owners who participate in the Plan. There will be no brokerage charges with respect to Shares issued directly by the Fund as a result of dividends or capital gain distributions payable either in Shares or in cash. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open-market purchases in connection with the reinvestment of dividends. The automatic reinvestment of dividends will not relieve participants of any Federal, state or local income tax that may be payable (or required to be withheld) on such dividends. See "Taxes." Shareholders participating in the Plan may receive benefits not available to Shareholders not participating in the Plan. If the market price (plus commissions) of the Fund's Shares is above their net asset value, participants in the Plan will receive Shares of the Fund at less than they could otherwise purchase them and will have Shares with a cash value greater than the value of any cash distribution they would have received on their Shares. If the market price plus commissions is below the net asset value, participants will receive distributions in Shares with a net asset value greater than the value of any cash distribution they would have received on their Shares. However, there may be insufficient Shares available in the market to make distributions in Shares at prices below the net asset value. Also, since the Fund does not redeem its Shares, the price on resale may be more or less than the net asset value. See "Taxes" for a discussion of tax consequences of the Plan. Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. All correspondence concerning the Plan should be directed to the Plan Agent at 85 Challenger Road, Ridgefield Park, NJ 07660. 46 UNDERWRITING The underwriters named below (the "Underwriters"), acting through PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York, Merrill Lynch, Pierce, Fenner & Smith Incorporated, North Tower, World Financial Center, New York, New York, Salomon Smith Barney, 388 Greenwich Street, New York, New York, Fahnestock & Co. Inc., 125 Broad Street, New York, New York, Interstate/Johnson Lane Corporation, 201 North Tryon Street, Charlotte, North Carolina as their representatives (the "Representatives") have severally agreed, subject to the terms and conditions of the Underwriting Agreement with the Fund and Dreyfus (the "Underwriting Agreement"), to purchase from the Fund the number of Shares set forth opposite their respective names. The Underwriters are committed to purchase all of such Shares if any are purchased.
UNDERWRITER NUMBER OF SHARES ----------- ---------------- PaineWebber Incorporated.................................. Merrill Lynch, Pierce, Fenner & Smith Incorporated........ Salomon Smith Barney...................................... Fahnestock & Co. Inc. .................................... Interstate/Johnson Lane Corporation....................... Bear, Stearns & Co. Inc. ................................. BT Alex. Brown Incorporated............................... CIBC Oppenheimer Corp. ................................... A.G. Edwards & Sons, Inc. ................................ Prudential Securities Incorporated........................ Advest, Inc. ............................................. Robert W. Baird & Co. Incorporated........................ Crowell, Weedon & Co. .................................... Dain Rauscher Wessels..................................... Everen Securities, Inc. .................................. First Albany Corporation.................................. First of Michigan Corporation............................. Gruntal & Co., Incorporated............................... Janney Montgomery Scott Inc. ............................. Josephthal & Co. Inc. .................................... Ladenburg Thalmann & Co. Inc. ............................ McDonald & Company Securities, Inc. ...................... Morgan Keegan & Company, Inc. ............................ The Ohio Company.......................................... Pacific Growth Equities Inc. ............................. Parker/Hunter Incorporated................................ Pennsylvania Merchant Group............................... Piper Jaffray Inc. ....................................... Raymond James & Associates, Inc. ......................... The Robinson-Humphrey Company, LLC........................ Roney & Co. .............................................. Scott & Stringfellow, Inc. ............................... Stifel, Nicolaus & Company, Incorporated.................. Sutro & Co. Incorporated.................................. C.E. Unterberg, Towbin.................................... Van Kasper & Company...................................... Wheat, First Securities, Inc. ............................ Allen & Company of Florida Inc. .......................... George K. Baum & Company.................................. BlueStone Capital Partners, L.P. .........................
47
UNDERWRITER NUMBER OF SHARES ----------- ---------------- Branch, Cabell & Company.................................. Fechtor, Detwiler & Co., Inc. ............................ J.W. Charles Securities, Inc. ............................ John G. Kinnard & Company, Incorporated................... Miller, Johnson & Kuehn, Inc. ............................ Moors & Cabot, Inc. ...................................... Morgan Fuller Capital Group............................... David A. Noyes & Company.................................. Paulson Investment Company, Incorporated.................. Sentra Securities Corporation............................. Spelman & Company......................................... M.L. Stern & Co., Inc. ................................... Toronto Dominion Securities (USA) Inc. ................... Torrey Pines Securities, Inc. ............................ U.S. Clearing Corporation................................. ---- Total................................................... ====
The Fund has granted to the Underwriters an option, exercisable for 60 days from the date of this Prospectus to purchase up to an additional Shares to cover over-allotments, if any, at the initial offering price. The Underwriters may exercise such option solely for the purpose of covering over-allotments incurred in the sale of the Shares offered hereby. To the extent that the Underwriters exercise this option, each of the Underwriters will have a firm commitment, subject to certain conditions, to purchase an additional number of Shares proportionate to such Underwriter's initial commitment. As set forth in the notes to the table on the cover page of this Prospectus, Dreyfus or an affiliate (not the Fund) from its own assets has agreed to pay a commission to the Underwriters in the amount of $0.75 per Share (5% of the public offering price per Share) or an aggregate amount of $ ($ assuming full exercise of the over-allotment option) for all Shares covered by this Prospectus. Such payment will be the legal obligation of Dreyfus (or an affiliate) and made out of its own assets and will not in any way represent an obligation of the Fund or its Shareholders. The Representatives have advised the Fund that the Underwriters may pay up to $ per Share from such payment received from Dreyfus to certain dealers who sell the Shares. In addition, the Fund has agreed to pay the Underwriters in the amount of $250,000, in partial reimbursement of their expenses. Prior to this offering, there has been no public market for the Shares or any other securities of the Fund. The Shares have been approved for listing, subject to notice of issuance, on the New York Stock Exchange under the symbol "DHF." In order to meet the requirements for listing the Shares on the New York Stock Exchange, the Underwriters have undertaken to sell lots of 100 or more Shares to a minimum of 2,000 beneficial holders. The minimum investment requirement is 100 Shares ($1,500). The Fund and Dreyfus have each agreed to indemnify the several Underwriters for or to contribute to the losses arising out of certain liabilities, including liabilities under the Securities Act of 1933, as amended. The Fund has agreed not to offer or sell any additional shares of beneficial interest of the Fund, other than as contemplated by this Prospectus, for a period of 180 days after the date of the Underwriting Agreement without the prior written consent of the Underwriters. The Underwriters may take certain actions to discourage short-term trading of Shares during a period of time following the initial offering date. Included in these actions is the withholding of the concession and other payments to dealers in connection with Shares which were sold by such dealers and which are repurchased for the account of the Underwriters during such period. In addition, physical delivery of certificates representing Shares is required to transfer ownership of Shares for a certain period. 48 Under the terms of and subject to the conditions of the Underwriting Agreement, the Underwriters are committed to purchase and pay for all Shares offered hereby if any are purchased. The Underwriting Agreement provides that it may be terminated at or prior to the closing date for the purchase of the Shares if, in the judgment of the Representatives, payment for the delivery of the Shares is rendered impracticable or inadvisable because (1) trading in the equity securities of the Fund is suspended by the Securities and Exchange Commission, by an exchange that lists the Shares, or by the National Association of Securities Dealers Automated Quotation National Market System, (2) additional material governmental restrictions, not in force on the date of the Underwriting Agreement, have been imposed upon trading in securities generally or trading in securities generally has been suspended on any U.S. securities exchange, or a general banking moratorium has been established by Federal or New York authorities, or (3) any outbreak or material escalation of hostilities or other calamity or crisis occurs, the effect of which is such as to make it impracticable to market any or all of the Shares. The Underwriting Agreement also may be terminated if any of the conditions specified in the Underwriting Agreement have not been fulfilled when and as required by such agreement. The Fund anticipates that the Representatives and certain other Underwriters may from time to time act as brokers or dealers in connection with the execution of its portfolio transactions after they have ceased to be Underwriters and, subject to certain restrictions, may act as such brokers while they are Underwriters. See "Management of the Fund." Dreyfus Investment Services Corporation, an affiliate of the Fund, may act as a dealer in connection with the offering of the Shares. PaineWebber Incorporated will provide shareholder services to the Fund pursuant to a Shareholder Servicing Agreement with the Fund. The Fund will pay a monthly fee on an annual basis equal to 0.10% of the average weekly Managed Assets of the Fund (as defined herein under "Management of the Fund-- Management and Administration Agreement") for such services. See "Shareholder Servicing Agent, Custodian and Transfer and Dividend Disbursing Agent." SHAREHOLDER SERVICING AGENT, CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT Pursuant to a Shareholder Servicing Agreement between PaineWebber Incorporated (the "Shareholder Servicing Agent") and the Fund, the Shareholder Servicing Agent will (i) undertake to make public information pertaining to the Fund on an ongoing basis and to communicate to investors and prospective investors the Fund's features and benefits (including periodic seminars or conference calls, responses to questions from current or prospective shareholders and specific shareholder contact where appropriate); (ii) make available to investors and prospective investors market price, net asset value, yield and other information regarding the Fund, if reasonably obtainable, for the purpose of maintaining the visibility of the Fund in the investor community; (iii) at the request of the Fund, provide certain economic research and statistical information and reports, if reasonably obtainable, on behalf of the Fund, and consult with representatives and Trustees of the Fund in connection therewith, which information and reports shall include: (a) statistical and financial market information with respect to the Fund's market performance and (b) comparative information regarding the Fund and other closed-end management investment companies with respect to (1) the net asset value of their respective shares, (2) the respective market performance of the Fund and such other companies and (3) other relevant performance indicators; and (iv) at the request of the Fund, provide information to and consult with the Board of Trustees with respect to applicable strategies designed to address market value discounts, which may include share repurchase, tender offers, modifications to dividend policies or capital structure, repositioning or restructuring of the Fund, conversion of the Fund to an open-end investment company, liquidation or merger; provided, however, that under the terms of the Shareholder Servicing Agreement, the Shareholder Servicing Agent is not obligated to render any opinions, valuations or recommendations of any kind or to perform any such similar services. For these services, the Fund will pay the Shareholder Servicing Agent a fee equal on an annual basis to 0.10% of the Fund's average weekly Managed Assets (as defined above under "Management of the Fund--Management and Administration Agreement"), payable in arrears at the end of each calendar month. Under the terms of the Shareholder Servicing Agreement, the Shareholder Servicing Agent is relieved from liability to the Fund for any act or omission in the 49 course of its performance under the Shareholder Servicing Agreement, in the absence of gross negligence or willful misconduct by the Shareholder Servicing Agent. The Fund has agreed to indemnify the Shareholder Servicing Agent or contribute to losses arising out of certain liabilities under the Shareholder Servicing Agreement. The Shareholder Servicing Agreement will continue for an initial term of two years and thereafter for successive one-year periods unless terminated by either party upon 60 days written notice. In this regard, as part of its ongoing oversight responsibilities, the Board of Trustees will monitor the performance of the Shareholder Servicing Agent and the continuing appropriateness of the Shareholder Servicing Agreement. Mellon Bank, located at One Mellon Bank Center, Pittsburgh, Pennsylvania 15258, will act as the Fund's Custodian. Dreyfus is a wholly-owned subsidiary of Mellon Bank. The Custodian may employ sub-custodians outside the U.S. approved by the Board of Trustees in accordance with regulations under the Investment Company Act. ChaseMellon Shareholder Services, LLC will also act as the Fund's Transfer and Dividend Disbursing Agent. DESCRIPTION OF SHARES The Fund is a newly organized unincorporated business trust under the laws of the Commonwealth of Massachusetts created pursuant to an Agreement and Declaration of Trust (the "Trust Agreement") dated March 16, 1998. The Fund is authorized to issue an unlimited number of shares of beneficial interest, par value $.001 per share. Each Share has one vote and, when issued and paid for in accordance with the terms of the offering, will be fully paid and non- assessable. Fund Shares are of one class and have equal rights as to dividends and in liquidation. Shares have no preemptive, subscription or conversion rights and are freely transferable. The Fund will send annual and semi-annual financial statements to all its Shareholders. Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of a Massachusetts business trust. However, the Trust Agreement disclaims shareholder liability for acts or obligations of the Fund and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Fund or a Trustee. The Trust Agreement provides for indemnification from the Fund's property for all losses and expenses of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund itself would be unable to meet its obligations, a possibility which management believes is remote. Upon payment of any liability incurred by the Fund, the shareholder paying such liability will be entitled to reimbursement from the general assets of the Fund. The Fund intends to conduct its operations in such a way so as to avoid, as far as possible, ultimate liability of the shareholders for liabilities of the Fund. The Fund has no present intention of offering additional Shares, except as described herein and under the Automatic Dividend Reinvestment Plan, as it may be amended from time to time. See "Automatic Dividend Reinvestment Plan." Other offerings of its Shares, if made, will require approval of the Fund's Board of Trustees. Any additional offering will not be sold at a price per Share below the then current net asset value (exclusive of underwriting discounts and commissions) except in connection with an offering to existing Shareholders or with the consent of a majority of the Fund's outstanding Shares. The Fund intends to apply to list its Shares on the New York Stock Exchange under the symbol "DHF." In accordance with the rules of the New York Stock Exchange, the Fund will hold Annual Meetings of Shareholders. ANTI-TAKEOVER PROVISIONS IN THE DECLARATION OF TRUST The Fund's Declaration of Trust includes provisions that could have the effect of limiting the ability of other entities or persons to acquire control of the Fund or to change the composition of its Board of Trustees, and could have the effect of depriving Shareholders of an opportunity to sell their Shares at a premium over 50 prevailing market prices by discouraging a third party from seeking to obtain control of the Fund. These provisions may have the effect of discouraging attempts to acquire control of the Fund, which attempts could have the effect of increasing the expenses of the Fund and interfering with the normal operation of the Fund. The Board of Trustees is divided into three classes, with the terms of one class expiring at each annual meeting of Shareholders. At each annual meeting, one class of Trustees is elected to a three-year term. This provision could delay for up to two years the replacement of a majority of the Board of Trustees. A Trustee may be removed from office only for cause by a written instrument signed by at least two-thirds of the remaining Trustees or by a vote of the holders of at least two-thirds of the Shares. In addition, the Declaration of Trust requires the favorable vote of the holders of at least 80% of the outstanding Shares of each class of the Fund, voting as a class, then entitled to vote to approve, adopt or authorize certain transactions with 5%-or-greater holders of a class of Shares and their associates, unless the Board of Trustees shall by resolution have approved a memorandum of understanding with such holders, in which case normal voting requirements would be in effect. For purposes of these provisions, a 5%-or- greater holder of a class of Shares (a "Principal Shareholder") refers to any person who, whether directly or indirectly and whether alone or together with its affiliates and associates, beneficially owns 5% or more of the outstanding shares of any class of beneficial interest of the Fund. The transactions subject to these special approval requirements are: (i) the merger or consolidation of the Fund or any subsidiary of the Fund with or into any Principal Shareholder; (ii) the issuance of any securities of the Fund to any Principal Shareholder for cash (except pursuant to the Automatic Dividend Reinvestment Plan); (iii) the sale, lease or exchange of all or any substantial part of the assets of the Fund to any Principal Shareholder (except assets having an aggregate fair market value of less than $1,000,000, aggregating for the purpose of such computation all assets sold, leased or exchanged in any series of similar transactions within a twelve-month period); or (iv) the sale, lease or exchange to the Fund or any subsidiary thereof, in exchange for securities of the Fund, of any assets of any Principal Shareholder (except assets having an aggregate fair market value of less than $1,000,000, aggregating for the purposes of such computation all assets sold, leased or exchanged in any series of similar transactions within a twelve- month period). The Board of Trustees has determined that provisions with respect to the Board of Trustees and the 80% voting requirements described above (and the requirements relating to conversion to an open-end fund described below), which voting requirements are greater than the minimum requirements under Massachusetts law or the Investment Company Act, are in the best interest of Shareholders generally. Reference should be made to the Declaration of Trust on file with the Securities and Exchange Commission for the full text of these provisions. CONVERSION TO OPEN-END FUND The Fund may be converted to an open-end investment company at any time by an amendment to the Declaration of Trust. The Declaration of Trust provides that such an amendment would require the approval of two-thirds of the Fund's outstanding shares (including any preferred shares) entitled to vote on the matter, voting as a single class (or a majority of such shares if the amendment previously was approved, adopted or authorized by at least two- thirds of the total number of Trustees) and, assuming the Fund has issued preferred shares, by the affirmative vote of a majority of the outstanding preferred shares, voting as a separate class. Such a vote also would satisfy a separate requirement in the Investment Company Act that the change be approved by the shareholders. If approved in the foregoing manner, conversion of the Fund could not occur until at least 90 days after the Shareholders' meeting at which such conversion was approved and could take significantly longer and would also require at least 30 days' prior notice to all Shareholders. Conversion of the Fund to an open-end investment company would require the redemption of any outstanding preferred shares and any indebtedness not constituting bank loans, which could eliminate or alter the leveraged capital structure of the Fund with respect to the Shares. Following any such conversion, it is also possible that certain of the Fund's investment policies and strategies would have to be modified to assure sufficient portfolio liquidity. In particular, the Fund would be required to maintain its portfolio such that not more than 15% of its assets would be invested in illiquid securities, or other illiquid assets, or securities which are restricted as to resale (excluding, for purposes of this limitation, Rule 144A and other securities deemed liquid by Dreyfus pursuant to guidelines established by the Board of Trustees). Such requirement could cause the Fund to dispose of portfolio securities or other assets at a 51 time when it is not advantageous to do so, and could adversely affect the ability of the Fund to meet its investment objectives. In the event of conversion, the Shares would cease to be listed on the New York Stock Exchange or other national securities exchange or market system. Shareholders of an open-end investment company may require the company to redeem their shares at any time (except in certain circumstances as authorized by or under the Investment Company Act) at their net asset value, less such redemption charge, if any, as might be in effect at the time of a redemption. The Fund expects to pay all such redemption requests in cash, but intends to reserve the right to pay redemption requests in a combination of cash or securities. If a payment in securities were made, investors may incur brokerage costs in converting such securities to cash. If the Fund were converted to an open-end fund, it is likely that new common shares would be sold at net asset value plus a sales load. REPURCHASE OF SHARES Shares of closed-end management investment companies often trade at a discount to their net asset values, and the Fund's Shares may likewise trade at a discount to their net asset value, although it is possible that they may trade at a premium above net asset value. The market price of the Fund's Shares will be determined by such factors as relative demand for and supply of such Shares in the market, the Fund's net asset value, general market and economic conditions and other factors beyond the control of the Fund. See "Determination of Net Asset Value." Although the Fund's Shareholders will not have the right to redeem their Shares, the Fund may take action to repurchase Shares in the open market or make tender offers for its Shares at their net asset value. This may have the effect of reducing any market discount from net asset value. There is no assurance that if action is undertaken to repurchase or tender for Shares, such action will result in the Shares' trading at a price which approximates their net asset value. Although Share repurchases and tenders could have a favorable effect on the market price of the Fund's Shares, it should be recognized that the acquisition of Shares by the Fund will decrease the total assets of the Fund and, therefore, have the effect of increasing the Fund's expense ratio. Any Share repurchases or tender offers will be made in accordance with requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act. OTHER INFORMATION Prior to the registration statement becoming effective, the Underwriters or other appropriate party may distribute advertising or other solicitation material which discusses (i) economic and market conditions and trends generally; (ii) historical and current conditions and trends in the lower grade securities market, and risk and reward potential in such market; (iii) comparative information, including statistical analysis and performance- related information, related to lower grade securities generally and investing in lower grade securities; (iv) the special considerations and potential benefits of investing in closed-end management investment companies; (v) information about Dreyfus and the Fund's portfolio managers, biographical information about the Fund's portfolio manager, including honors or awards received, and information and commentary on investment strategy or other matters of general interest to investors; and (vi) that Dreyfus sponsored the first short-term lower grade securities fund in the mutual fund industry. LEGAL OPINIONS Certain legal matters in connection with the Shares offered hereby will be passed upon for the Fund by Kirkpatrick & Lockhart LLP and for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, and its affiliated entities. EXPERTS The statement of assets and liabilities of the Fund included in this Prospectus has been so included in reliance upon the report of KPMG Peat Marwick LLP, independent auditors, and on their authority as experts in auditing and accounting. 52 INDEPENDENT AUDITORS' REPORT The Board of Trustees and Shareholder of Dreyfus High Yield Strategies Fund We have audited the accompanying statement of assets and liabilities of Dreyfus High Yield Strategies Fund (the "Fund") as of April 15, 1998. This financial statement is the responsibility of the Fund's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statement referred to above presents fairly, in all material respects, the financial position of the Fund as of April 15, 1998, in conformity with generally accepted accounting principles. April 22, 1998 53 DREYFUS HIGH YIELD STRATEGIES FUND STATEMENT OF ASSETS AND LIABILITIES CAPITAL APRIL 15, 1998
ASSETS Cash................................................................. $100,005 Deferred organization expenses (Note 1).............................. 61,000 -------- Total Assets....................................................... 161,005 LIABILITIES Accrued expenses (Note 1)............................................ 61,000 -------- NET ASSETS............................................................ $100,005 ======== CAPITAL Common Stock, par value $.001 per share; unlimited shares authorized; 6,667 shares issued and outstanding (Note 1)........................ $ 7 Paid in Capital in excess of par..................................... 99,998 -------- Total Capital--Equivalent of $15.00 net asset value per share of common stock (Note 1)............................................. $100,005 ========
NOTES TO STATEMENT OF ASSETS AND LIABILITIES CAPITAL NOTE 1. ORGANIZATION The Fund was incorporated under the laws of the Commonwealth of Massachusetts on March 16, 1998 as a closed-end, non-diversified management investment company and has had no operations other than the sale to MBC Investments Corporation of an aggregate of 6,667 shares for $100,005 on April 15, 1998. Deferred organization are normally be amortized on a straight-line basis over a five-year period beginning with the commencement of operations of the Fund. On April 3, 1998, Statement of Position 98-5 was issued. This Statement of Position required that unamortized organization costs on the Fund's statement of assets and liabilities be written off. This Statement of Position is effective for fiscal years beginning after December 15, 1998, therefore, the Fund is required to write off the deferred organization expenses on April 1, 1999. NOTE 2. MANAGEMENT AND ADMINISTRATION ARRANGEMENTS The Fund has engaged the Investment Manager to provide investment management and administration services to the Fund. The Investment Manager will receive a monthly fee for advisory and administration services at an annual rate equal to .90% of 1% of the Fund's average weekly value of the Managed Assets. NOTE 3. FEDERAL INCOME TAXES The Fund intends to qualify as a "regulated investment company" and as such (and by complying with the applicable provisions of the Internal Revenue Code of 1986, as amended) will not be subject to Federal income tax on taxable income (including realized capital gains) that is distributed to shareholders. 54 APPENDIX A RATINGS OF CORPORATE BONDS DESCRIPTION OF CORPORATE BOND RATINGS OF STANDARD & POOR'S RATINGS GROUP: Aaa--Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. Aa--Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in small degree. A--Bonds rated A have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. Bbb--Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than for bonds in higher rated categories. Bb--Bonds rated BB have less near-term vulnerability to default than other speculative grade debt. However, they face major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. B--Bonds rated B have a greater vulnerability to default but presently have the capacity to meet interest payments and principal repayments. Adverse business, financial or economic conditions would likely impair capacity or willingness to pay interest and repay principal. Ccc--Bonds rated CCC have a current identifiable vulnerability to default and are dependent upon favorable business, financial and economic conditions to meet timely payments of interest and repayment of principal. In the event of adverse business, financial or economic conditions, they are not likely to have the capacity to pay interest and repay principal. Cc--The rating CC is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC rating. C--The rating C is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. D--Bonds rated D are in default, and payment of interest and/or repayment of principal is in arrears. S&P's letter ratings may be modified by the addition of a plus (+) or a minus (-) sign designation, which is used to show relative standing within the major rating categories, except in the AAA (Prime Grade) category. DESCRIPTION OF BOND RATINGS OF MOODY'S INVESTORS SERVICE, INC. Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and generally are referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what generally are known as high grade bonds. They are rated lower than the best bonds A-1 because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A--Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and, therefore, not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B--Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa--Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca--Bonds which are rated Ca present obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C--Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Moody's applies the numerical modifiers 1, 2 and 3 to show relative standing within the major rating categories, except in the Aaa category and in the categories below B. The modifier 1 indicates a ranking for the security in the higher end of a rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of a rating category. A-2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN- TATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, IN ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE FUND SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SE- CURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. --------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 1 Fee Table................................................................ 10 The Fund................................................................. 11 Use of Proceeds.......................................................... 11 Investment Objectives and Policies....................................... 12 Other Investment Practices............................................... 22 Risk Factors and Special Considerations.................................. 31 Investment Restrictions.................................................. 34 Management of the Fund................................................... 35 Trustees and Officers of the Fund........................................ 37 Portfolio Transactions................................................... 40 Determination of Net Asset Value......................................... 41 Dividends and Other Distributions........................................ 42 Taxes.................................................................... 42 Automatic Dividend Reinvestment Plan..................................... 45 Underwriting............................................................. 47 Shareholder Servicing Agent, Custodian and Transfer and Dividend Disbursing Agent........................................................ 49 Description of Shares.................................................... 50 Other Information........................................................ 52 Legal Opinions........................................................... 52 Experts.................................................................. 52 Independent Auditors' Report............................................. 53 Statement of Assets and Liabilities...................................... 54 Appendix A: Ratings of Corporate Bonds................................... A-1
--------------- UNTIL MAY 18, 1998 ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO- SPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPEC- TUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHARES DREYFUS HIGH YIELD STRATEGIES FUND --------------- PROSPECTUS --------------- PAINEWEBBER INCORPORATED MERRILL LYNCH & CO. SALOMON SMITH BARNEY FAHNESTOCK & CO. INC. INTERSTATE/JOHNSON LANE CORPORATION --------------- APRIL 23, 1998 HYS/PO498 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART C OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (1) Financial Statements: The Selected Financial Information, Statement of Operations, Statement of Changes in Net Assets, and Schedules II through VII, inclusive, are omitted because the required information is included in the financial statement included in Part A or Part B, or because the conditions requiring their filing do not exist. (2) Exhibits (a) Declaration of Trust [previously filed] (b) Bylaws [previously filed] (c) Inapplicable (d) (1) Form of Certificate Representing Shares of Beneficial Interest (2) Portions of Declaration of Trust Relating to Shareholders' Rights [previously filed] (3) Portions of Bylaws Relating to Shareholders' Rights [previously filed] (e) Form of Terms and Conditions of Dividend Reinvestment Plan (f) Inapplicable (g) Form of Investment Management and Administration Agreement (h) (1) Form of Master Agreement Among Underwriters (2) Form of Underwriting Agreement (3) Form of Master Selected Dealers Agreement (i) Inapplicable (j) Form of Custodian Contract (k) (1) Form of Shareholder Servicing Agreement (2) Inapplicable (l) Opinion and Consent of Counsel (m) Inapplicable (n) Consent of Independent Auditors (o) Inapplicable (p) Initial Capital Agreement (q) Inapplicable ITEM 25. MARKETING ARRANGEMENTS Reference is made to the Form of Underwriting Agreement for Registrant's shares of beneficial interest to be filed by amendment to this Registration Statement. ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Securities and Exchange Commission Fees........... $ 254,438 NASD Fees and Expenses............................ $ 39,500 New York Stock Exchange Listing Fee............... $ 270,000 Printing.......................................... $ 90,000 Accounting Fees and Expenses...................... $ 15,000 Legal Fees........................................ $ 95,000 Blue Sky Fees and Expenses........................ $ 2,000 Reimbursement of Underwriters' Expenses........... $ 250,000 Miscellaneous..................................... $ 22,962 ========== Total $1,039,000 ========== ...... ITEM 27.....PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT ......None ITEM 28.....NUMBER OF RECORD HOLDERS OF SECURITIES ......None ITEM 29.....INDEMNIFICATION Article V of the Registrant's Declaration of Trust provides as follows: Section 5.1. No Shareholder shall be subject to any personal liability whatsoever to any Person in connection with Fund Property or the acts, obligations or affairs of the Fund. The Trustees shall have no power to bind any Shareholder personally or to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the Shareholder may at any time personally agree to pay by way of subscription to any Shares or otherwise. Shareholder liability for the acts and obligations of the Fund is hereby expressly disclaimed. Every note, bond, contract, or other undertaking issued by or on behalf of the Fund or the Trustees relating to the Fund shall include a notice and provision limiting the obligation represented thereby to the Fund and its assets (but the omission of such notice and provision shall not operate to impose any liability or obligation on any Shareholder). No Trustee, officer, employee or agent of the Fund shall be subject to any personal liability whatsoever to any Person, in connection with the Fund Property or the affairs of the Fund, save only that arising from bad faith, willful misfeasance, gross negligence or reckless disregard for his or her duty to such Person; and all such Persons shall look solely to the Fund Property for satisfaction of claims of any nature arising in connection with the affairs of the Fund. If any Shareholder, Trustee, officer, employee or agent, as such, of the Fund is made a party to any suit or proceeding to enforce any such liability, he or she shall not, on account thereof, be held to any personal liability. The Fund shall indemnify and hold each Shareholder harmless from and against all claims and liabilities, to which such Shareholder may become subject by reason of his or her being or having been a Shareholder, other than by reason of his or her own wrongful act or omission, and shall reimburse such Shareholder for all legal and other expenses reasonably incurred by him or her in connection with any such claim or liability. The rights accruing to a Shareholder under this Section 5.1 shall not exclude any other right to which such Shareholder may be lawfully entitled, nor shall anything herein contained restrict the right of the Fund to indemnify or reimburse a Shareholder in any appropriate situation even though not specifically provided herein. Section 5.2. No Trustee, officer, employee or agent of the Fund shall be liable to the Fund, its Shareholders, or to any Shareholder, Trustee, officer, employee, or agent thereof for any action or failure to act (including without limitation the failure to compel in any way any former or acting Trustee to redress any breach of trust) except for his or her own bad faith, willful misfeasance, gross negligence or reckless disregard of his or her duties. Section 5.3. (a) The Trustee shall provide for indemnification by the Fund of any person who is, or has been, a Trustee, officer, employee or agent of the Fund against all liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a Trustee, officer, employee or agent and against amounts paid or incurred by him in the settlement thereof, in such manner as the Trustees may provide from time to time in the by-laws. (b) The words "claim," "action," "suit," or "proceeding" shall apply to all claims, actions, suits or proceedings (civil, criminal or other, including appeals), actual or threatened; and the words "liability" and "expenses" shall include, without limitation, attorney's fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities. Insofar as indemnification for liability arising under the Securities Act of 1933 ("1933 Act") may be permitted to trustees, officers and controlling persons of the Fund, pursuant to the foregoing provisions, or otherwise, the Fund has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for a trustee, officer or controlling person of the Fund in the successful defense of any action, suit or proceeding or payment pursuant to any insurance policy) is asserted against the Fund by such trustee, officer or controlling person in connection with the securities being registered, the Fund will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. ITEM 30.....BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER The directors and officers of the Registrant's investment adviser have been engaged for the past two fiscal years in no business, vocation or employment of a substantial nature other than as directors or officers of the investment adviser or certain of it's corporate affiliates. The address of the investment adviser is 200 Park Avenue, New York, New York 10166. ITEM 31.....LOCATION OF ACCOUNTS AND RECORDS The accounts, books and other documents of the Fund required to be maintained by Section 31(a) of the Investment Company Act of 1940 and rules promulgated thereunder will be maintained at the office of the fund's custodian at One Mellon Bank Center, Pittsburgh, Pennsylvania 15258, and the Fund's dividend disbursing agent and registrar at P.O. Box 9671, Providence, Rhode Island, 09240-9671, except that the Fund's corporate records (its articles of incorporation, by-laws, and minutes of the meetings of its Board of Directors and shareholders) will be maintained at the offices of the Fund's investment advisor at 200 Park Avenue, New York, New York 10166. ITEM 32.....MANAGEMENT SERVICES None ITEM 33.....UNDERTAKINGS (1) The Registrant undertakes to suspend offering of its shares until it amends its prospectus if (1) subsequent to the effective date of its Registration Statement, the net asset value declines more than 10 percent from its net asset value as of the effective date of the Registration Statement or (2) the net asset value increases to an amount greater than its net proceeds as stated in the prospectus. (2) Inapplicable (3) Inapplicable (4) Inapplicable (5) the undersigned registrant hereby undertakes that: (a) For the purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 42(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective. (b) For the purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (6) Inapplicable NOTICE A copy of the Declaration of Trust of Dreyfus High Yield Strategies Fund is on file with the Secretary of State of the Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and that the obligations of or arising out of this instrument are not binding upon any of the Trustees, officers or shareholders individually, but are binding only upon the assets and property of the Registrant. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Pre-Effective Amendment No. 1 to the Registration Statement to be signed on behalf of the undersigned, thereto duly authorized, in the City of Boston, and the Commonwealth of Massachusetts on the 21st day of April, 1998. DREYFUS HIGH YIELD STRATEGIES FUND By: /s/ Marie E. Connolly -------------------------------------- Marie E. Connolly President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on the 21st day of April, 1998. SIGNATURE TITLE - --------- ----- /s/ Marie E. Connolly Principal Executive Officer, - ----------------------------------- President and Treasurer Marie E. Connolly /s/ Joseph F. Tower, III Principal financial Officer, - ----------------------------------- Vice President and Assistant Treasurer Joseph F. Tower, III /s/ Francis P. Brennan* Trustee, - ----------------------------------- Chairman of the Board of Trustees Francis P. Brennan Trustee - ----------------------------------- Ruth Marie Adams /s/ Joseph S. DiMartino* Trustee - ----------------------------------- Joseph S. DiMartino /s/ James M. Fitzgibbons* Trustee - ----------------------------------- James M. Fitzgibbons /s/ J. Tomlinson Fort* Trustee - ----------------------------------- J. Tomlinson Fort /s/ Arthur L. Goeschel* Trustee - ----------------------------------- Arthur L. Goeschel /s/ Kenneth A. Himmel* Trustee - ----------------------------------- Kenneth A. Himmel /s/ Arch S. Jeffrey* Trustee - ----------------------------------- Arch S. Jeffrey /s/ Stephen J. Lockwood* Trustee - ----------------------------------- Stephen J. Lockwood /s/ John J. Sciullo* Trustee - ----------------------------------- John J. Sciullo Trustee - ----------------------------------- Roslyn M. Watson /s/ Benaree Pratt Wiley* Trustee - ----------------------------------- Benaree Pratt Wiley /s/ Marie E. Connolly - ----------------------------------------- * By Marie E. Connolly, Attorney-in-Fact EX-99.2P 2 TEMPORARY CERTIFICATE - EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE WHEN READY FOR DELIVERY SHARES OF THIS CERTIFICATE IS TRANSFERABLE IN BENEFICIAL INTEREST NEW YORK CITY AND PAR VALUE RIDGEFIELD PARK, N.J. $.001 PER SHARE ----------------------------------------- : SHARES : : : : : : : : : ----------------------------------------- CUSIP 26200S 10 1 SEE REVERSE FOR CERTAIN DEFINITIONS DREYFUS HIGH YIELD STRATEGIES FUND A BUSINESS TRUST ORGANIZED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS - -------------------------------------------------------------------------------- : : : THIS CERTIFIES that : : : : : : : : : : : : is the owner of : : : - -------------------------------------------------------------------------------- FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST OF DREYFUS HIGH YIELD STRATEGIES FUND transferable only on the books of the Trust by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be subject to all of the provisions of the Declaration of Trust and Bylaws of the Trust, each as from time to time amended, copies of which are on file with the Transfer Agent, to all of which the holder by acceptance hereof assents. This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile seal of the Trust and the facsimile signatures of its duly authorized officers. Dated: [SEAL OF DREYFUS [SIDE BAR] HIGH YIELD STRATEGIES COUNTERSIGNED AND REGISTERED: FUND] ChaseMellon Shareholder Services, L.L.C. TRANSFER AGENT AND REGISTRAR AUTHORIZED SIGNATURE ---------------------------- ---------------------------- /s/ Assistant Treasurer /s/ President The Trust is authorized to issue two or more classes of shares. The Trust will furnish to any shareholder on request and without charge a full statement of the designation and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the shares of each class which the Trust is authorized to issue and, if the Trust is authorized to issue any preferred or special class in a series, of the differences in the relative rights and preferences between the shares of each series to the extent they have been set and the authority of the Board of Trustees to set the relative rights and preferences of subsequent series. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian TEN ENT - as tenants by the entireties ---------- JT TEN - as joint tenants with right (Cust) of survivorship and not as ------------------- tenants in common (Minor) under Uniform Gifts to Minors Act ------------------- (State) UNIF TRSFR MIN ACT - Custodian ---------- (Cust) ------------------- (Minor) under Uniform Transfers to Minors Act ------------------- (State) Additional abbreviations may also be used though not in the above list. For value received, hereby sell, assign and transfer unto ---------------- PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------- : : : : - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Please print or typewrite name and address including postal zip code of assignee - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shares of Beneficial Interest represented by the within Certificate, and do hereby irrevocably constitute and appoint -------------------------------------- Attorney to transfer the said stock on the books of the within-named Trust with full power of substitution in the premises. Dated, --------------------------- ------------------------------------------ [SIDE BAR] NOTE: The signature to this assignment must correspond with the name as written upon the face of the Certificate, in every particular, without alteration of enlargement, or any change whatever. EX-99.2E 3 TERMS AND CONDITIONS OF THE DREYFUS HIGH YIELD STRATEGIES FUND DIVIDEND REINVESTMENT PLAN All shareholders participating (the "Participants") in the Dividend Reinvestment Plan (the "Plan") of the Dreyfus High Yield Strategies Fund (the "Fund") will be bound by the following provisions: ChaseMellon Shareholder Services, L.L.C. (the "Agent") will act as Agent for each Participant, and will open an account for each Participant under the Plan in the same name as their present shares are registered, and put into effect for them the dividend reinvestment option of the Plan as of the first record date for a dividend or capital gains distribution. Whenever the Fund declares an income dividend or capital gains distribution payable in shares of the Fund or cash at the option of the shareholders, each Participant that does not opt for cash distributions shall take such distribution entirely in shares. If on the payment date for a dividend or distribution, the net asset value is equal to or less than the market price per share plus estimated brokerage commissions, the Agent shall automatically receive such shares, including fractions, for each Participant's account except in the circumstances described in paragraph 3 below. Except in such circumstances, the number of additional shares to be credited to each Participant's account shall be determined by dividing the dollar amount of the income dividend or capital gains distribution payable on their shares by the greater of the net asset value per share determined as of the date of purchase or 95% of the then current market price per share of the fund's shares on the payment date. Should the net asset value per share of the Fund shares exceed the market price per share plus estimated brokerage commissions on the payment date for a share or cash income dividend or capital gains distribution, the Agent or a broker-dealer selected by the Agent shall endeavor, for a purchase period of 30, days to apply the amount of such dividend or distribution on each Participant's shares (less their PRO RATA share of brokerage commissions incurred with respect to the Agent's open-market purchases in connection with the reinvestment of such dividend or distribution) to purchase shares of the Fund on the open market for each Participant's account. In no event may such purchases be made more than 30 days after the payment date for such dividend except where temporary curtailment or suspension of purchase is necessary to comply with applicable provisions of federal securities laws. If, at the close of business on any day during the purchase period the net asset value per share equals or is less than the market price per share plus estimated brokerage commissions, the Agent will not make any further open-market purchases in connection with the reinvestment of such dividend or distribution. If the Agent is unable to invest the full dividend or distribution amount through open-market purchases during the purchase period, the Agent shall request that, with respect to the uninvested portion of such dividend or distribution amount, the Fund issue new shares at the close of business on the earlier of the last day of the purchase period or the first day during the purchase period on which the net asset value per share equals or is less than the market price per share, plus estimated brokerage commissions, such shares to be issued in accordance with the terms specified in the third paragraph hereof. These newly issued shares will be valued at the then-current market price per share of the Fund's shares at the time such shares are to be issued. For purposes of making the dividend reinvestment purchase comparison under the Plan, (a) the market price of the Fund's shares on a particular date shall be the last sales price on the New York Stock Exchange on that date, or, if there is no sale on such Exchange on that date, then the mean between the closing bid and asked quotations for such shares on such Exchange on such date and (b) the net asset value per share of the Fund's shares on a particular date shall be the net asset value per share most recently calculated by or on behalf of the Fund. Open-market purchases provided for above may be made on any securities exchange where the Fund's shares are traded, in the over-the-counter market or in negotiated transactions and may be on such terms as to price, delivery and otherwise as the Agent shall determine. Each Participant's uninvested funds held by the Agent will not bear interest, and it is understood that, in any event, the Agent shall have no liability in connection with any inability to purchase shares within 30 days after the initial date of such purchase as herein provided, or with the timing of any purchases effected. The Agent shall have no responsibility as to the value of the Fund's shares acquired for each Participant's account. For the purpose of cash investments, the Agent may commingle each Participant's funds with those of other shareholders of the Fund for whom the Agent similarly acts as Agent, and the average price (including brokerage commissions) of all shares purchased by the Agent as Agent shall be the price per share allocable to each Participant in connection therewith. The Agent may hold each Participant's shares acquired pursuant to the Plan together with the shares of other shareholders of the Fund acquired pursuant to the Plan in noncertificated form in the Agent's name or that of the Agent's nominee. The Agent will forward to each Participant any proxy solicitation material; and will vote any shares so held for each Participant first in accordance with the instructions set forth on proxies returned by the participant to the Fund, and then with respect to any proxies not returned by the participant to the Fund in the same portion as the agent votes proxies returned by the participants to the Fund. Upon a Participant's written request, the Agent will deliver to the Participant, without charge, a certificate or certificates for the full shares. The Agent will confirm to each Participant each acquisition made for their account as soon as practicable but not later than 60 days after the date thereof. Although each Participant may from time to time have an undivided fractional interest (computed to three decimal places) in a share of the Fund, no certificates for a fractional share will be issued. However, dividends and distributions on fractional shares will be credited to each Participant's account. In the event of termination of a Participant's account under the Plan, the Agent will adjust for any such undivided fractional interest in cash at the market value of the Fund's shares at the time of termination. Any share dividends or split shares distributed by the Fund on shares held by the Agent for Participants will be credited to their accounts. In the event that the Fund makes available to its shareholders rights to purchase additional shares of other securities, the shares held for each Participant under the Plan will be added to other shares held by the Participant in calculating the number of rights to be issued to each Participant. The Agent's service fee for handling capital gains distributions or income dividends will be paid by the Fund. Each Participant will be charged their PRO RATA share of brokerage commissions on all open-market purchases. Each Participant may terminate their account under the Plan by notifying the Agent in writing. Such termination will be effective immediately if the Participant's notice is received by the Agent not less than ten days prior to any dividend or distribution record date, otherwise such termination will be effective shortly after the investment of such dividend distributions with respect to any subsequent dividend or distribution. The Plan may be terminated by the Agent or the Fund upon notice in writing mailed to each Participant at least 90 days prior to any record date for the payment of any dividend or distribution by the Fund. Upon any termination, the Agent will cause a certificate or certificates to be issued for the full shares held for each Participant under the Plan and cash adjustment for any fraction to be delivered to them without charge. If a Participant elects by notice to the Agent in writing in advance of such termination to have the Agent sell part or all of their shares and remit the proceeds to them, the Agent is authorized to deduct a $5.00 fee plus brokerage commission for this transaction from the proceeds. These terms and conditions may be amended or supplemented by the Agent or the Fund at any time or times but, except when necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority, only by mailing to each Participant appropriate written notice at least 30 days prior to the effective date thereof. The amendment or supplement shall be deemed to be accepted by each Participant unless, prior to the effective date thereof, the Agent receives written notice of the termination of their account under the Plan. Any such amendment may include an appointment by the Agent in its place and stead of a successor Agent under these terms and conditions, with full power and authority to perform all or any of the acts to be performed by the Agent under these terms and conditions. Upon any such appointment of any Agent for the purpose of receiving dividends and distributions, the Fund will be authorized to pay to such successor Agent, for each Participant's account, all dividends and distributions payable on shares of the Fund held in their name or under the Plan for retention or application by such successor Agent as provided in these terms and conditions. The Agent shall at all times act in good faith and agree to use its best efforts within reasonable limits to insure the accuracy of all services performed under this Agreement and to comply with applicable law, but assumes no responsibility and shall not be liable for loss or damage due to errors unless such error is caused by the Agent's negligence, bad faith, or willful misconduct or that of its employees. These terms and conditions shall be governed by the laws of the State of New York. 04/20/98
------------------------------------------------------------------ DREYFUS HIGH YIELD This form is for shareholders who hold stock in their own names. STRATEGIES FUND If your shares are held through a brokerage firm, bank or other nominee, you may need to instruct your nominee to opt out on your behalf. ------------------------------------------------------------------
I hereby elect NOT to participate in the Plan as provided in the Terms and Conditions. I understand that I may elect to participate in the Plan at any time.
- ---------------------------------------- ---------------------------------- Print Name(s) (Last, First, M.I.) Stockholder signature - ---------------------------------------- ---------------------------------- Print Address Stockholder signature - ---------------------------------------- ---------------------------------- Date Please sign exactly as your shares are registered. ( ) All persons whose names appear on the stock - --------------------------------------------------- certificates must sign. Print Telephone Number
YOU SHOULD RETURN THIS FORM IF YOU WISH TO RECEIVE CASH AND DO NOT WISH TO PARTICIPATE IN THE FUND'S DIVIDEND REINVESTMENT PLAN THIS IS NOT A PROXY This form, when signed, should be mailed to: ChaseMellon Shareholder Services, LLC 85 Challenger Road Ridgefield Park, New Jersey 07660 DREYFUS HIGH YIELD STRATEGIES FUND ELECTION NOT TO PARTICIPATE IN REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS (Please read carefully before signing.) I hereby elect not to participate in the Dreyfus High Yield Strategies Fund Dividend Reinvestment Plan. EX-99.2K 4 INVESTMENT MANAGEMENT AND ADMINISTRATION AGREEMENT DREYFUS HIGH YIELD STRATEGIES FUND 200 PARK AVENUE NEW YORK, NEW YORK 10166 April 22, 1998 The Dreyfus Corporation 767 Fifth Avenue New York, New York 10153 Dear Sirs: Dreyfus High Yield Strategies Fund, a Massachusetts business trust (the "Fund"), herewith confirms its agreement with you as follows: The Fund desires to employ its capital by investing and reinvesting the same in investments of the type and in accordance with the limitations specified in its Declaration of Trust and in its Prospectus as from time to time in effect, copies of which have been or will be submitted to you, and in such manner and to such extent as from time to time may be approved by the Fund's Board of Trustees. The Fund desires to employ you to act as its investment adviser. In this connection it is understood that from time to time you will employ or associate with yourself such person or persons as you may believe to be particularly fitted to assist you in the performance of this Agreement. Such person or persons may be officers or employees who are employed by both you and the Fund. The compensation of such person or persons will be paid by you and no obligation may be incurred on the Fund's behalf in any such respect. Subject to the supervision and approval of the Fund's Board of Trustees, you will provide investment management of the Fund's portfolio in accordance with the Fund's investment objective and policies as stated in its Prospectus as from time to time in effect. In connection therewith, you will obtain and provide investment research and will supervise the Fund's investments and conduct a continuous program of investment, evaluation and, if appropriate, sale and reinvestment of the Fund's assets. You will furnish to the Fund such statistical information, with respect to the investments which the Fund may hold or contemplate purchasing, as the Fund may reasonably request. The Fund wishes to be informed of important developments materially affecting its portfolio and will expect you, on your own initiative, to furnish to the Fund from time to time such information as you may believe appropriate for this purpose. Subject to the supervision and approval of the Fund's Board of Trustees, you also will provide administrative services for the Fund, including the following: (i) assist in preparing financial information relating to the Fund for the Fund's periodic reports to shareholders, proxy materials and earnings press releases; (ii) assemble all reports required to be filed by the Fund with the Securities and Exchange Commission on Form N-SAR, or such other form as the Securities and Exchange Commission may substitute for Form N-SAR, and file such completed forms with the Securities and Exchange Commission; (iii) assist in providing to the Fund's independent accountants such information as is necessary with respect to the Fund's Federal, state and local tax returns; (iv) monitor compliance of the Fund's operations with the 1940 Act and with its investment policies and limitations as currently in effect; (v) arrange for the dissemination to shareholders of the Fund's proxy materials; (vi) negotiate contractual arrangements with the Fund's agents, including custodians, transfer agents, dividend paying agents, independent accountants and printing companies; monitor the performance of such agents pursuant to such arrangements; and make such reports and recommendations to the Board concerning the provision of such services as the Board reasonably requests or as you deem appropriate; (vii) oversee the calculation of the Fund's net asset value and make the Fund's net asset value available for public dissemination; (viii) oversee the maintenance of the Fund's books and records under Rule 31a-1 under the 1940 Act by the Fund's custodians and transfer agent as applicable; (ix) establish the accounting policies of the Fund; establish and monitor the Fund's operating expense budgets; review the Fund's bills and process the payment of bills; (x) assist the Fund in determining the amount of dividends and distributions available to be paid by the Fund to its shareholders; prepare and arrange for the printing of dividend notices to shareholders; and provide the Fund's transfer and dividend disbursing agent and custodians with such information as is required for such parties to effect the payment of dividends and distributions and to implement the Fund's Automatic Dividend Reinvestment Plan, and (xi) if requested by the Board, arrange for persons to serve as Fund officers. In addition, you will supply office facilities (which may be in your own offices), data processing services, clerical, accounting and bookkeeping services, internal auditing and legal services, internal executive and administrative services, and stationery and office supplies; prepare reports to the Fund's stockholders, tax returns, reports to and filings with the Securities and Exchange Commission and, if necessary, state Blue Sky authorities; and generally assist in all aspects of the Fund's operations. You will exercise your best judgment in rendering the services to be provided to the Fund hereunder and the Fund agrees as an inducement to your undertaking the same that you will not be liable hereunder for any error of judgment or mistake of law or for any loss suffered by the Fund, provided that nothing herein will be deemed to protect or purport to protect you against any liability to the Fund or to its security holders to which you would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of your duties hereunder, or by reason of your reckless disregard of your obligations and duties hereunder. In consideration of services rendered pursuant to this Agreement, the Fund will pay you on the first business day of each month a fee at the annual rate of .90 of 1% of the value of the Fund's average weekly net assets. Net asset value will be computed on such days and at such time or times as described in the Fund's then-current Prospectus. The fee for the period from the date of the closing of the initial public offering of the Fund's shares to the end of 2 the month during which such sale will have closed will be pro-rated according to the proportion which such period bears to the full monthly period, and upon any termination of this Agreement before the end of any month, the fee for such part of a month will be pro-rated according to the proportion which such period bears to the full monthly period and will be payable upon the date of termination of this Agreement. For the purpose of determining fees payable to you, the value of the Fund's net assets will be computed in the manner specified in the Fund's then-current Prospectus. You will bear all expenses in connection with the performance of your services under this Agreement. All other expenses to be incurred in the operation of the Fund will be borne by the Fund, except to the extent specifically assumed by you. The expenses to be borne by the Fund include, without limitation, the following: organizational costs, taxes, interest, brokerage fees and commissions, if any, and other expenses in any way related to the execution, recording and settlement of portfolio security transactions, fees of Trustees who are not officers, Trustees, employees or holders of 5% or more of your outstanding voting securities, Securities and Exchange Commission fees, state Blue Sky qualification fees, advisory fees, shareholder servicing fees, charges of custodians, transfer and dividend paying agents' fees, certain insurance premiums, industry association fees, outside auditing and legal expenses, costs of independent pricing services, costs of maintaining corporate existence, expenses of reacquiring shares, expenses in connection with the Fund's Automatic Dividend Reinvestment Plan, costs of maintaining the required books and accountings (including the costs of calculating the net asset value of the Fund's shares), costs attributable to investor services (including, without limitation, telephone and personnel expenses), costs of shareholders' reports and meetings, costs of preparing, printing and mailing share certificates, proxy statements and prospectuses, and any extraordinary expenses. If in any fiscal year the aggregate expenses of the Fund (including fees pursuant to this Agreement, but excluding interest on borrowings, taxes, brokerage and, with the prior written consent of the necessary state securities commissions, extraordinary expenses) exceed the expense limitation of any state having jurisdiction over the Fund, the Fund may deduct from the payment to be made to you under this Agreement, or you will bear, such excess expense to the extent required by state law. Your obligation pursuant hereto will be limited to the amount of your fees hereunder. Such deduction or payment, if any, will be estimated, reconciled and effected or paid, as the case may be, on a monthly basis. The Fund understands that you now act, and that from time to time hereafter you may act, as investment adviser to one or more other investment companies and fiduciary or other managed accounts, and the Fund has no objection to your so acting, provided that when purchase or sale of securities of the same issuer is suitable for the investment objectives of two or more companies or accounts managed by you which have available funds for investment, the available securities will be allocated in a manner believed by you to be equitable to each company or account. It is recognized that in some cases this procedure may adversely affect the price paid or received by the Fund or the size of the position obtainable for or disposed of by the Fund. 3 In addition, it is understood that the persons employed by you to assist in the performance of your duties hereunder will not devote their full time to such service and nothing contained herein will be deemed to limit or restrict your right or the right of any of your affiliates to engage in and devote time and attention to other businesses or to render services of whatever kind or nature. You will not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this Agreement relates, except for a loss resulting from willful misfeasance, bad faith or gross negligence on your part in the performance of your duties, or from reckless disregard by you of your obligations and duties, under this Agreement. Any person, even though also your officer, Trustee, partner, employee or agent, who may be or become an officer, Trustee, employee or agent of the Fund, will be deemed, when rendering services to the Fund or acting on any business of the Fund, to be rendering such services to or acting solely for the Fund and not as your officer, Trustee, partner, employee, or agent or one under your control or direction even though paid by you. This Agreement will continue until April 4, 2000, and thereafter will continue automatically for successive annual periods ending on April 4 of each year, provided such continuance is specifically approved at least annually by (i) the Fund's Board of Trustees or (ii) vote of a majority (as defined in the Investment Company Act of 1940) of the Fund's outstanding voting securities, provided that in either event its continuance also is approved by a majority of the Fund's Trustees who are not "interested persons" (as defined in said Act) of any party to this purpose of voting on such approval. This Agreement is terminable without penalty, on 60 days' notice, by the Fund's Board of Trustees or by vote of holders of a majority of the Fund's shares or, upon not less than 90 days' notice, by you. This Agreement also will terminate automatically in the event of its assignment (as defined in said Act). The Fund recognizes that from time to time your Trustees, officers and employees may serve as Trustees, trustees, partners, officers and employees of other corporations, business trusts, partnerships or other entities (including other investment companies) and that such other entities may include the name "Dreyfus" as part of their name, and that your corporation or its affiliates may enter into investment advisory or other agreements with such other entities. If you cease to act as the Fund's investment adviser, the Fund agrees that, at your request, the Fund will take all necessary action to change the name of the Fund to a name not including "Dreyfus" in any form or combination of words. 4 If the foregoing is in accordance with your understanding, will you kindly so indicate by signing and return to us the enclosed copy hereof. Very truly yours, DREYFUS HIGH YIELD STRATEGIES FUND By: ---------------------------------- Accepted: THE DREYFUS CORPORATION By: --------------------------- EX-99.2H(1) 5 AMENDED AND RESTATED MASTER AGREEMENT AMONG UNDERWRITERS June 11, 1984 PaineWebber Incorporated 1285 Avenue of the Americas New York, New York 10019 Gentlemen: 1. GENERAL. We understand that PaineWebber Incorporated ("PWI") is entering into this Agreement in counterparts with us and other firms who may be underwriters for issues of securities for which PWI is acting as Representative or one of the Representatives of the several underwriters. This Agreement shall apply to any offering of securities in which we elect to act as an underwriter after receipt of a telegram, telex or other form of written communication ("Written Communication") from PWI stating the identity of the issuer and, if different from the issuer, the seller or sellers of such securities, the securities proposed to be offered, whether the underwriters are afforded an option to purchase additional securities to cover over-allotments, the price to underwriters, public offering price and date, interest rate, if any, and other variables, the amount of our proposed participation and the names of the other Representatives, if any, and that our participation as an underwriter in the proposed offering shall be subject to the provisions of this Agreement. Upon our telegraphic acceptance of such Written Communication we shall become one of the underwriters of such issue for the amount specified in the Written Communication, and this Agreement shall become binding upon us and the Representatives with respect to such offering. The obligations of each underwriter shall be several and not joint. The issuer of the securities offered in any offering of securities made pursuant to this Agreement is hereinafter referred to as the "Company", and such securities are hereinafter called the "Securities". The seller or sellers of the Securities (including, if applicable, the Company) are hereinafter referred to collectively as the "Seller". All references herein to "you" or the "Representatives" shall include PWI and the other firms, if any, which are named as Representatives in the Written Communication. The Securities to be offered in any offering may but need not be registered in a shelf registration pursuant to Rule 415 under the Securities Act of 1933 (the "Securities Act"). The following provisions of this Agreement shall apply separately to each individual offering of Securities. 2. UNDERWRITING ARRANGEMENTS. The Representatives shall determine which signatories to this Agreement will be invited to become underwriters for the Securities. Changes may be made by the Representatives in those who are to be underwriters and in the respective amounts of Securities to be purchased by them, but the amount of Securities to be purchased by us as set forth in the Written Communication to us will not be changed without our consent except as provided herein or in the underwriting agreement (the "Underwriting Agreement") with the Seller covering the Securities. We authorize you on our behalf to execute and deliver the Underwriting Agreement in such form as you determine and to take such action as you deem advisable in connection with the performance of the Underwriting Agreement and this Agreement and the purchase, carrying, sale and distribution of the Securities, including the election to exercise any option to purchase additional Securities to cover over-allotments if so provided. The parties on whose behalf you execute the Underwriting Agreement are hereinafter called the "Underwriters". You may waive performance or satisfaction by the Seller of certain of its obligations or conditions included in the Underwriting Agreement, if in your judgment such waiver will not have a material adverse effect upon the interests of the Underwriters. It is understood that, if so specified in the Written Communication for the issue, arrangements may be made for the sale of Securities by the Seller pursuant to delayed delivery contracts. Such Securities are hereinafter referred to as "Delayed Delivery Securities", and such contracts as "Delayed Delivery Contracts". References herein to delayed delivery and Delayed Delivery Contracts apply only to offerings in which delayed delivery is authorized. The term "underwriting obligation", as used in this Agreement with respect to any Underwriter, shall refer to the principal amount or number of shares of the Securities which such Underwriter is obligated to purchase pursuant to the provisions of the Underwriting Agreement, without regard to any reduction in such obligation as a result of Delayed Delivery Contracts which are entered into by the Seller. As compensation for your services we will pay a management fee as specified in the Written Communication for the issue (without deduction in respect of Delayed Delivery Securities), and you may charge our account therefor. If there is more than one Representative, such compensation will be divided among the Representatives in such proportions as they determine. 3. PROSPECTUS AND REGISTRATION STATEMENT. You will furnish to us as soon as possible copies of the prospectus or supplemented prospectus to be used in connection with the offering of the Securities. As used herein with respect to an offering of Securities registered under the Securities Act, "Prospectus" means the form of prospectus (including any supplements) authorized for use in connection with such offering, and "Registration Statement" means the registration statement, as amended, filed under the Securities Act pursuant to which the Securities are registered under the Securities Act. As used herein with respect to an offering of Securities not registered under the Securities Act, "Prospectus" or "Registration Statement" means the form of final offering circular (including any supplements) authorized for use in connection with such offering and "preliminary prospectus" means any preliminary offering circular authorized for use in connection with such offering. We consent to being named in the prospectus as one of the Underwriters of the Securities. 4. PUBLIC OFFERING. (a) In connection with the public offering of the Securities, we authorize you, in your discretion (i) to determine the time of the initial public offering, to change the public offering price and the concessions and discounts to dealers after the initial public offering, to furnish the Company with the information to be included in the Registration Statement or Prospectus with respect to the terms of offering, and to determine all matters relating to advertising and communications with dealers or others; 2 (ii) to reserve for sale to dealers selected by you ("Selected Dealers") and to others, and to reserve for sale pursuant to Delayed Delivery Contracts (including Delayed Delivery Contracts arranged by you through Selected Dealers), all or any part of our Securities, which reservations for sales to others and for sales pursuant to Delayed Delivery Contracts not arranged through Selected Dealers are to be as nearly as practicable in proportion to the respective underwriting obligations of the Underwriters, unless you agree to a smaller proportion at the request of any Underwriter, and such other reservations to be in such proportions as you determine, and, from time to time, to add to the reserved Securities any Securities retained by us remaining unsold and to release to us any of our Securities reserved but not sold; (iii) to sell reserved Securities, as nearly as practicable in proportion to the respective reservations, to Selected Dealers at the public offering price less the Selected Dealers' concession and to others at the public offering price; and (iv) to buy Securities for our account from Selected Dealers at the public offering price less such amount not in excess of the Selected Dealers' concession as you determine. If, in accordance with the terms of offering set forth in the Prospectus, the offering of the Securities is not at a fixed price but at varying prices set by individual Underwriters based on market prices or at negotiated prices, the provisions of clause (i) above relating to your right to change the public offering price and concessions and discounts to dealers shall not apply, and other references in this Section and elsewhere in this Agreement to the public offering price or Selected Dealers' concession shall be deemed to mean the prices and concessions determined by you from time to time in your discretion. Sales of Securities between Underwriters may be made with your prior consent, or as you deem advisable for Blue Sky purposes. After advice from you that the Securities are released for public offering, we will offer to the public in conformity with the terms of offering set forth in the Prospectus such of our Securities as you advise us are not reserved. Any Securities sold by us (otherwise than through you) which you purchase in the open market for the account of any Underwriter will be repurchased by us on demand at a price equal to the total cost of such purchase including any taxes on redelivery, commissions, accrued interest and dividends. Securities delivered on such repurchase need not be the identical certificates so purchased. In lieu of such action you may in your discretion sell for our account the Securities so purchased and debit or credit our account for the loss or profit resulting from such sale, or charge our account with an amount not in excess of the Selected Dealers' concession with respect to such Securities. (b) We authorize you to act on our behalf in making all arrangements for the solicitation of offers to purchase Delayed Delivery Securities from the Seller pursuant to Delayed Delivery Contracts and we agree that all such arrangements will be made only through you, directly or through Selected Dealers 3 (including Underwriters acting as Selected Dealers) to whom you may pay a commission as provided in the Prospectus and herein. The obligation of each of the Underwriters to purchase and pay for Securities as set forth in the Underwriting Agreement shall be reduced in the proportion provided for therein, except that (i) as to any Delayed Delivery Contract determined by you, in your discretion, to have been directed and allocated by a purchaser to a particular Underwriter, such obligation of such Underwriters shall be reduced by the amount of Delayed Delivery Securities covered thereby, (ii) as to any Delayed Delivery Contracts for which arrangements are made through Selected Dealers, such obligation of each Underwriter shall be reduced as nearly as practicable in the proportion determined by you that the amount of Securities of such Underwriter reserved and sold pursuant to Delayed Delivery Contracts arranged through Selected Dealers bears to the total Securities so reserved and sold, and (iii) such reductions shall be rounded, as you shall determine, to the nearest $1,000 principal amount or whole share of the Securities. The fee payable to each Underwriter with respect to Delayed Delivery Securities pursuant to the Underwriting Agreement shall be credited to the account of such Underwriter based upon the amount by which such Underwriter's underwriting obligation is reduced as specified in the preceding paragraph. If the amount of Delayed Delivery Securities applied to reduce an Underwriter's underwriting obligation and the amount of Securities sold by or for the account of such Underwriter exceeds such Underwriter's underwriting obligation, there shall be credited to such Underwriter in connection with such excess amount of Securities only the amount of the Selected Dealers' concession with respect thereto. The commissions payable to Selected Dealers in respect of Delayed Delivery Contracts arranged through them shall be charged to each Underwriter in the proportion which the amount of Securities of such Underwriter reserved and sold pursuant to Delayed Delivery Contracts arranged through Selected Dealers bears to the total Securities so reserved and sold. 5. PAYMENT AND DELIVERY. We authorize you to make payment on our behalf to the Seller of the purchase price of our Securities, to take delivery of our Securities, registered as you may direct in order to facilitate deliveries, and to deliver our reserved Securities against sales. At your request we will pay you, as you direct, (i) an amount equal to the public offering price, less the selling concession, of either our Securities or our unreserved Securities or (ii) the amount set forth or indicated in the Written Communication with respect to the Securities, and such payment will be credited to our account and applied to the payment of the purchase price. After you receive payment for reserved Securities sold for our account, you will remit to us the purchase price (if any) paid by us for such Securities and credit or debit our account with the difference between the sale prices and the purchase price thereof. You will deliver to us our unreserved Securities promptly, and our reserved but unsold Securities, against payment of the purchase price therefor (except in the case of Securities for which payment has previously been made), as soon as practicable after the termination of the provisions referred to in Section 9, except that if the aggregate amount of reserved but unsold Securities upon such 4 termination does not exceed 10% of the total amount of the Securities, you may in your discretion sell such reserved but unsold Securities for the accounts of the several Underwriters as soon as practicable after such termination, at such prices and in such manner as you determine. Unless we promptly give you written instructions otherwise, if transactions in the Securities may be settled through the facilities of The Depository Trust Company, payment for and delivery of securities purchased by us will be made through such facilities, if we are a member, or if we are not a member, settlement may be made through our ordinary correspondent who is a member. 6. AUTHORITY TO BORROW. In connection with the purchase or carrying of our Securities or other securities purchased for our account, we authorize you, in your discretion, to advance your funds for our account, charging current interest rates, to arrange loans for our account, and in connection therewith to execute and deliver any notes or other instruments and hold or pledge as security any of our Securities or such other securities. Any lender may rely upon your instructions in all matters relating to any such loan. Any Securities or such other securities held by you for our account may be delivered to us for carrying purposes, and if so delivered will be redelivered to you upon demand. 7. STABILIZATION AND OVER-ALLOTMENT. We authorize you, in your discretion, to make purchases and sales of Securities, any other securities of the Company of the same class and series and any other securities of the Company which you may designate in the open market or otherwise, for long or short account, on such terms as you deem advisable, and, in arranging sales, to over-allot and cover any such over-allotment, at your discretion, by purchasing Securities, exercising the over-allotment option, if any, indicated in the Written Communication, or both. Such purchases and sales and over-allotments will be made for the accounts of the Underwriters as nearly as practicable in proportion to their respective underwriting obligations. It is understood that you may have made purchases of securities of the Company for stabilizing purposes prior to the time when we become one of the Underwriters, and we agree that any securities so purchased shall be treated as having been purchased for the respective accounts of the Underwriters pursuant to the foregoing authorization. We authorize you, in your discretion, to cover any short position incurred pursuant to this Section by purchasing securities on such terms as you deem advisable. At no time will our net commitment under the foregoing provisions of this Section exceed 15% of our underwriting obligation. Solely for purposes of the immediately preceding sentence, our "underwriting obligation" shall be deemed to exclude any Securities which we are obligated to purchase solely by virtue of the exercise of an over-allotment option. We will on demand take up at cost any securities so purchased and deliver any securities so sold or over-alloted for our account, and, if any other Underwriter defaults in its corresponding obligation, we will assume our proportionate share of such obligation without relieving the defaulting Underwriter from liability. Upon request, we will advise you of the Securities retained by us and unsold and will sell to you for the account of one or more of the Underwriters such of our unsold Securities and at such price, not less than the net price to Selected Dealers nor more than the public offering price, as you determine. 8. OPEN MARKET TRANSACTIONS. We and you agree not to bid for, purchase, attempt to induce others to purchase, or sell, directly or indirectly, any Securities, any other securities of the Company of the same class and series and any other securities of the Company which you may designate, except as brokers 5 pursuant to unsolicited orders and as otherwise provided in this Agreement. If the Securities are common stock or securities convertible into common stock, we and you also agree not to effect, or attempt to induce others to effect, directly or indirectly, any transactions in or relating to put or call options on any stock of the Company, except to the extent permitted by Rule 10b-6 under the Securities Exchange Act of 1934 (the "Exchange Act") as interpreted by the Securities and Exchange Commission. An opening uncovered writing transaction in options to acquire Securities for our account or for the account of any customer shall be deemed, for purposes of the preceding sentence, to be a transaction effected by us in or relating to put or call options on stock of the Company not permitted by Rule 10b-6. The term "opening uncovered writing transaction" means an opening sale transaction where the seller intends to become a writer of an option to purchase stock which it does not own or have the right to acquire upon exercise of conversion or option rights. 9. TERMINATION AS TO AN OFFERING. The provisions of the last two paragraphs of Section 4(a), the first sentence of Section 7, and Section 8 will terminate at the close of business on the thirtieth day after the date of the initial public offering of the Securities, unless sooner terminated as hereinafter provided. You may terminate such provision as to such offering at any time by notice to us to the effect that the offering provisions of this Agreement as to such offering are terminated. 10. EXPENSES AND SETTLEMENT. You may charge our account with any transfer taxes on sales made by you of Securities purchased by us under the Underwriting Agreement and with our proportionate shares (based upon our underwriting obligation) of all other expenses incurred by you under this Agreement or in connection with the purchase, carrying, sale or distribution of the Securities. The accounts hereunder will be settled as promptly as practicable after the termination of the provisions referred to in Section 9, but you may reserve such amount as you deem advisable for additional expenses. Your determination of the amount to be paid to or by us will be conclusive. You may at any time make partial distributions of credit balances or call for payment of debit balances. Any of our funds in your hands may be held with your general funds without accountability for interest. Notwithstanding any settlement, we will remain liable for any taxes on transfers for our account, and for our proportionate share (based upon our underwriting obligation) of all expenses and liabilities which may be incurred by or for the accounts of the Underwriters. 11. DEFAULT BY UNDERWRITERS. Default by one or more Underwriters hereunder or under the Underwriting Agreement will not release the other Underwriters from their obligations or affect the liability of any defaulting Underwriter to the other Underwriters for damages resulting from such default. If one or more Underwriters default under the Underwriting Agreement, you may arrange for the purchase by others, including nondefaulting Underwriters, of Securities not taken up by the defaulting Underwriter or Underwriters. 12. POSITION OF REPRESENTATIVES. You will be under no liability to us for any act or omission except for obligations expressly assumed by you herein, and no obligations on your part will be implied or inferred herefrom. Your authority hereunder and under the Underwriting Agreement may be exercised by you jointly or by PWI. The rights and liabilities of the Underwriters are several and not 6 joint, and nothing will constitute the Underwriters a partnership, association or separate entity. If for Federal income tax purposes the Underwriters should be deemed to constitute a partnership then each Underwriter elects to be excluded from the application of Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code of 1954, as amended. You, as Representatives of the several Underwriters, are authorized, in your discretion, to execute on behalf of the Underwriters such evidence of such election as may be required by the Internal Revenue Service. 13. INDEMNIFICATION. We will indemnify and hold harmless each other Underwriter and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Securities Act to the extent and upon the terms upon which each Underwriter agrees to indemnify the Company and any other Seller in the Underwriting Agreement. 14. CONTRIBUTION. Each Underwriter (including you) will pay upon your request, as contribution, its proportionate share, based upon its underwriting obligation, of any losses, claims, damages or liabilities, joint or several, paid or incurred by any Underwriter to any person other than an Underwriter, arising out of or based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, the Prospectus, any amendment or supplement thereto or any related preliminary prospectus or any other selling or advertising material approved by you for use by the Underwriters in connection with the sale of the Securities, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (other than an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by an Underwriter specifically for use therein); and will pay such proportionate share of any legal or other expenses reasonably incurred by you or with your consent in connection with investigating or defending against any such loss, claim, damage or liability, or any action or proceeding (including any action or proceeding brought by a governmental or regulatory body) in respect thereof. In determining the amount of any Underwriter's obligation under this Section, appropriate adjustment may be made by you to reflect any amounts received by any one or more Underwriters in respect of such claim from the Company or any other Seller pursuant to the Underwriting Agreement or otherwise. There shall be credited against any amount paid or payable by us pursuant to this Section any loss, damage, liability or expense which is incurred by us as a result of any such claim asserted against us, and if such loss, claim, damage, liability or expense is incurred by us subsequent to any payment by us pursuant to this Section, appropriate provision shall be made to effect such credit, by refund or otherwise. If any such claim is asserted, you may take such action in connection therewith as you deem necessary or desirable, including retention of counsel for the Underwriters, and in your discretion separate counsel for any particular Underwriter or group of Underwriters, and the fees and disbursements of any counsel so retained by you shall be included in the amounts payable pursuant to this Section. In determining amounts payable pursuant to this Section, any loss, claim, damage, liability or expense incurred by any person controlling any Underwriter within the meaning of Section 15 of the Securities Act which has been incurred by reason of such control relationship shall be deemed to have been incurred by such Underwriter. Any Underwriter may elect to retain at its own expense its own counsel. You may settle or consent to the settlement of any such claim, on advice of counsel retained by you, with the approval of a majority in interest of the Underwriters. Whenever you receive notice of the assertion of any claim to which the provisions of this Section would be applicable, you will give prompt notice thereof to each Underwriter. You will also furnish each Underwriter with periodic reports, at such times as you deem appropriate, as to the status of such claim and the action taken by you in connection therewith. If any Underwriter or Underwriters default in their obligation to make any payments under this Section, each nondefaulting Underwriter shall be obligated to pay its proportionate share of all defaulted payments, based upon such Underwriter's underwriting obligation as related to the underwriting obligations of all nondefaulting Underwriters. 7 15. REPORTS AND BLUE SKY MATTERS. We authorize you to file with the Securities and Exchange Commission and any other governmental agency any reports required in connection with any transactions effected by you for our account pursuant to this Agreement, and we will furnish any information needed for such reports. If you effect stabilizing purchases pursuant to Section 7, you will notify us promptly of the initiation and termination thereof. If stabilization is effected we will file with you, c/o PWI, not later than the fifth full business day following the termination of stabilization, any report required to be filed pursuant to Rule 17a-2 under the Exchange Act. You will not have any responsibility with respect to the right of any Underwriter or other person to sell the Securities in any jurisdiction, notwithstanding any information you may furnish in that connection. 16. REPRESENTATIONS AND AGREEMENTS. (a) You represent that you are a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"), and we represent that we are either a member in good standing of the NASD or a foreign dealer not eligible for membership. If we are such a member we agree that in making sale of the Securities we will comply with all applicable rules of the NASD, including, without limitation, the NASD's interpretation with Respect to Free-Riding and Withholding and Section 24 of Article III of the Rules of Fair Practice. If we are such a foreign dealer, we agree not to offer or sell any Securities in the United States of America except through you and in making sales of Securities outside the United States of America we agree to comply as though we were a member with such interpretation and Sections 8, 24 and 36 of Article III of the NASD's Rules of Fair Practice and to comply with Section 25 of such Article III as it applies to a nonmember broker or dealer in a foreign country. (b) We understand that it is our responsibility to examine the Registration Statement, the Prospectus, any amendment or supplement thereto relating to the offering of the Securities, any preliminary prospectus and the material, if any, incorporated by reference therein and we will familiarize ourselves with the terms of the Securities and the other terms of the offering thereof which are to be reflected in the Prospectus and the Written Communication with respect thereto. You are authorized, with the approval of counsel for the Underwriters, to approve on our behalf any amendments or supplements to the Registration Statement or the Prospectus. (c) We confirm that the information that we have given or are deemed to have given in response to the Master Underwriters' Questionnaire attached as 8 Exhibit A hereto (which information has been furnished to the Company for use in the Registration Statement or the Prospectus) is correct. We will notify you immediately of any development before the termination of this Agreement under Section 9 as to the offering of the Securities which makes untrue or incomplete any information that we have given or are deemed to have given in response to the Master Underwriters' Questionnaire. (d) Unless we have promptly notified you in writing otherwise, our name as it should appear in the Prospectus and our address are set forth on the signature page hereof. (e)(i) If the Securities are being registered under the Securities Act, we represent that we are familiar with Rule 15c2-8 under the Exchange Act relating to the distribution of preliminary and final prospectuses and agree that we will comply therewith; we agree to keep an accurate record of the distribution (including dates, number of copies and persons to whom sent) by us of copies of the Registration Statement, the Prospectus or any preliminary prospectus (or any amendment or supplement to any thereof), and promptly upon request by you, to bring all subsequent changes to the attention of anyone to whom such material shall have been distributed; and we agree to furnish to persons who receive a confirmation of sale a copy of the Prospectus filed pursuant to Rule 424(b) or Rule 424(c) under the Securities Act. (ii) If the Securities will not be registered under the Securities Act, we agree that we will deliver all preliminary and final offering circulars required for compliance with the applicable laws and regulations governing the use and distribution of offering circulars by underwriters, and, to the extent consistent with such laws and regulations, we confirm that we have delivered and agree that we will deliver all preliminary and final offering circulars which would be required if the provisions of Rule 15c2-8 under the Exchange Act applied to this offering. (f) If the Securities are being registered under the Securities Act, we agree that, if we are advised by you that the Company was not, immediately prior to the filing of the Registration Statement, subject to the requirements of Section 13(a) or 15(d) of the Exchange Act, we will not, without your consent, sell any of the Securities to an account over which we exercise discretionary authority. 17. MISCELLANEOUS. (a) This Agreement may be terminated by either party hereto upon five business days' written notice to the other party; PROVIDED that with respect to any offering of Securities for which a Written Communication was sent by you and accepted by us prior to such notice, this Agreement shall remain in full force and effect as to such offering and shall terminate with respect to such offering in accordance with the provisions of Section 9. This Agreement may be supplemented or amended by you by written notice thereof to us, and any such supplement or amendment to this Agreement shall be effective with respect to any offering of securities to which this Agreement applies after the date of such supplement or amendment. Each reference to "this Agreement" herein shall, as appropriate, be to this Agreement as so amended and supplemented. 9 (b) This Agreement and the terms and conditions set forth herein with respect to any offering of Securities together with such supplementary terms and conditions with respect to such offering as may be contained in any Written Communication from you to us in connection therewith shall be governed by, and construed in accordance with, the laws of the State of New York. Very truly yours, ---------------------------------- (Name of Firm) by ---------------------------------- Confirmed, as of the date first above written. PAINEWEBBER INCORPORATED, by--------------------------------- Vice President 10 EXHIBIT A PaineWebber Incorporated MASTER UNDERWRITERS' QUESTIONNAIRE The terms used herein and not otherwise defined shall have the meanings assigned thereto in the Amended and Restated Master Agreement Among Underwriters dated June 11, 1984, between you and PaineWebber Incorporated ("PWI"). Reference will be made to this Master Underwriters' Questionnaire in each Written Communication described in Section 1 of the Amended and Restated Master Agreement Among Underwriters received by you from PWI in connection with offerings of securities in which PWI is acting as Representative or the manager of the Representatives of the several Underwriters. Your telegraphic acceptance of any such Written Communication should respond to this Master Underwriters' Questionnaire. Except as indicated in your telegraphic acceptance of our Written Communication with respect to the Securities: (1) neither you nor any of your directors, officers, partners or branch managers has (nor have you or they had within the last three years) a material relationship (as "material" is defined in Regulation C under the Securities Act) with the Company or its parent (if any), nor are you an affiliate of (within the meaning of the By-laws of the NASD), controlled by, controlling or under common control with the Company; (2) neither you nor any of your partners, officers, directors or branch managers, separately or as a group, owns of record or beneficially more than 5% of any class of voting securities of the Company or its parent (if any); (3) if the Securities are to be issued under an indenture to be qualified under the Trust Indenture Act of 1939; (a) neither you nor any of your directors, officers or partners is an affiliate (as defined in Rule 0-2 under the Trust Indenture Act of 1939) of the Trustee, or its parent (if any) and neither the Trustee nor its parent (if any) nor any of their directors or executive officers is a director, officer, partner, employee, appointee or representative of yours; (b) neither you nor any of your directors, partners or executive officers, separately or as a group, owns beneficially more than 1% of any class of voting securities of the Trustee or its parent (if any); and (c) if you are a corporation, you do not have outstanding nor have you assumed or guaranteed any securities otherwise than in your corporate name, and neither the Trustee nor its parent (if any) is a holder of such securities; (4) other than as is, or is to be, stated in the Registration Statement, the PWI Amended and Restated Master Agreement Among Underwriters, the PWI Amended and Restated Master Selected Dealer Agreement, or the Underwriting Agreement relating to the proposed offering, you do not know of or have reason to believe that (a) there are any discounts or commissions to be allowed or paid to underwriters or any other items that would be deemed by the NASD to constitute underwriting compensation for purposes of the NASD's Rules of Fair Practice, (b) there are any discounts or commissions to be allowed or paid to dealers, including all cash, securities, contracts, or other considerations to be received by any dealer in connection with the sale of the Securities, (c) there is an intention to over-allot or (d) the price of any security may be stabilized to facilitate the offering of the Securities; (5) your proposed commitment to purchase Securities will not result in a violation of the financial responsibility requirements of Section 15(c)(3) of the Exchange Act or the rules and regulations thereunder, including Rule 15c3-1, or any provisions of the applicable rules of the NASD or of any securities exchange to which you are subject or any restrictions imposed upon you by the NASD or any such exchange; (6) neither you nor any related person (as defined by the NASD) has (a) purchased any warrants, options or other securities of the Company within the preceding 12 months or (b) had any other dealings with the Company within the preceding 12 months as to which documents or other information is required to be furnished to the NASD, and, except as stated in the Registration Statement, you have no knowledge of any private placement of the Company's Securities within the preceding 18 months; (7) you have not prepared nor had prepared for you any report or memorandum for external use in connection with the proposed offering of the Securities, and if the Registration Statement is on Form S-1, you have not prepared any engineering, management or similar reports or memoranda relating to broad aspects of the business, operations or products of the Company within the past 12 months (except for reports solely comprised of recommendations to buy, sell or hold the securities of the Company, unless such recommendations have changed within the past six months). (If any such report or memorandum has been prepared furnish to PWI (a) four copies thereof and (b) a statement as to the actual or proposed use, identifying (i) each class of persons (institutional mailing lists, retail clients, etc.) who have received or will receive the report or memorandum, (ii) the number of copies distributed to each such class and (iii) the period of distribution.); (8) if the Written Communication states that the Company is subject to regulation under the Public Utility Holding Company Act of 1935 (the "Holding Company Act"), you are not a "holding company", or an "affiliate", or a "subsidiary company" of a "public utility company" or "holding company", each as defined in the Holding Company Act; and (9) if the Written Communication states that the Company is subject to regulation under the Holding Company Act, to the best of your knowledge, you are not a party to any proceeding being conducted by the Securities and Exchange Commission pursuant to any of the Acts administered by it, which is required to be disclosed in the Registration Statement or Prospectus or which would disqualify you from purchasing the Securities. EX-99.2H(2) 6 4,000,000 Shares* of Beneficial Interest DREYFUS HIGH YIELD STRATEGIES FUND UNDERWRITING AGREEMENT April __, 1998 PAINEWEBBER INCORPORATED MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED SALOMON SMITH BARNEY FAHNESTOCK & CO. INC. INTERSTATE/JOHNSON LANE CORPORATION as Representatives of the Several Underwriters named in Schedule 1 hereto c/o PaineWebber Incorporated 1285 Avenue of the Americas New York, New York 10019 Ladies and Gentlemen: Dreyfus High Yield Strategies Fund, a Massachusetts business trust (the "Fund"), proposes to issue and sell to you and the other underwriters named in Schedule 1 hereto (the "Underwriters"), for whom you are acting as representatives (the "Representatives"), 4,000,000 of its shares of beneficial interest (the "Firm Shares"), par value $.001 per share (the "Common Shares"). In addition, the Fund hereby grants to the Underwriters an option (the "Option") to purchase up to an additional 600,000 of its Common Shares (the "Option Shares") solely for the purpose of covering over-allotments. The Firm Shares and the Option Shares are referred to collectively herein as the "Shares." The Dreyfus Corporation ("Dreyfus"), a New York corporation, will act as the Fund's investment manager and administrator pursuant to an Investment Management and Administration Agreement by and between the Fund and Dreyfus, dated as of April __, 1998 (the "Investment Advisory Agreement"). Mellon Bank, N.A. will act as the custodian (the "Custodian") of the Fund's cash and portfolio assets pursuant to a custody agreement, dated as of April __, 1998 (the "Custody Agreement"). ChaseMellon Shareholder Services, LLC will act as the Fund's dividend disbursing agent, transfer agent and registrar (the "Transfer - ----------------- * Plus an option to purchase, in the aggregate, up to 600,000 additional Common Shares to cover over-allotments. Agent") pursuant to a transfer agency agreement, dated April __, 1998 (the "Transfer Agency Agreement"). PaineWebber Incorporated will provide the Fund and its shareholders with certain shareholder services, pursuant to a shareholder servicing agreement, dated April __, 1998 (the "Shareholder Servicing Agreement"). [Add any other material agreements.] The Fund and Dreyfus each hereby confirms as follows their agreements with the Representatives and the several other Underwriters. 1. SALE AND PURCHASE; COMPENSATION. ------------------------------- (a) The Fund will issue and sell to each Underwriter, and each Underwriter will purchase from the Fund, the number of Firm Shares opposite such Underwriter's name in Schedule 1 hereto, at the purchase price of $15.00 per share of Common Shares. (b) The Fund grants to the Underwriters the Option to purchase all or any part of the Option Shares for the same consideration per share as for the Firm Shares. The Option may be exercised only to cover over-allotments in the sales of the Firm Shares by the Underwriters. The number of Option Shares (adjusted by the Representatives to eliminate fractions) to be purchased by each Underwriter will be the same percentage of the aggregate number of Option Shares being sold as such Underwriter is obligated to purchase of the Firm Shares. Such Option may be exercised in whole or in part, only to cover over-allotments, at any time or from time to time on or before the 60th day after the date of this Underwriting Agreement, upon written or telefacsimile notice (the "Option Shares Notice") from the Representatives to the Fund no later than 12:00 noon, New York City time, at least two and not more than five business days before the date specified for closing in the Option Shares Notice (the "Option Shares Closing Date"), setting forth the number of Option Shares to be purchased and the time and date of such purchase. Upon delivery and receipt of the Option Shares Notice, the Fund will issue and sell to each Underwriter, and each Underwriter will purchase from the Fund, on the Option Shares Closing Date, its portion of the number of Option Shares set forth in the Option Shares Notice. (c) The obligations of the Underwriters under this Underwriting Agreement are several and not joint and are undertaken on the basis of the representations and are subject to the conditions set forth in this Underwriting Agreement. (d) Dreyfus agrees to make the payments to the Underwriters when and as required by Section 2 hereof. 2. PAYMENT AND DELIVERY. Delivery by the Fund of the Firm Shares (the "Firm Shares Closing") to the Representatives for the accounts of the Underwriters against payment of the purchase price by wire transfer of Federal Funds or similar same day funds to the Fund for the Firm Shares, will take place at the offices of ________________, or through the facilities of the Depository Trust Company or another mutually agreeable facility, at 9:00 a.m., New York City time, on the third business day following the date of this Underwriting Agreement, or at such time on such other date, not later than ten 2 business days after the date of this Underwriting Agreement, as may be agreed on by the Fund and the Representatives (the "Firm Shares Closing Date"). If and to the extent that the Option is exercised, delivery of the Option Shares and payment by the Underwriters (in the manner specified above) will take place at the offices or through the facilities specified above for the Firm Shares Closing at the time and date (which may be the Firm Shares Closing Date) specified in the Option Shares Notice. Any Option Shares Closing Date may not be later than three business days following the exercise of the related Option. The Firm Shares Closing Date and any Option Shares Closing Date are called the "Closing Dates. " Certificates evidencing Common Shares will be in definitive form (or temporary form acceptable to the New York Stock Exchange), registered in such names and in such denominations as the Representatives requests at least two full business days before the Firm Shares Closing Date or, in the case of Option Shares, on the day of notice of exercise of the Option as described in Section 1(b), and will be made available to the Representatives for checking and packaging, at a place in New York City designated by the Representatives, at least one full business day before the relevant Closing Date. Simultaneous with delivery to the Underwriters of and payment by the Underwriters for (i) Firm Shares on the Firm Shares Closing Date and (ii) Option Shares on the Option Shares Closing Date, Dreyfus will pay to the Underwriters an amount equal to __ percent of the purchase price per Share for each Share to be purchased by the Underwriters on such date by certified or official bank check or checks payable in New York Clearing House (next day) funds on such Firm Shares Closing Date or Option Shares Closing Date, as the case may be, to the order of PaineWebber Incorporated. 3. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC OFFERING. The Fund has filed with the Securities and Exchange Commission (the "Commission"), pursuant to the Securities Act of 1933, as amended (the "Securities Act"), the Investment Company Act of 1940, as amended (the "Investment Company Act"), and the published rules and regulations adopted by the Commission under the Securities Act (the "Securities Act Rules") and the Investment Company Act (the "Investment Company Act Rules"), a Notification of Registration on Form N-8A (the "Notification") pursuant to Section 8 of the Investment Company Act and a registration statement on Form N-2 (File Nos. 333-48117 and 811-8703) relating to the Shares (the "registration statement"), including a preliminary prospectus (including any preliminary statement of additional information), and such amendments to such registration statement as may have been required to the date of this Underwriting Agreement. The preliminary prospectus is to be used in connection with the offering and sale of the Shares. The term "Preliminary Prospectus" as used herein means any preliminary prospectus included at any time as a part of the registration statement and any preliminary prospectus (including any preliminary statement of additional information) omitted therefrom pursuant to the Securities Act Rules. The Fund has furnished the Representatives copies of such registration statement, each amendment to such registration statement filed by 3 the Fund with the Commission and the Preliminary Prospectus filed by the Fund with the Commission or used by the Fund. If the registration statement has not become effective, a further amendment (the "Final Amendment") to such registration statement, including the forms of final prospectus (including any final statement of additional information), necessary to permit such registration statement to become effective will promptly be filed by the Fund with the Commission. If such registration statement has become effective and any prospectus (including any statement of additional information) contained therein omits certain information at the time of effectiveness pursuant to Rule 430A of the Securities Act Rules, a final prospectus (the "Rule 430A Prospectus") containing such omitted information will be filed by the Fund with the Commission in accordance with Rule 497(h) of the Securities Act Rules. The registration statement as amended at the time it becomes or became effective (the "Effective Date"), including financial statements and all exhibits, and any information deemed to be included by Rule 430A, is called the "Registration Statement." The term "Prospectus" means the prospectus (including any statement of additional information) in the form in which it is first filed with the Commission pursuant to Rule 497(b), (h) or (j) of the Securities Act Rules, as the case may be. The Fund and Dreyfus understand that the Underwriters propose to make a public offering of the Firm Shares, as described in the Prospectus, as soon after the Effective Date (or, if later, after the date this Underwriting Agreement is signed) as the Representatives deems advisable. The Fund and Dreyfus confirm that the Underwriters and dealers have been authorized to distribute the Preliminary Prospectus relating to the Shares included in the initial filing of the registration statement and are authorized to distribute the Prospectus and any amendments or supplements thereto. 4. REPRESENTATIONS. --------------- (a) Each of the Fund and Dreyfus jointly and severally represents to each Underwriter as follows: (i) On (A) the Effective Date and the date on which the Prospectus is first filed with the Commission pursuant to Rule 497(b), (h) or (j) of the Securities Act Rules, as the case may be, (B) the date on which any post-effective amendment to the Registration Statement (except any post-effective amendment which is filed with the Commission after the later of (x) one year from the date of this Underwriting Agreement or (y) the date on which the distribution of the Shares is completed) became or becomes effective or any amendment or supplement to the Prospectus was or is filed with the Commission and (C) the Closing Dates, the Registration Statement, the Prospectus and any such amendment or supplement thereto and the Notification complied or will comply in all material respects with the requirements of the Securities Act, the Investment Company Act, the Securities Act Rules and the Investment Company Act Rules, as the case may be. On the Effective Date and on the date that any post-effective amendment to the Registration Statement (except any post-effective amendment which is filed with the Commission after the later of (x) one year from the date of this Underwriting Agreement or (y) the date on which the 4 distribution of the Shares is completed) became or becomes effective, neither the Registration Statement nor any such amendment did or will contain any untrue statement of a material fact or omit to state a material fact required to be stated in it or necessary to make the statements in it not misleading. At the Effective Date and, if applicable, the date the Prospectus or any amendment or supplement to the Prospectus was or is filed with the Commission and at the Closing Dates, the Prospectus did not or will not, as the case may be, contain any untrue statement of a material fact or omit to state a material fact required to be stated in it or necessary to make the statements in it, in light of the circumstances under which they were made, not misleading. The foregoing representations in this Section 4(a)(i) do not apply to statements or omissions relating to the Underwriters made in reliance on and in conformity with information furnished in writing to the Fund by the Representatives expressly for use in the Registration Statement, the Prospectus, or any amendments or supplements thereto. (ii) The Fund has been duly organized and is validly existing as a Massachusetts business trust in good standing under the laws of The Commonwealth of Massachusetts, with full power and authority to conduct all the activities conducted by it, to own or lease all assets owned (or to be owned) or leased (or to be leased) by it and to conduct its business as described in the Registration Statement and Prospectus, and the Fund is duly licensed and qualified to do business and in good standing as a foreign corporation or otherwise in each jurisdiction in which its ownership or leasing of property or its conducting of business requires such qualification, except where the failure to be so qualified or be in good standing would not have a material adverse effect on the Fund, and the Fund owns, possesses or has obtained and currently maintains all governmental licenses, permits, consents, orders, approvals and other authorizations, whether foreign or domestic, necessary to carry on its business as contemplated in the Prospectus. The Fund has no subsidiaries. (iii) The capitalization of the Fund is as set forth in the Registration Statement and the Prospectus. The Common Shares of the Fund conform in all respects to the description of them in the Prospectus. All the outstanding Common Shares have been duly authorized and are validly issued, fully paid and nonassessable. The Shares to be issued and delivered to and paid for by the Underwriters in accordance with this Underwriting Agreement against payment therefor as provided by this Underwriting Agreement have been duly authorized and when issued and delivered to the Underwriters will have been validly issued and will be fully paid and nonassessable. No person is entitled to any preemptive or other similar rights with respect to the Shares. (iv) The Fund is duly registered with the Commission under the Investment Company Act as a non-diversified, closed-end management investment company, and all action under the Securities Act, the Investment Company 5 Act, the Securities Act Rules and the Investment Company Act Rules, as the case may be, necessary to make the public offering and consummate the sale of the Shares as provided in this Underwriting Agreement has or will have been taken by the Fund. (v) The Fund has full power and authority to enter into each of this Underwriting Agreement, the Investment Advisory Agreement, the Custody Agreement, the Transfer Agency Agreement and the Shareholder Servicing Agreement (collectively, the "Fund Agreements") and to perform all of the terms and provisions hereof and thereof to be carried out by it and (A) each Fund Agreement has been duly and validly authorized, executed and delivered by the Fund, (B) each Fund Agreement complies in all material respects with all provisions of the Investment Company Act, the Investment Advisers Act of 1940 (the "Advisers Act"), the Investment Company Act Rules and the rules and regulations adopted by the Commission under the Advisers Act (the "Advisers Act Rules"), as the case may be, and (C) assuming due authorization, execution and delivery by the other parties thereto, each Fund Agreement constitutes the legal, valid and binding obligation of the Fund enforceable in accordance with its terms, (1) subject, as to enforcement, to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and to general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at law) and (2) as rights to indemnity thereunder may be limited by federal or state securities laws. (vi) None of (A) the execution and delivery by the Fund of the Fund Agreements, (B) the issue and sale by the Fund of the Shares as contemplated by this Underwriting Agreement and (C) the performance by the Fund of its obligations under the Fund Agreements or consummation by the Fund of the other transactions contemplated by the Fund Agreements conflicts with or will conflict with, or results or will result in a breach of, the Declaration of Trust or the By-laws of the Fund or any agreement or instrument to which the Fund is a party or by which the Fund is bound, or any law, rule or regulation, or order of any court, governmental instrumentality, securities exchange or association or arbitrator, whether foreign or domestic, applicable to the Fund, other than state or foreign securities or "blue sky" laws applicable in connection with the purchase and distribution of the Shares by the Underwriters pursuant to this Underwriting Agreement. (vii) The Fund is not currently in breach of, or in default under, any written agreement or instrument to which it is a party or by which it or its property is bound or affected. (viii) No person has any right to the registration of any securities of the Fund because of the filing of the registration statement. 6 (ix) No consent, approval, authorization or order of any court or governmental agency or body or securities exchange or association, whether foreign or domestic, is required by the Fund for the consummation by the Fund of the transactions to be performed by the Fund or the performance by the Fund of all the terms and provisions to be performed by or on behalf of it in each case as contemplated in the Fund Agreements, except such as (A) have been obtained under the Securities Act, the Investment Company Act, the Advisers Act, the Securities Act Rules, the Investment Company Act Rules, and the Advisers Act Rules, and (B) may be required by the New York Stock Exchange or under state or foreign securities or "blue sky" laws, in connection with the purchase and distribution of the Shares by the Underwriters pursuant to this Underwriting Agreement. (x) The Shares are duly authorized for listing, subject to official notice of issuance, on the New York Stock Exchange and the Fund's Registration Statement on Form 8-A, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), has become effective. (xi) KPIG Peat Marwick LLP, whose report appears in the Prospectus, are independent public accountants with respect to the Fund as required by the Securities Act, the Investment Company Act, the Securities Act Rules and the Investment Company Act Rules. (xii) The statement of assets and liabilities included in the Registration Statement and the Prospectus presents fairly in all material respects, in accordance with generally accepted accounting principles in the United States applied on a consistent basis, the financial position of the Fund as at the date indicated. (xiii) The Fund will maintain a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management's general or specific authorization; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (C) access to assets is permitted only in accordance with management's general or specific authorization; and (D) the recorded accountability for assets is compared with existing assets through an asset reconciliation procedure or otherwise at reasonable intervals and appropriate action is taken with respect to any differences. (xiv) Since the date as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, business affairs or business prospects of the Fund, 7 whether or not arising in the ordinary course of business, (B) there have been no transactions entered into by the Fund other than those in the ordinary course of its business and (C) there has been no dividend or distribution of any kind declared, paid or made on any class of its capital shares. (xv) There is no action, suit or proceeding before or by any court, commission, regulatory body, administrative agency or other governmental agency or body, foreign or domestic, now pending, or, to the knowledge of the Fund, threatened against or affecting the Fund, which (A) might result in any material adverse change in the condition, financial or otherwise, business affairs or business prospects of the Fund or might materially adversely affect the properties or assets of the Fund or (B) is of a character required to be described in the Registration Statement or the Prospectus; and there are no contracts, franchises or other documents that are of a character required to be described in, or that are required to be filed as exhibits to, the Registration Statement that have not been described or filed as required. (xvi) Except for stabilization transactions conducted by the Underwriters, and except for Share repurchases effected following the date on which the distribution of the Shares is completed in accordance with the policies of the Fund as set forth in the Prospectus, the Fund has not taken and will not take, directly or indirectly, any action designed or which might be reasonably expected to cause or result in, or which will constitute, stabilization or manipulation of the price of the Common Shares in violation of federal securities laws. (xvii) The Fund intends to direct the investment of the proceeds of the offering of the Shares in such a manner as to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). (xviii) To the knowledge of the Fund after due inquiry, no advertising, sales literature or other promotional materials (excluding broker kits, road show slides or road show tapes) were authorized or prepared by or on behalf of the Fund and Dreyfus or any representative thereof for use in connection with the public offering or sale of the Shares other than the definitive client brochure and the definitive broker fact sheet (collectively, the "sales materials"), drafts of which were filed by or on behalf of the Fund with the National Association of Securities Dealers, Inc. (the "NASD") on March 18, 1998; the sales materials complied and comply in all material respects with the applicable requirements of the Securities Act, the Securities Act Rules and the rules and interpretations of the NASD; and no broker kits, road show slides, road show tapes or sales materials authorized or prepared by the Fund or authorized or prepared on behalf of the Fund by Dreyfus or any representative thereof for use in connection with the public offering or sale of the Shares contained or contains any untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading. 8 (xix) There are no material restrictions, limitations or regulations with respect to the ability of the Fund to invest its assets as described in the Prospectus other than as described therein. (b) Dreyfus represents to each Underwriter as follows: (i) Dreyfus has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation with full power and authority to conduct all of the activities conducted by it, to own or lease all of the assets owned or leased by it and to conduct its business as described in the Registration Statement and Prospectus, and Dreyfus is duly licensed and qualified as a foreign corporation and in good standing in each jurisdiction in which it is required to be so qualified, except to the extent that failure to be so qualified or be in good standing would not have a material adverse affect on Dreyfus; and Dreyfus owns, possesses or has obtained and currently maintains all governmental licenses, permits, consents, orders, approvals and other authorizations, whether foreign or domestic, necessary to carry on its business as contemplated in the Registration Statement and the Prospectus. (ii) Dreyfus is (A) duly registered as an investment adviser under the Advisers Act and (B) not prohibited by the Advisers Act, the Investment Company Act, the Advisers Act Rules or the Investment Company Act Rules from acting as the investment adviser for the Fund as contemplated by the Investment Advisory Agreement, the Registration Statement and the Prospectus. (iii) Dreyfus has full power and authority to enter into each of this Underwriting Agreement and the Investment Advisory Agreement and to carry out all the terms and provisions hereof and thereof to be carried out by it, and each such agreement has been duly and validly authorized, executed and delivered by Dreyfus; each of the Investment Advisory Agreement and this Underwriting Agreement complies in all material respects with all provisions of the Investment Company Act, the Advisers Act, the Investment Company Act Rules and the Advisers Act Rules; and assuming due authorization, execution and delivery by the other parties thereto, each of this Underwriting Agreement and the Investment Advisory Agreement constitutes a legal, valid and binding obligation of Dreyfus, enforceable in accordance with its terms, (1) subject, as to enforcement, to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and to general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at law) and (2) as rights to indemnity thereunder may be limited by federal or state securities laws. (iv) Neither (A) the execution and delivery by Dreyfus of this Underwriting Agreement or the Investment Advisory Agreement by Dreyfus nor (B) the consummation by 9 Dreyfus of the transactions contemplated by, or the performance of its obligations under such agreements conflicts or will conflict with, or results or will result in a breach of, the Articles of Incorporation or By-Laws of Dreyfus or any agreement or instrument to which Dreyfus is a party or by which Dreyfus is bound, or any law, rule or regulation, or order of any court, governmental instrumentality, securities exchange or association or arbitrator, whether foreign or domestic, applicable to Dreyfus. (v) No consent, approval, authorization or order of any court, governmental agency or body or securities exchange or association, whether foreign or domestic, is required for the consummation of the transactions contemplated in, or the performance by Dreyfus of its obligations under, this Underwriting Agreement or the Investment Advisory Agreement, as the case may be, except such as have been obtained under the Investment Company Act, the Advisers Act, the Securities Act, the Investment Company Act Rules, the Advisers Act Rules and the Securities Act Rules. (vi) The description of Dreyfus and its business in the Registration Statement and the Prospectus complies with the requirements of the Securities Act, the Investment Company Act, the Securities Act Rules and the Investment Company Act Rules and does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading. (vii) There is no action, suit or proceeding before or by any court, commission, regulatory body, administrative agency or other governmental agency or body, foreign or domestic, now pending or, to the knowledge of Dreyfus, threatened against or affecting Dreyfus of a nature required to be disclosed in the Registration Statement or Prospectus or that might result in any material adverse change in the condition, financial or otherwise, business affairs or business prospects of Dreyfus or the ability of Dreyfus to fulfill its respective obligations under this Underwriting Agreement or under the Investment Advisory Agreement. (viii) Except for stabilization activities conducted by the Underwriters, Dreyfus has not taken and will not take, directly or indirectly, any action designed, or which might reasonably be expected to cause or result in, or which will constitute, stabilization or manipulation of the price of the Common Shares. 5. AGREEMENTS OF THE PARTIES. ------------------------- (a) If the registration statement relating to the Shares has not yet become effective, the Fund will promptly file the Final Amendment, if not previously filed, with the Commission, and will use its best efforts to cause such registration statement to become effective and, as soon as the Fund is advised, will advise the Representatives when the Registration Statement or any amendment thereto has become effective. If the Registration Statement has become effective and the Prospectus contained therein omits certain information at the time of effectiveness pursuant to Rule 430A of the Securities Act Rules, the Fund will file a 430A Prospectus pursuant to Rule 497(h) of the Securities Act Rules as promptly as practicable, but no later than the second business day following the earlier of the date of the determination of the offering price of the Shares or the date the Prospectus is first used after the Effective Date. If the Registration Statement has become effective and the Prospectus contained therein does not so omit such information, the Fund will file a Prospectus pursuant to Rule 497(b) or (j) of the Securities Act Rules as promptly as practicable, but no later than the fifth business day following the date of the later of the Effective Date or the commencement of the public offering of the Shares after the Effective Date. In either case, the Fund will provide the Representatives satisfactory evidence of the filing. The Fund will not file with the Commission any Prospectus or any other amendment (except any post-effective amendment which is filed with the Commission after the later of (x) one year from the date of this Underwriting Agreement or (y) the date on which distribution of the Shares is completed) or supplement to the Registration Statement or the Prospectus unless a copy has first been submitted to the Representatives a reasonable time before its filing and the Representatives has not objected to it in writing within a reasonable time after receiving the copy. (b) For the period of three years from the date hereof, the Fund will advise the Representatives promptly (1) of the issuance by the Commission of any order in respect of the Fund which relates to the Fund, or any arrangements or proposed arrangements involving the Fund, (2) of the initiation or threatening of any proceedings for, or receipt by the Fund of any notice with respect to, the suspension of the qualification of the Shares for sale in any jurisdiction or the issuance of any order by the Commission suspending the effectiveness of the Registration Statement, (3) of receipt by the Fund, or any representative or attorney of the Fund, of any other communication from the Commission relating to the Fund, the Registration Statement, the Notification, any preliminary prospectus, the Prospectus or to the transactions contemplated by this Underwriting Agreement and (4) the issuance by any court, regulatory body, administrative agency or other governmental agency or body, whether foreign or domestic, of any order, ruling or decree, or the threat to initiate any proceedings with respect thereto, regarding the Fund or Dreyfus, which relates to the Fund or any arrangements or proposed arrangements involving the Fund or Dreyfus. The Fund will make every reasonable effort to prevent the issuance of any order suspending the effectiveness of the Registration Statement and, if any such order is issued, to obtain its lifting as soon as possible. (c) If not delivered prior to the date of this Underwriting Agreement, the Fund will deliver to the Representatives, without charge, a signed copy of the registration statement and the Notification and of any amendments (except any post-effective amendment which is filed with the Commission after the later of (x) one year from the date of this Underwriting Agreement or (y) the date on which the distribution of the Shares is completed) to either the Registration Statement or the Notification (including all exhibits filed with any such document) and as many conformed copies of the registration statement and any amendments thereto (except any post-effective amendment which is filed with the Commission after the later of (x) one year from the date of this Underwriting Agreement or (y) the date on which the distribution of the 11 Shares is completed) (excluding exhibits) as the Representatives may reasonably request. (d) During such period as a prospectus is required by law to be delivered by an underwriter or a dealer, the Fund will deliver, without charge, to the Representatives, the Underwriters and any dealers, at such office or offices as the Representatives may designate, as many copies of the Prospectus and as the Representatives may reasonably request, and, if any event occurs during such period as a result of which it is necessary to amend or supplement the Prospectus, in order to make the statements therein, in light of the circumstances existing when such prospectus is delivered to a purchaser of Shares, not misleading in any material respect, or if during such period it is necessary to amend or supplement the prospectus to comply with the Securities Act, the Investment Company Act, the Securities Act Rules or the Investment Company Act Rules, the Fund promptly will prepare, submit to the Representatives, file with the Commission and deliver, without charge, to the Underwriters and to dealers (whose names and addresses the Representatives will furnish to the Fund) to whom Shares may have been sold by the Underwriters, and to other dealers on request, amendments or supplements to the Prospectus so that the statements in such Prospectus, as so amended or supplemented, will not, in light of the circumstances existing when such Prospectus is delivered to a purchaser, be misleading in any material respect and will comply with the Securities Act, the Investment Company Act, the Securities Act Rules and the Investment Company Act Rules. Delivery by the Underwriters of any such amendments or supplements to the Prospectus will not constitute a waiver of any of the conditions in Section 6 hereof. (e) The Fund will make generally available to holders of the Fund's securities, as soon as practicable but in no event later than the last day of the 18th full calendar month following the calendar quarter in which the Effective Date falls, an earnings statement, if applicable, satisfying the provisions of Section 11(a) of the Securities Act and, at the option of the Fund, Rule 158 of the Securities Act Rules. (f) The Fund will take such actions as the Representatives reasonably request in order to qualify the Shares for offer and sale under the securities or "blue sky" laws of such jurisdictions as the Representatives reasonably designate; provided that the Fund shall not be required in connection therewith or as a condition thereof to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction. (g) The Fund will pay, or reimburse if paid by the Representatives, whether or not the transactions with respect to the Fund contemplated by this Underwriting Agreement are consummated or this Underwriting Agreement is terminated (irrespective of who the party terminating any such agreement is or the reason therefor), all costs and expenses incident to the performance of the obligations of the Fund under this Underwriting Agreement, including but not limited to costs and expenses of or relating to (1) the preparation, printing and filing of the registration statement and exhibits to it (including this Underwriting Agreement and related underwriting agreements), each Preliminary Prospectus, the Prospectus and all amendments and supplements 12 thereto, (2) the issuance of the Shares and the preparation and delivery of certificates for the Shares, (3) the registration or qualification of the Shares for offer and sale under the securities or "blue sky" laws of the jurisdictions referred to in the foregoing paragraph, including the fees and disbursements of counsel for the Underwriters in that connection, and the preparation and printing of preliminary and supplemental "blue sky" memoranda, (4) the furnishing (including costs of design, production, shipping and mailing) to the Underwriters and dealers of copies of each Preliminary Prospectus relating to the Shares, the sales materials, the Prospectus, and all amendments or supplements to the Prospectus, and of the other documents required by this Section to be so furnished, (5) the filing requirements of the NASD in connection with its review of the financing, including filing fees and the fees, disbursements and other charges of counsel for the Underwriters in that connection, (6) all transfer taxes, if any, with respect to the sale and delivery of the Shares to the Underwriters, (7) the listing of the Shares on the New York Stock Exchange, (8) the transfer agent for the Shares and (9) in addition to the foregoing, an aggregate of $250,000 as partial reimbursement of the costs and expenses of the Underwriters, which the Fund will pay by permitting the Underwriters to deduct such amount from the proceeds payable to the Fund at the earliest of the Closing Dates. Notwithstanding the foregoing provisions of this Section 5(g), in the event that the transactions contemplated by this Underwriting Agreement are not consummated, Dreyfus will pay, or reimburse if paid by the Representatives, all of the costs and expenses incident to the performance of the obligations of the Fund under this Underwriting Agreement, including but not limited to the costs and expenses enumerated above in this Section 5(g), except those set forth in Section 5(g)(9) hereof, and the Fund shall have no liability therefore in excess of the net assets of the Fund as of the date that such amount is finally determined to be payable. Notwithstanding the foregoing, except as provided for in clause (9) of this paragraph (g) and except as provided for in paragraph (h) of this Section 5, the Underwriters agree to pay any expenses (including fees and disbursements of counsel) incurred by the Underwriters in connection with their investigation, preparing to market and marketing of the Shares. (h) If this Underwriting Agreement is terminated pursuant to any of its provisions, except as otherwise provided herein, no party will be under any liability to any other party, except that (1) if this Underwriting Agreement is terminated by (x) the Fund or Dreyfus pursuant to any of the provisions hereof (otherwise than pursuant to Section 9 hereof) or (y) by the Representatives or the Underwriters because of any inability, failure or refusal on the part of the Fund or Dreyfus to comply with its terms or because any of the conditions in Section 6 are not satisfied, the Fund and Dreyfus, jointly and severally, will reimburse the Underwriters for all out-of-pocket expenses (including the reasonable fees, disbursements and other charges of their counsel) reasonably incurred by them in connection with the proposed purchase and sale of the Shares and (2) no Underwriter who has failed or refused to purchase the Shares agreed to be purchased by it under this Underwriting Agreement, in breach of its obligations pursuant to this Underwriting Agreement, will be relieved of liability to the Fund and Dreyfus and the other Underwriters for damages occasioned by its default. (i) Without the prior written consent of the Representatives, the Fund will not offer, sell or register with the Commission, or announce an offering of, any equity securities of the Fund, within 180 days after the Effective Date, except for the Shares as described in the Prospectus and any issuances of Common Shares pursuant to the dividend reinvestment plan established by the Fund. 13 (j) The Fund will use its best efforts to list the Shares on the New York Stock Exchange and comply with the rules and regulations of such exchange. (k) The Fund will direct the investment of the net proceeds of the offering of the Shares in such a manner as to comply with the investment objective and policies of the Fund as described in the Prospectus. 6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the Underwriters to purchase the Shares are subject to the accuracy on the date of this Underwriting Agreement, and on the Closing Dates, of the representations of the Fund and Dreyfus in this Underwriting Agreement, to the accuracy and completeness of all statements made by the Fund or Dreyfus or any of their respective officers in any certificate delivered to the Representatives or their counsel pursuant to this Underwriting Agreement, to performance by the Fund and Dreyfus of their respective obligations under this Underwriting Agreement and to each of the following additional conditions: (a) The registration statement must have become effective by 5:30 p.m., New York City time, on the date of this Underwriting Agreement or such later date and time as the Representatives consents to in writing. The Prospectus must have been filed in accordance with Rule 497(b), (h) or (j), as the case may be, of the Securities Act Rules. (b) No order suspending the effectiveness of the Registration Statement may be in effect and no proceedings for such purpose may be pending before or, to the knowledge of counsel to the Underwriters, threatened by the Commission, and any requests for additional information on the part of the Commission (to be included in the Registration Statement or the Prospectus or otherwise) must be complied with or waived to the reasonable satisfaction of the Representatives. (c) Since the dates as of which information is given in the Registration Statement and the Prospectus, (1) there must not have been any material change in the Common Shares or liabilities of the Fund except as set forth in or contemplated by the Prospectus; (2) there must not have been any material adverse change in the general affairs, prospects, management, business, financial condition or results of operations of the Fund or Dreyfus whether or not arising from transactions in the ordinary course of business as set forth in or contemplated by the Prospectus; (3) the Fund must not have sustained any material loss or interference with its business from any court or from legislative or other governmental action, order or decree, whether foreign or domestic, or from any other occurrence not described in the Registration Statement and Prospectus; and (4) there must not have occurred any event that makes untrue or incorrect in any material respect any statement or information contained in the Registration Statement or Prospectus or that is not reflected in the Registration Statement or Prospectus but should be reflected therein in order to make the statements or information therein (in the case of the Prospectus, in light of the circumstances in which they were made) not misleading in any material respect; if, in the judgment of the Representatives, any such development referred to in clause (1), (2), (3) or (4) of this paragraph (c) makes it impracticable or inadvisable to consummate the sale and 14 delivery of the Shares pursuant to this Underwriting Agreement by the Underwriters, at the initial public offering price of the Shares. (d) The Representatives must have received on each Closing Date a certificate, dated such date, of a President or Vice President, or Vice Chairman, and the chief financial or accounting officer of each of the Fund and Dreyfus certifying that (1) the signers have carefully examined the Registration Statement, the Prospectus, and this Underwriting Agreement, (2) the representations of the Fund (with respect to the certificates from such Fund officers) and the representations of Dreyfus (with respect to the certificates from such officers of Dreyfus) in this Underwriting Agreement are accurate on and as of the date of the certificate, (3) there has not been any material adverse change in the general affairs, prospects, management, business, financial condition or results of operations of the Fund (with respect to the certificates from such Fund officers) or Dreyfus (with respect to the certificates from such officers of Dreyfus), which change would materially and adversely affect the ability of Dreyfus to fulfill its obligations under this Underwriting Agreement or the Investment Advisory Agreement, whether or not arising from transactions in the ordinary course of business, (4) with respect to the Fund only, to the knowledge of such officers after reasonable investigation, no order suspending the effectiveness of the Registration Statement, prohibiting the sale of any of the Shares or having a material adverse effect on the Fund has been issued and no proceedings for any such purpose are pending before or threatened by the Commission or any other regulatory body, whether foreign or domestic, (5) to the knowledge of the officers of Dreyfus, after reasonable investigation, no order having an adverse effect on the ability of Dreyfus to fulfill its obligations under this Underwriting Agreement or the Investment Advisory Agreement, as the case may be, has been issued and no proceedings for any such purpose are pending before or threatened by the Commission or any other regulatory body, whether foreign or domestic, and (6) each of the Fund (with respect to the certificates from such Fund officers) and Dreyfus (with respect to the certificates from such officers of Dreyfus) has performed all of its respective agreements that this Underwriting Agreement requires it to perform by such Closing Date. (e) The Representatives must receive on each Closing Date the opinions dated such Closing Date substantially in the form of Annexes A and B to this Underwriting Agreement from the counsel identified in each such Annex. (f) The Representatives must receive on each Closing Date from Skadden, Arps, Slate, Meagher & Flom LLP or its affiliates, their counsel, an opinion dated such Closing Date with respect to the Fund, the Shares, the Registration Statement and the Prospectus, this Underwriting Agreement and the form and sufficiency of all proceedings taken in connection with the sale and delivery of the Shares. Such opinion and proceedings shall fulfill the requirements of this Section 6(f) only if such opinion and proceedings are satisfactory in all respects to the Representatives. The Fund and Dreyfus shall have furnished to such counsel such documents as counsel may reasonably request for the purpose of enabling them to render such opinion. (g) The Representatives must receive on the date this Underwriting Agreement is signed and delivered by the Representatives a signed 15 letter, dated such date, substantially in the form of Annex C to this Underwriting Agreement from the firm of accountants designated in such Annex. The Representatives also must receive on each Closing Date a signed letter from such accountants, dated such Closing Date, confirming on the basis of a review in accordance with the procedures set forth in their earlier letter that nothing has come to their attention during the period from a date not more than five business days before the date of this Underwriting Agreement, specified in the letter, to a date not more than five business days before such Closing Date, that would require any change in their letter referred to in the foregoing sentence. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Underwriting Agreement will comply only if they are in form and scope reasonably satisfactory to counsel for the Representatives, provided that any such documents, forms of which are annexed hereto, shall be deemed satisfactory to such counsel if substantially in such form. 7. INDEMNIFICATION AND CONTRIBUTION. -------------------------------- (a) Each of the Fund and Dreyfus, jointly and severally, will indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of such Underwriter and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act from and against any and all losses, claims, liabilities, expenses and damages, joint or several (including, but not limited to, any and all investigative, legal and other expenses reasonably incurred in connection with, and any and all amounts paid in settlement of, any action, suit or proceeding between any of the indemnified parties and any indemnifying parties or between any indemnified party and any third party, or otherwise, or any claim asserted), to which such Underwriter or any such person, or any of them, may become subject under the Securities Act, the Exchange Act, the Investment Company Act, the Advisers Act or other federal or state statutory law or regulation, at common law or otherwise, whether foreign or domestic, insofar as such losses, claims, liabilities, expenses or damages arise out of or are based on (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Preliminary Prospectus, the Prospectus or the sales materials, or any amendment or supplement thereto, or in any documents filed under the Exchange Act and deemed to be incorporated by reference into the Registration Statement, the Preliminary Prospectus, the Prospectus, or in any application or other document executed by or on behalf of the Fund or based on written information furnished by or on behalf of the Fund filed in any jurisdiction in order to qualify the Shares under the securities laws thereof or filed with the Commission, (ii) the omission or alleged omission to state, in any or all such documents, a material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) any act or failure to act or any alleged act or failure to act by such Underwriter in connection with, or relating in any manner to, the Shares or the offering contemplated hereby, and which is included as part of or referred to in any loss, claim, liability, expense or damage arising out of or based upon matters covered by clause (i) or (ii) above (provided, however, that neither the Fund nor Dreyfus shall be liable under this clause (iii) to the extent it is finally judicially determined by a court of competent jurisdiction that such loss, claim, liability, expense or damage resulted directly from any such acts or failures to act undertaken or omitted to be taken by such Underwriter through its gross negligence or willful misconduct); provided that neither the Fund nor 16 Dreyfus will be liable to the extent that such losses, claims, liabilities, expenses or damages are based on an untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to such Underwriter furnished in writing to the Fund by such Underwriter expressly for inclusion in the Registration Statement, the Preliminary Prospectus or the Prospectus. This indemnity agreement will be in addition to any liability that the Fund or Dreyfus might otherwise have. (b) Each Underwriter will indemnify and hold harmless the Fund and Dreyfus, each person, if any, who controls the Fund or Dreyfus within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, each trustee of the Fund and each officer of the Fund who signs the Registration Statement to the same extent as the foregoing indemnity from the Fund or Dreyfus to such Underwriter, but only insofar as losses, claims, liabilities, expenses or damages arise out of or are based on any untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to such Underwriter furnished in writing to the Fund by such Underwriter expressly for use in the Registration Statement, the Preliminary Prospectus or Prospectus. This indemnity will be in addition to any liability that such Underwriter might otherwise have; provided, however, that in no case shall such Underwriter be liable or responsible for any amount in excess of the fees and commissions received by the Underwriter (whether from the Fund or otherwise). (c) Any party that proposes to assert the right to be indemnified under this Section 7 will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section 7, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission to so notify such indemnifying party will not relieve it from any liability that it may have to any indemnified party under the foregoing provision of this Section 7 unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any such action, but the fees, disbursements and other charges of such counsel will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based on the advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party (3) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel to assume the defense of such action within a 18 reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. All such fees, disbursements and other charges will be reimbursed by the indemnifying party promptly as they are incurred. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such indemnified party or parties. An indemnifying party will not be liable for any settlement of any action or claim effected without its written consent (which consent will not be unreasonably withheld). No indemnifying party shall, without the prior written consent of each indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated by this Section 7 (whether or not any indemnified party is a party thereto), unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising or that may arise out of such claim, action or proceeding. (d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Section 7 is applicable in accordance with its terms but for any reason is held to be unavailable from the Fund, Dreyfus or the Underwriters, the Fund, Dreyfus and the Underwriters will contribute to the total losses, claims, liabilities, expenses and damages (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Fund and Dreyfus from persons other than the Underwriters, such as persons who control the Fund or Dreyfus within the meaning of the Securities Act or the Exchange Act, officers of the Fund who signed the Registration Statement and trustees of the Fund, who may also be liable for contribution) to which the Fund, Dreyfus and the Underwriters may be subject in such proportion as shall be appropriate to reflect the relative benefits received by the Fund and Dreyfus on the one hand and the Underwriters on the other. The relative benefits received by the Fund and Dreyfus (treated jointly for this purpose as one person) on the one hand and the Underwriters on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Fund bear to the total discounts and commissions received by the Underwriters (whether from the Fund or otherwise). If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only such relative benefits referred to in the foregoing sentence but also the relative fault of the Fund and Dreyfus (treated jointly for this purpose as one 18 person) on the one hand and the Underwriters on the other hand in connection with respect to the statements or omissions or alleged statements or omissions that resulted in the losses, claims, liabilities, expenses or damages, joint or several (including any investigative, legal or other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted), for which contribution is sought. Such relative fault of the parties shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Fund, Dreyfus or the Underwriters, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission and any other equitable considerations appropriate in the circumstances. The Fund, Dreyfus and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 7(d) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, liability, expense or damage, or action in respect thereof, referred to above in this Section 7(d) shall be deemed to include, for purposes of this Section 7(d) any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding any other provisions of this Section 7(d), no Underwriter (except as may be provided in the Master Agreement Among Underwriters dated as of June 11, 1984) shall be required to contribute any amount in excess of the underwriting discounts or commissions received by it (whether from the Fund or otherwise) and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7(d), any person who controls a party to this Agreement within the meaning of the Securities Act will have the same rights to contribution as that party, and each trustee of the Fund and each officer of the Fund who signed the Registration Statement will have the same rights to contribution as the Fund, subject in each case to the provisions hereof. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this Section 7(d), notify such party or parties from whom contribution may be sought, but the omission so to notify will not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have under this Section 7(d). Except for a settlement entered into pursuant to the last sentence of Section 7(c) hereof, no party will be liable for contribution with respect to any action or claim settled without its written consent (which consent shall not be unreasonably withheld). (e) Notwithstanding any other provisions in this Section 7, no party shall be entitled to indemnification or contribution under this Agreement against any loss, claim, liability, expense or damage arising by reason of such person's willful misfeasance, bad faith or gross negligence in the performance of its duties hereunder, or by reason of such person's reckless disregard of such person's obligations and duties hereunder. (f) The Fund and Dreyfus acknowledge that the (i) statements with respect to stabilization on the second page of, and the information in the third paragraph under the caption "Underwriting" in, the Preliminary Prospectus and the Prospectus (insofar as such information relates to the concession to dealers and the discount to certain other dealers) constitute the only information furnished in writing to the Fund by the Representatives on behalf of the Underwriters expressly for use in such documents. 19 8. TERMINATION. This Underwriting Agreement may be terminated by the Representatives by notifying the Fund at any time: (a) before the later of the effectiveness of the Registration Statement and the time when any of the Shares are first generally offered pursuant to this Underwriting Agreement by the Representatives to dealers by letter or telegram; (b) at or before any Closing Date if, in the sole judgment of the Representatives, payment for and delivery of any Shares is rendered impracticable or inadvisable because (1) trading in the equity securities of the Fund is suspended by the Commission or by the principal exchange that lists the Shares, (2) additional material governmental restrictions, not in force on the date of this Underwriting Agreement, whether foreign or domestic, have been imposed upon trading in securities or trading has been suspended on any U.S. securities exchange, (3) a general banking moratorium has been established by U.S. federal or New York authorities or (4) any outbreak or material escalation of hostilities or other calamity or crisis occurs the effect of which is such as to make it impracticable to market any of the Shares; or (c) at or before any Closing Date, if any of the conditions specified in Section 6 have not been fulfilled when and as required by this Underwriting Agreement. 9. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters fails (other than for a reason sufficient to justify the termination of this Underwriting Agreement) to purchase on any Closing Date the Shares agreed to be purchased on such Closing Date by such Underwriter or Underwriters, the Representatives may find one or more substitute underwriters to purchase such Shares or make such other arrangements as the Representatives deems advisable, or one or more of the remaining Underwriters may agree to purchase such Shares in such proportions as may be approved by the Representatives, in each case upon the terms set forth in this Underwriting Agreement. If no such arrangements have been made within 36 hours after such Closing Date, and (a) the number of Shares to be purchased by the defaulting Underwriters on such Closing Date does not exceed 10% of the Shares that the Underwriters are obligated to purchase on such Closing Date, each of the nondefaulting Underwriters will be obligated to purchase such Shares on the terms set forth in this Underwriting Agreement in proportion to their respective obligations under this Underwriting Agreement, or (b) the number of Shares to be purchased by the defaulting Underwriters on such Closing Date exceeds 10% of the Shares to be purchased by all the Underwriters on such Closing Date, the Fund will be entitled to an additional period of 24 hours within which to find one or more substitute underwriters reasonably satisfactory to the Representatives to purchase such Shares on the terms set forth in this Underwriting Agreement. In any such case, either the Representatives or the Fund will have the right to postpone the applicable Closing Date for not more than five business days in order that necessary changes and arrangements (including any necessary amendments or supplements to the Registration Statement or the 20 Prospectus) may be effected by the Representatives and the Fund. If the number of Shares to be purchased on such Closing Date by such defaulting Underwriter or Underwriters exceeds 10% of the Shares that the Underwriters are obligated to purchase on such Closing Date, and none of the nondefaulting Underwriters or the Fund makes arrangements pursuant to this Section within the period stated for the purchase of the Shares that the defaulting Underwriters agreed to purchase, this Underwriting Agreement will terminate without liability on the part of any nondefaulting Underwriter, the Fund or Dreyfus, except as provided in Sections 5(g) and 7 hereof. This Section will not affect the liability of any defaulting Underwriter to the Fund or the nondefaulting Underwriters arising out of such default. A substitute underwriter will become a Underwriter for all purposes of this Underwriting Agreement. 10. MISCELLANEOUS. (a) The reimbursement, indemnification and contribution agreements in Sections 5(g) and 7 hereof and the representations of the Fund, Dreyfus and the Underwriters in this Underwriting Agreement will remain in full force and effect regardless of any termination of this Underwriting Agreement. The reimbursement, indemnification and contribution agreements in Sections 5(g) and 7 hereof and the representations and agreements of the Fund, Dreyfus and the Underwriters in this Underwriting Agreement shall survive the Closing Dates and shall remain in full force and effect regardless of any investigation made by or on behalf of any Underwriter, the Fund, Dreyfus or any controlling person and delivery of and payment for the Shares. (b) This Underwriting Agreement is for the benefit of the Underwriters, the Fund, Dreyfus and their successors and assigns, and, to the extent expressed in this Underwriting Agreement, for the benefit of persons controlling any of the Underwriters, the Fund, Dreyfus and directors and officers of the Fund and Dreyfus, and their respective successors and assigns, and no other person, partnership, association or corporation will acquire or have any right under or by virtue of this Underwriting Agreement. The term "successors and assigns" does not include any purchaser of the Shares from any Underwriter merely because of such purchase. (c) All notices and communications under this Underwriting Agreement will be in writing, effective only on receipt and mailed or delivered, by messenger, facsimile transmission or otherwise, to the Representatives in care of PaineWebber Incorporated, Attn: Financial Institutions Group, 1285 Avenue of the Americas, New York, New York 10019, to the Fund at 200 Park Avenue, New York, New York 10166, and to Dreyfus at 200 Park Avenue, New York, New York 10166. (d) Any action required or permitted to be taken by the Representatives under this Underwriting Agreement may be taken by them jointly through PaineWebber Incorporated. (e) This Underwriting Agreement may be signed in multiple counterparts that taken as a whole constitute one agreement. 21 (f) This Underwriting Agreement will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law principles thereof. Please confirm that the foregoing correctly sets forth the agreement between us. Very truly yours, Dreyfus High Yield Strategies Fund By: ----------------------------------- Title: Dreyfus Corporation By: ----------------------------------- Title: Confirmed: PaineWebber Incorporated Merrill Lynch, Pierce, Fenner & Smith Incorporated Salomon Smith Barney Fahnestock & Co. Inc Interstate/Johnson Lane Corporation As Representatives of the Underwriters c/o PaineWebber Incorporated 1285 Avenue of the Americas New York, New York 10019 By: PaineWebber Incorporated By: ---------------------------------- Name: Title: Acting on behalf of itself and the Underwriters named in Schedule 1 SCHEDULE 1 Number of Firm Shares Name to be Purchased PaineWebber Incorporated ................... Merrill Lynch, Pierce, Fenner & Smith Incorporated Salomon Smith Barney ....................... Fahnestock & Co. Inc........................ Interstate/Johnson Lane Corporation ........ Total ................................... ====================== 23 FORM OF OPINION OF KIRKPATRICK & LOCKHART LLC REGARDING THE FUND 1. The Registration Statement and all post-effective amendments, if any, are effective under the Securities Act and no stop order with respect thereto has been issued and no proceeding for that purpose has been instituted or, to the best of our knowledge, is threatened by the Commission. Any filing of the Prospectus or any supplements thereto required under Rule 497 of the Securities Act Rules prior to the date hereof have been made in the manner and within the time required by such rule. 2. The Fund has been duly organized and is validly existing as a Massachusetts business trust in good standing under the laws of the Commonwealth of Massachusetts, with full power and authority to conduct all the activities conducted by it, to own or lease all assets owned (or to be owned) or leased (or to be leased) by it and to conduct its business as described in the Registration Statement and Prospectus, and the Fund is duly licensed and qualified to do business and in good standing as a foreign corporation or otherwise in each jurisdiction in which its ownership or leasing of property or its conducting of business requires such qualification, and the Fund owns, possesses or has obtained and currently maintains all governmental licenses, permits, consents, orders, approvals and other authorizations, whether foreign or domestic, necessary to carry on its business as contemplated in the Prospectus. The Fund has no subsidiaries. 3. The capitalization of the Fund is as set forth in the Registration Statement and the Prospectus. The Common Shares of the Fund conform in all respects to the description of them in the Prospectus. All the outstanding Common Shares have been duly authorized and are validly issued, fully paid and nonassessable. The Shares to be issued and delivered to and paid for by the Underwriters in accordance with the Underwriting Agreement against payment therefor as provided by the Underwriting Agreement have been duly authorized and when issued and delivered to the Underwriters will have been validly issued and will be fully paid and nonassessable. No person is entitled to any preemptive or other similar rights with respect to the Shares. 4. The Fund is duly registered with the Commission under the Investment Company Act as a non-diversified, closed-end management investment company and all action under the Securities Act, the Investment Company Act, the Securities Act Rules and the Investment Company Act Rules, as the case may be, necessary to make the public offering and consummate the sale of the Shares as provided in the Underwriting Agreement has or will have been taken by the Fund. 5. The Fund has full power and authority to enter into each of the Underwriting Agreement, the Investment Advisory Agreement, the Custody A-1 Agreement, the Transfer Agency Agreement and the Shareholder Servicing Agreement (collectively, the "Fund Agreements") and to perform all of the terms and provisions thereof to be carried out by it and (A) each Fund Agreement has been duly and validly authorized, executed and delivered by the Fund, (B) each Fund Agreement complies in all material respects with all provisions of the Investment Company Act, the Advisers Act, the Investment Company Act Rules and the Advisers Act Rules, as the case may be, and (C) assuming due authorization, execution and delivery by the other parties thereto, each Fund Agreement constitutes the legal, valid and binding obligation of the Fund enforceable in accordance with its terms, (1) subject, as to enforcement, to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and to general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at law) and (2) as rights to indemnity thereunder may be limited by federal or state securities laws. 6. None of (A) the execution and delivery by the Fund of the Fund Agreements, (B) the issue and sale by the Fund of the Shares as contemplated by the Underwriting Agreement and (C) the performance by the Fund of its obligations under the Fund Agreements or consummation by the Fund of the other transactions contemplated by the Fund Agreements conflicts with or will conflict with, or results or will result in a breach of, the Declaration of Trust or the By-laws of the Fund or any agreement or instrument to which the Fund is a party or by which the Fund is bound, or any law, rule or regulation, or order of any court, governmental instrumentality, securities exchange or association or arbitrator, whether foreign or domestic, applicable to the Fund, except that we express no opinion as to the securities or "blue sky" laws applicable in connection with the purchase and distribution of the Shares by the Underwriters pursuant to the Underwriting Agreement. 7. The Fund is not currently in breach of, or in default under, any written agreement or instrument to which it is a party or by which it or its property is bound or affected. 8. No consent, approval, authorization or order of any court or governmental agency or body or securities exchange or association, whether foreign or domestic, is required by the Fund for the consummation by the Fund of the transactions to be performed by the Fund or the performance by the Fund of all the terms and provisions to be performed by or on behalf of it in each case as contemplated in the Fund Agreements, except such as (A) have been obtained under the Securities Act, the Investment Company Act, the Advisers Act, the Securities Act Rules, the Investment Company Act Rules and the Advisers Act Rules and (B) may be required by the New York Stock Exchange or under state securities or "blue sky" laws in connection with the purchase and distribution of the Shares by the Underwriters pursuant to the Underwriting Agreement. 9. The Shares have been approved for listing on the New York Stock Exchange, subject to official notice of issuance, and the Fund's Registration Statement on Form 8-A under the 1940 Act is effective. 10. The form of the certificates for the Shares conform to the requirements of Massachusetts law. A-2 11. There is no action, suit or proceeding before or by any court, commission, regulatory body, administrative agency or other governmental agency or body, foreign or domestic, now pending or, to our knowledge, threatened against or affecting the Fund, which is required to be disclosed in the Prospectus that is not disclosed in the Prospectus, and there are no contracts, franchises or other documents that are of a character required to be described in, or that are required to be filed as exhibits to, the Registration Statement that have not been described or filed as required. 12. The Fund does not require any tax or other rulings to enable it to qualify as a regulated investment company under Subchapter M of the Code. 13. The section in the Prospectus entitled "Taxation" is a fair summary of the principal United States federal income tax rules applicable to the Fund and to the purchase, ownership and disposition of the Shares. 14. The Registration Statement (except the financial statements and schedules and other financial data included therein as to which we express no view), at the time it became effective, and the Prospectus (except as aforesaid), as of the date thereof, complied as to form in all material respects to the requirements of the Securities Act, the Investment Company Act and the rules and regulations of the Commission thereunder. In rendering our opinion, we have relied, as to factual matters, upon the attached written certificates and statements of officers of the Fund. In connection with the registration of the Shares, we have advised the Fund as to the requirements of the Securities Act, the Investment Company Act and the applicable rules and regulations of the Commission thereunder and have rendered other legal advice and assistance to the Fund in the course of its preparation of the registration Statement and the Prospectus. Rendering such assistance involved, among other things, discussions and inquiries concerning various legal and related subjects and reviews of certain corporate records, documents and proceedings. We also participated in conferences with representatives of the Fund and its accountants at which the contents of the registration and Prospectus and related matters were discussed. With your permission, we have not undertaken, except as otherwise indicated herein, to determine independently, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements in the Registration Statement or Prospectus. On the basis of the information which was developed in the course of the performance of the services referred to above, no information has come to our attention that would lead us to believe that the Registration Statement, at the time it became effective, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus, as of its date and as of such Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading or that any amendment or supplement to the Prospectus, as of its respective date, and as of such Closing Date, contained any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements in the A-3 Prospectus, in the light of the circumstances under which they were made, not misleading (except the financial statements, schedules and other financial data included therein, as to which we express no view). A-4 APPENDIX B FORM OF OPINION OF MARK JACOBS REGARDING DREYFUS 1. Dreyfus has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation with full power and authority to conduct all of the activities conducted by it, to own or lease all of the assets owned or leased by it and to conduct its business as described in the Registration Statement and Prospectus, and Dreyfus is duly licensed and qualified as a foreign corporation and in good standing in each other jurisdiction in which it is required to be so qualified and Dreyfus owns, possesses or has obtained and currently maintains all governmental licenses, permits, consents, orders, approvals and other authorizations, whether foreign or domestic, necessary for Dreyfus to carry on its business as contemplated in the Registration Statement and the Prospectus. 2. Dreyfus is duly registered as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act, the Investment Company Act, the Advisers Act Rules or the Investment Company Act Rules from acting as investment adviser for the Fund as contemplated by the Investment Advisory Agreement, the Registration Statement and the Prospectus. 3. Dreyfus has full power and authority to enter into each of the Underwriting Agreement and the Investment Advisory Agreement and to carry out all the terms and provisions thereof to be carried out by it, and each such agreement has been duly and validly authorized, executed and delivered by Dreyfus; each of the Investment Advisory Agreement and the Underwriting Agreement complies in all material respects with all provisions of the Investment Company Act, the Advisers Act, the Investment Company Act Rules and the Advisers Act Rules; and assuming due authorization, execution and delivery by the other parties thereto, each of the Underwriting Agreement and the Investment Advisory Agreement constitutes a legal, valid and binding obligation of Dreyfus, enforceable in accordance with its terms, (1) subject, as to enforcement, to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and to general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at law) and (2) as rights to indemnity thereunder may be limited by federal or state securities laws. 4. Neither (A) the execution and delivery by Dreyfus of the Underwriting Agreement or the Investment Advisory Agreement by Dreyfus nor (B) the consummation by Dreyfus of the transactions contemplated by, or the performance of its obligations under such agreements conflicts or will conflict with, or results or will result in a breach of, the Articles of Incorporation or By-Laws of Dreyfus or any agreement or instrument to which Dreyfus is a party or by which Dreyfus is bound, or any law, rule or regulation, or order of any court, governmental instrumentality, securities exchange or association or arbitrator, whether foreign or domestic, applicable to Dreyfus. B-1 5. No consent, approval, authorization or order of any court, governmental agency or body or securities exchange or association, whether foreign or domestic, is required for the consummation of the transactions contemplated in, or the performance by Dreyfus of its obligations under, the Underwriting Agreement or the Investment Advisory Agreement, as the case may be, except such as have been obtained under the Investment Company Act, the Advisers Act, the Securities Act, the Investment Company Act Rules, the Advisers Act Rules and the Securities Act Rules. 6. The description of Dreyfus and its business in the Registration Statement and the Prospectus complies with the requirements of the Securities Act, the Investment Company Act, the Securities Act Rules and the Investment Company Act Rules and does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading. 7. There is no action, suit or proceeding before or by any court, commission, regulatory body, administrative agency or other governmental agency or body, foreign or domestic, now pending or, to our knowledge, threatened against or affecting Dreyfus of a nature required to be disclosed in the Registration Statement or Prospectus or that might result in any material adverse change in the condition, financial or otherwise, business affairs or business prospects of Dreyfus or the ability of Dreyfus to fulfill its respective obligations under the Underwriting Agreement or under the Investment Advisory Agreement. 8. The Registration Statement (except the financial statements and schedules and other financial data included therein as to which we express no view), at the time it became effective, and the Prospectus (except as aforesaid), as of the date thereof, appeared on their face to be appropriately responsive in all material respects to the requirements of the Securities Act, the Investment Company Act and the rules and regulations of the Commission thereunder. In rendering our opinion, we have relied, as to factual matters, upon the attached written certificates and statements of officers of Dreyfus. In connection with the registration of the Shares, we have advised Dreyfus as to the requirements of the Securities Act, the Investment Company Act and the applicable rules and regulations of the Commission thereunder and have rendered other legal advice and assistance to Dreyfus in the course of the preparation of the registration Statement and the Prospectus. Rendering such assistance involved, among other things, discussions and inquiries concerning various legal and related subjects and reviews of certain corporate records, documents and proceedings. We also participated in conferences with representatives of the Fund and its accountants and Dreyfus at which the contents of the registration and Prospectus and related matters were discussed. With your permission, we have not undertaken, except as otherwise indicated herein, to determine independently, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements in the Registration Statement or Prospectus. On the basis of the information which was developed in the course of the performance of the services referred to above, no information has come to our attention that would lead us to believe that the Registration Statement, at the time it became effective, contained any untrue statement of a material fact or omitted to state a material fact required B-2 to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus, as of its date and as of such Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading or that any amendment or supplement to the Prospectus, as of its respective date, and as of such Closing Date, contained any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements in the Prospectus, in the light of the circumstances under which they were made, not misleading (except the financial statements, schedules and other financial data included therein, as to which we express no view). B-3 ANNEX C FORM OF ACCOUNTANT'S LETTER April __, 1998 Ladies and Gentlemen: We have audited the statement of assets and liabilities of Dreyfus High Yield Strategies Fund (the "Fund") as of April _, 1998 included in the Registration Statement on Form N-2 filed by the Fund under the Securities Act of 1933 (the "Act") (File No. 333-_____) and under the Investment Company Act of 1940 (the "1940 Act") (File No. 811-_____); such statement and our report with respect to such statement are included in the Registration Statement; we are independent public accountants with respect to the Fund within the meaning of the Act and the applicable rules and regulations thereunder. 1. In our opinion, the statement of assets and liabilities included in the Registration Statement and audited by us complies as to form in all respects with the applicable accounting requirements of the Act, the 1940 Act and the respective rules and regulations thereunder. 2. For purposes of this letter we have read the minutes of all meetings of the Shareholders, the Board of Trustees and all Committees of the Board of Trustees of the Fund as set forth in the minute books at the offices of the Fund, officials of the Fund having advised us that the minutes of all such meetings through ________________ ___, 1998, were set forth therein. 3. Fund officials have advised us that no financial statements as of any date subsequent to _______________ ___, 1998, are available. We have made inquiries of certain officials of the Fund who have responsibility for financial and accounting matters regarding whether there was any change at ______________ ___, 1998, in the capital shares or net assets of the Fund as compared with amounts shown in the ______________ ___, 1998 statement of assets and liabilities included in the Registration Statement, except for changes that the Registration Statement discloses have occurred or may occur. On the basis of our inquiries and our reading of the minutes as described in Paragraph 3, nothing came to our attention that caused us to believe that there were any such changes. The foregoing procedures do not constitute an audit made in accordance with generally accepted auditing standards. Accordingly, we make no representations as to the sufficiency of the foregoing procedures for your purposes. 4. This letter is solely for the information of the addressees and to assist the underwriters in conducting and documenting their investigation C-1 of the affairs of the Fund in connection with the offering of the securities covered by the Registration Statement, and is not to be used, circulated, quoted or otherwise referred to within or without the underwriting group for any other purpose, including but not limited to the registration, purchase or sale of securities, nor is it to be filed with or referred to in whole or in part in the Registration Statement or any other document, except that reference may be made to it in the underwriting agreement or in any list of closing documents pertaining to the offering of the securities covered by the Registration Statement. Very truly yours, -------------------------- C-2 EX-99.2H(3) 7 AMENDED AND RESTATED MASTER SELECTED DEALER AGREEMENT June 11, 1984 PaineWebber Incorporated 1285 Avenue of the Americas New York, New York 10019 Gentlemen: 1. GENERAL. We understand that PaineWebber Incorporated ("PW") is entering into this Agreement with us and other firms who may be offered the right to purchase as principal a portion of securities being distributed to the public. The terms and conditions of this Agreement shall be applicable to any public offering of securities ("Securities") wherein PW (acting for its own account or for the account of any underwriting or similar group or syndicate) is responsible for managing or otherwise implementing the sale of the Securities to selected dealers ("Selected Dealers") and has expressly informed us that such terms and conditions shall be applicable. Any such offering of Securities to us as a Selected Dealer is hereinafter called an "Offering". In the case of any Offering in which you are acting for the account of any underwriting or similar group or syndicate ("Underwriters"), the terms and conditions of this Agreement shall be for the benefit of, and binding upon, such Underwriters, including, in the case of any Offering in which you are acting with others as representatives of Underwriters, such other representatives. The term "preliminary prospectus" means, in the case of an Offering registered under the Securities Act of 1933 (the "Securities Act"), any preliminary prospectus relating to an Offering of Securities or any preliminary prospectus supplement together with a prospectus relating to an Offering of Securities and, in the case of an Offering not registered under the Securities Act, any preliminary offering circular relating to an Offering of Securities or any preliminary offering circular supplement together with an offering circular relating to an Offering of Securities; the term "Prospectus" means in the case of an Offering registered under the Securities Act of 1933 (the "Securities Act"), the prospectus, together with the final prospectus supplement, if any, relating to such Offering of Securities, filed pursuant to Rule 424(b) or Rule 424(c) under the Securities Act and, in the case of an Offering not registered under the Securities Act, the final offering circular, including any supplements, relating to such Offering of Securities. 2. CONDITIONS OF OFFERING; ACCEPTANCE AND PURCHASE. Any Offering will be subject to delivery of the Securities and their acceptance by you and any other Underwriters may be subject to the approval of all legal matters by counsel and the satisfaction of other conditions, and may be made on the basis of reservation of Securities or an allotment against subscription. You will advise us by telegram, telex or other form of written communication ("Written Communication") of the particular method and supplementary terms and conditions (including, without limitation, the information as to prices and offering date referred to in Section 3(b)) of any Offering in which we are invited to participate. To the extent such supplementary terms and conditions are inconsistent with any provision herein, such terms and conditions shall supersede any such provision. Unless otherwise indicated in any such Written Communication, acceptances and other communications by us with respect to any Offering should be sent to PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York 10019. You reserve the right to reject any acceptance in whole or in part. Payment for Securities purchased by us is to be made at such office as you may designate, at the public offering price, or, if you shall so advise us, at such price less the concession to dealers or at the price set forth or indicated in a Written Communication, on such date as you shall determine, on one day's prior notice to us, by certified or official bank check in New York Clearing House funds payable to the order of PaineWebber Incorporated, against delivery of certificates evidencing such Securities. If payment is made for Securities purchased by us at the public offering price, the concession to which we shall be entitled will be paid to us upon termination of the provisions of Section 3(b) with respect to such Securities. Unless we promptly give you written instructions otherwise, if transactions in the Securities may be settled through the facilities of The Depository Trust Company, payment for and delivery of Securities purchased by us will be made through such facilities if we are a member, or if we are not a member, settlement may be made through our ordinary correspondent who is a member. 3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. (a) PROSPECTUSES. You shall provide us with such number of copies of each preliminary prospectus, the Prospectus and any supplement thereto relating to each Offering as we may reasonably request. If the Securities will be registered under the Securities Act, we represent that we are familiar with Rule 15c2-8 under the Exchange Act relating to the distribution of preliminary and final prospectuses and agree that we will comply therewith; we agree to keep an accurate record of our distribution (including dates, number of copies and persons to whom sent) of copies of the Prospectus or any preliminary prospectus (or any amendment or supplement to any thereof), and promptly upon request by you, to bring all subsequent changes to the attention of anyone to whom such material shall have been furnished; and we agree to furnish to persons who receive a confirmation of sale a copy of the Prospectus filed pursuant to Rule 424(b) or Rule 424(c) under the Securities Act. If the Securities will not be registered under the Securities Act, we agree that we will deliver all preliminary and final offering circulars required for compliance with the applicable laws and regulations governing the use and distribution of the offering circulars by underwriters, and, to the extent consistent with such laws and regulations, we confirm that we have delivered and agree that we will deliver all preliminary and final offering circulars which would be required if the provisions of Rule 15c2-8 under the Exchange Act applied to this offering. We agree that in purchasing Securities in an Offering we will rely upon no statements whatsoever, written or oral, other than the statements in the Prospectus delivered to us by you. We will not be authorized by the issuer or other seller of Securities offered pursuant to a Prospectus or by any Underwriters to give any information or to make any representation not contained in the Prospectus in connection with the sale of such Securities. (b) OFFER AND SALE OF THE PUBLIC. With respect to any Offering of Securities, you will inform us by a Written Communication of the public offering 2 price, the selling concession, the reallowance (if any) to dealers and the time when we may commence selling Securities to the public. After such public offering has commenced, you may change the public offering price, the selling concession and the reallowance to dealers. With respect to each Offering of Securities, until the provisions of this Section 3(b) shall be terminated pursuant to Section 4, we agree to offer Securities to the public only at the public offering price, except that if a reallowance is in effect, a reallowance from the public offering price not in excess of such reallowance may be allowed as consideration for services rendered in distribution to dealers who are actually engaged in the investment banking or securities business, who execute the written agreement prescribed by Section 24(c) of Article III of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (the "NASD"), and who are either members in good standing of the NASD or foreign brokers or dealers not eligible for membership in the NASD who represent to us that they will promptly reoffer such Securities at the public offering price and will abide by the conditions with respect to foreign brokers and dealers set forth in Section 3(e). (c) STABILIZATION AND OVER-ALLOTMENT. You may, with respect to any Offering, be authorized to over-allot in arranging sales to Selected Dealers, to purchase and sell Securities, any other securities of the issuer of the Securities of the same class and series and any other securities of such issuer that you may designate for long or short account and to stabilize or maintain the market price of the Securities. We agree to advise you from time to time upon request, prior to the termination of the provisions of Section 3(b) with respect to any Offering, of the amount of Securities purchased by us hereunder remaining unsold and we will, upon your request, sell to you, for the accounts of the Underwriters, such amount of Securities as you may designate, at the public offering price thereof less an amount to be determined by you not in excess of the concession to dealers. In the event that prior to the later of (i) the termination of the provisions of Section 3(b) with respect to any Offering, or (ii) the covering by you of any short position created by you in connection with such Offering for your account or the account of one or more Underwriters, you purchase or contract to purchase for the account of any of the Underwriters, in the open market or otherwise, any Securities theretofore delivered to us, you reserve the right to withhold the above-mentioned concession to dealers on such Securities if sold to us at the public offering price, or if such concession has been allowed to us through our purchase at a net price, we agree to repay such concession upon your demand, plus in each case any taxes on redelivery, commissions, accrued interest and dividends paid in connection with such purchase or contract to purchase. (d) OPEN MARKET TRANSACTIONS. We agree not to bid for, purchase, attempt to purchase, or sell, directly or indirectly, any Securities, any other securities of the issuer of the Securities of the same class and series or any other securities of such issuer as you may designate, except as brokers pursuant to unsolicited orders and as otherwise provided in this Agreement. If the Securities are common stock or securities convertible into common stock, we agree not to effect, or attempt to induce others to effect, directly or indirectly, any transactions in or relating to put or call options on any stock of such issuer, except to the extent permitted by Rule 10b-6 under the Exchange Act as interpreted by the Securities and Exchange Commission. An opening uncovered writing transaction in options to acquire Securities for our account or for the account of any customer shall be deemed, for purposes of the 3 preceding sentence, to be a transaction effected by us in or relating to put or call options on stock of the Company not permitted by Rule 10b-6. The term "opening uncovered writing transaction" means an opening sale transaction where the seller intends to become a writer of an option to purchase stock which it does not own or have the right to acquire upon exercise of conversion or option rights. (e) NASD. We represent that we are actually engaged in the investment banking or securities business and we are either a member in good standing of the NASD, or, if not such a member, a foreign dealer not eligible for membership. If we are such a member we agree that in making sales of the Securities we will comply with all applicable rules of the NASD, including, without limitation, the NASD's Interpretation with Respect to Fee-Riding and Withholding and Section 24 of Article III of the Rules of Fair Practice. If we are such a foreign dealer, we agree not to offer or sell any Securities in the United States of America except through you and in making sales of Securities outside the United States of America we agree to comply as though we were a member with such Interpretation and Sections 8.24 and 36 of Article III of the NASD's Rules of Fair Practice and to comply with Section 25 of such Article III as it applies to a nonmember broker or dealer in a foreign country. (f) RELATIONSHIP AMONG UNDERWRITERS AND SELECTED DEALERS. You may buy Securities from or sell Securities to any Underwriter or Selected Dealer and, with your consent, the Underwriters (if any) and the Selected Dealers may purchase Securities from and sell Securities to each other at the public offering price less all or any part of the concession. We are not authorized to act as agent for you or any Underwriter or the issuer or other seller of any Securities in offering Securities to the public or otherwise. Nothing contained herein or in any Written Communication from you shall constitute the Selected Dealers partners with you or any Underwriter or with one another. Neither you nor any Underwriter shall be under any obligation to us except for obligations assumed hereby or in any Written Communication from you in connection with any Offering. In connection with any Offering, we agree to pay our proportionate share of any claim, demand or liability asserted against us, and the other Selected Dealers or any of them, or against you or the Underwriters, if any, based on any claim that such Selected Dealers or any of them constitute an association, unincorporated business or other separate entity, including in each case our proportionate share of any expense incurred in defending against any such claim, demand or liability. (g) BLUE SKY LAWS. Upon application to you, you will inform us as to the jurisdictions in which you believe the Securities have been qualified for sale under the respective securities of "blue sky" laws of such jurisdictions. We understand and agree that compliance with the securities or "blue sky" laws in each jurisdiction in which we shall offer or sell any of the Securities shall be our sole responsibility and that you assume no responsibility or obligations as to the eligibility of the Securities for sale or our right to sell the Securities in any jurisdiction. (h) COMPLIANCE WITH LAW. We agree that in selling Securities pursuant to any Offering (which agreement shall also be for the benefit of the issuer or other seller of such Securities) we will comply with the applicable provisions of the Securities Act and the Exchange Act, the applicable rules and regulations 4 of the Securities and Exchange Commission thereunder, the applicable rules and regulations of the NASD and the applicable rules and regulations of any securities exchange having jurisdiction over the Offering. You shall have full authority to take such action as you may deem advisable in respect of all matters pertaining to any Offering. Neither you nor any Underwriter shall be under any liability to us, except for lack of good faith and for obligations expressly assumed by you in this Agreement; PROVIDED, however, that nothing in this sentence shall be deemed to relieve you from any liability imposed by the Securities Act. 4. TERMINATION; SUPPLEMENTS AND AMENDMENTS. This agreement may be terminated by either party hereto upon five business days' written notice to the other party; PROVIDED that with respect to any Offering for which a Written Communication was sent and accepted prior to such notice, this Agreement as it applies to such Offering shall remain in full force and effect and shall terminate with respect to such Offering in accordance with the last sentence of this Section. This Agreement may be supplemented or amended by you by written notice thereof to us, and any such supplement or amendment to this Agreement shall be effective with respect to any Offering to which this Agreement applies after the date of such supplement or amendment. Each reference to "this Agreement" herein shall, as appropriate, be to this Agreement as so amended and supplemented. The terms and conditions set forth in Sections 3(b) and (d) with regard to any Offering will terminate at the close of business on the thirtieth day after the date of the initial public offering of the Securities to which such Offering relates, but such terms and conditions, upon notice to us, may be terminated by you at any time. 5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on, and inure to the benefit of, the parties hereto and other persons specified or indicated in Section 1, and the respective successors and assigns of each of them. 6. GOVERNING LAW. This Agreement and the terms and conditions set forth herein with respect to any Offering together with such supplementary terms and conditions with respect to such Offering as may be contained in any Written Communication from you to us in connection therewith shall be governed by, and construed in accordance with, the laws of the State of New York. By signing this Agreement we confirm that our subscription to, or our acceptance of any reservation of, any Securities pursuant to an Offering shall constitute (i) acceptance of and agreement to other terms and conditions of this Agreement (as supplemented and amended pursuant to Section 4) together with and subject to any supplementary terms and conditions contained in any Written Communication from you in connection with such Offering, all of which shall constitute a binding agreement between us and you, individually or as representative of any Underwriters, (ii) confirmation that our representations and warranties set forth in Section 3 are true and correct at that time and (iii) confirmation that our agreements set forth in Sections 2 and 3 have been and will be fully performed by us to the extent and at the times required thereby. 5 Very truly yours, ----------------------------------------- (Name of Firm) by -------------------------------------- Confirmed, as of the date first above written. PAINEWEBBER INCORPORATED. by ------------------------------------- Vice President EX-99.2J 8 THE DREYFUS HIGH YIELD STRATEGIES FUND TRUST CUSTODY AGREEMENT AGREEMENT dated as of ________________ between THE DREYFUS HIGH YIELD STRATEGIES FUND, a business trust organized under the laws of The Commonwealth of Massachusetts having its principal office and place of business at 200 Park Avenue, New York, NY 10166 (the "Fund"), and MELLON BANK, N.A., a national banking association with its principal place of business at One Mellon Bank Center, Pittsburgh, Pennsylvania 15258 (the "Custodian"). W I T N E S S E T H: That for and in consideration of the mutual promises hereinafter set forth, the Fund and the Custodian agree as follows: 1. DEFINITIONS. ------------ Whenever used in this Agreement or in any Schedules or Appendices to this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: (a) "Authorized Persons" shall be deemed to include the Chairman of the Board of Trustees, the President, and any Vice President, the Secretary, the Treasurer or any other person, whether or not any such person is an officer or employee of the Fund, duly authorized by the Board of Trustees of the Fund to give Oral Instructions and Written Instructions on behalf of the Fund and listed in the certification annexed hereto as Appendix A or such other certification as may be received by the Custodian from time to time. (b) "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry system for United States and federal agency Securities, its successor or successors and its nominee or nominees. (c) "Certificate" shall mean any notice, instruction or other instrument in writing, authorized or required by this Agreement to be given to the Custodian, which is actually received by the Custodian and signed on behalf of the Fund by any two Authorized Persons or any two officers thereof. (d) Master Trust Agreement shall mean the Master Trust Agreement of the Fund, as the same may be amended from time to time. (e) "Depository" shall mean The Depository Trust Company ("DTC"), a clearing agency registered with the Securities and Exchange Commission under Section 17(a) of the Securities Exchange Act of 1934, as amended, its successor or successors and its nominee or nominees, in which the Custodian is hereby specifically authorized to make deposits. The term "Depository" shall further mean and include any other person to be named in a Certificate authorized to act as a depository under the 1940 Act, its successor or successors and its nominee or nominees. (f) "Money Market Security" shall be deemed to include, without limitation, debt obligations issued or guaranteed as to interest and principal by the Government of the United States or agencies or instrumentalities thereof, commercial paper, bank certificates of deposit, bankers' acceptances and short-term corporate obligations, where the purchase or sale of such securities normally requires settlement in federal funds on the same day as such purchase or sale, and repurchase and reverse repurchase agreements with respect to any of the foregoing types of securities. (g) "Oral Instructions" shall mean verbal instructions actually received by the Custodian from a person reasonably believed by the Custodian to be an Authorized Person. (h) "Prospectus" shall mean the Fund's current prospectus(es) and statement of additional information relating to the distribution of the Fund's shares under the Securities Act of 1933, as amended. (i) "Shares" refers to shares of beneficial interest, $15.00 per value per share, of the Fund. (j) "Security" or "Securities" shall be deemed to include bonds, debentures, notes, stocks, shares, evidences of indebtedness, and other securities, commodities interests and investments from time to time owned by the Fund. (k) "Transfer Agent" shall mean the person which performs as the transfer agent, dividend disbursing agent and shareholder servicing agent functions for the Fund. (l) "Written Instructions" shall mean a written communication actually received by the Custodian from a person reasonably believed by the Custodian to be an Authorized Person by any system whereby the receiver of such communication is able to verify through codes or otherwise with a reasonable degree of certainty the authenticity of the sender of such communication. (m) The "1940 Act" refers to the Investment Company Act of 1940, and the Rules and Regulations thereunder, all as amended from time to time. 2. APPOINTMENT OF CUSTODIAN. ------------------------- (a) The Fund hereby constitutes and appoints the Custodian as custodian of all the Securities and monies at the time owned by or in the possession of the Fund during the period of this Agreement. 2 (b) The Custodian hereby accepts appointment as such custodian and agrees to perform the duties thereof as hereinafter set forth. 3. COMPENSATION. ------------- 4. CUSTODY OF CASH AND SECURITIES. ------------------------------- (a) RECEIPT AND HOLDING OF ASSETS. ------------------------------ The Fund will deliver or cause to be delivered to the Custodian all Securities and monies owned by the Fund at any time during the period of this Agreement. The Custodian will not be responsible for such Securities and monies until actually received by it. The Fund shall instruct the Custodian from time to time in its sole discretion, by means of Written Instructions, or, in connection with the purchase or sale of Money Market Securities, by means of Oral Instructions or Written Instructions, as to the manner in which and in what amounts Securities and monies are to be deposited on behalf of the Fund in the Book-Entry System or the Depository; provided, however, that prior to the deposit of Securities of the Fund in the Book-Entry System or the Depository, including a deposit in connection with the settlement of a purchase or sale, the Custodian shall have received a Certificate specifically approving such deposits by the Custodian in the Book-Entry System or the Depository. Securities and monies of the Fund deposited in the Book-Entry System or the Depository will be represented in accounts which include only assets held by the Custodian for customers, including but not limited to accounts which the Custodian acts in a fiduciary or representative capacity. (b) ACCOUNTS AND DISBURSEMENTS. The Custodian shall establish and maintain a separate account for the Fund and shall credit to the separate account all monies received by it for the account of the Fund and shall disburse the same only: 1. In payment for Securities purchased for the Fund, as provided in Section 5 hereof; 2. In payment of dividends or distributions with respect to the Shares of the Fund, as provided in Section 7 hereof; 3. In payment of original issue or other taxes with respect to the Shares of the Fund, as provided in Section 8 hereof; 4. In payment for Shares which have been redeemed by the Fund, as provided in Section 8 hereof; 5. Pursuant to Written Instructions, or with respect to Money Market Securities, Oral Instructions or Written Instructions, setting forth the name and address of the 3 person to whom the payment is to be made, the amount to be paid and the purpose for which payment is to be made; or 6. In payment of fees and in reimbursement of the expenses and liabilities of the Custodian attributable to the Fund, as provided in Section 3 and section 12(h) hereof. (c) CONFIRMATION AND STATEMENTS. Promptly after the close of business on each day, the Custodian shall furnish the Fund with confirmations and a summary of all transfers to or from the account of the Fund during said day. Where securities purchased by the Fund are in a fungible bulk of securities registered in the name of the Custodian (or its nominee) or shown on the Custodian's account on the books of the Depository or the Book-Entry System, the Custodian shall by book entry or otherwise identify the quantity of those securities belonging to the Fund. At least monthly, the Custodian shall furnish the Fund with a detailed statement of the Securities and monies held for the Fund under this Agreement. (d) REGISTRATION OF SECURITIES AND PHYSICAL SEPARATION. All Securities held for the Fund which are issued or issuable only in bearer form, except such Securities as are held in the Book-Entry System, shall be held by the Custodian in that form; all other Securities held for the Fund may be registered in the name of the Fund, in the name of any duly appointed registered nominee of the Custodian as the Custodian may from time to time determine, or in the name of the Book-Entry System or the Depository or their successor or successors, or their nominee or nominees. The Fund reserves the right to instruct the Custodian as to the method of registration and safekeeping of the Securities. The Fund agrees to furnish to the Custodian appropriate instruments to enable the Custodian to hold or deliver in proper form for transfer, or to register in the name of its registered nominee or in the name of the Book-Entry System or the Depository, any Securities which it may hold for the account of the Fund and which may from time to time be registered in the name of the Fund. The Custodian shall hold all such Securities specifically allocated to the Fund which are not held in the Book-Entry System or the Depository in a separate account for the Fund in the name of the Fund physically segregated at all times from those of any other person or persons. (e) SEGREGATED ACCOUNTS. Upon receipt of a Written Instruction the Custodian will establish segregated accounts on behalf of the Fund to hold liquid or other assets as it shall be directed by a Written Instruction and shall increase or decrease the assets in such Segregated Accounts only as it shall be directed by subsequent Written Instruction. (f) COLLECTION OF INCOME AND OTHER MATTERS AFFECTING SECURITIES. Unless otherwise instructed to the contrary by a Written Instruction, the Custodian by itself, or through the use of the Book-Entry System or the Depository with respect to Securities therein deposited, shall with respect to all Securities held for the Fund in accordance with this Agreement: 4 1. Collect all income due or payable; 2. Present for payment and collect the amount payable upon all Securities which may mature or be called, redeemed or retired, or otherwise become payable. Notwithstanding the foregoing, the Custodian shall have no responsibility to the Fund for monitoring or ascertaining any call, redemption or retirement dates with respect to put bonds which are owned by the Fund and held by the Custodian or its nominees. Nor shall the Custodian have any responsibility or liability to the Fund for any loss by the Fund for any missed payments or other defaults resulting therefrom; unless the Custodian received timely notification from the Fund specifying the time, place and manner for the presentment of any such put bond owned by the Fund and held by the Custodian or its nominee. The Custodian shall not be responsible and assumes no liability to the Fund for the accuracy or completeness of any notification the Custodian may furnish to the Fund with respect to put bonds; 3. Surrender Securities and temporary form for definitive Securities; 4. Execute any necessary declarations or certificates of ownership under the Federal income tax laws or the laws or regulations of any other taxing authority now or hereafter in effect; and 5. Hold directly, or through the Book-Entry System or the Depository with respect to Securities therein deposited, for the account of the Fund all rights and similar Securities issued with respect to any Securities held by the Custodian hereunder for the Fund. (g) DELIVERY OF SECURITIES AND EVIDENCE OF AUTHORITY. Upon receipt of a Written Instruction and not otherwise, except for subparagraphs 5, 6, 7 and 8 of this section 4(g) which may be effected by Oral or Written Instructions, the Custodian, directly or through the use of the Book-Entry System or the Depository, shall: 1. Execute and deliver or cause to be executed and delivered to such persons as may be designated in such Written Instructions, proxies, consents, authorizations, and any other instruments whereby the authority of the Fund as owner of any Securities may be exercised; 2. Deliver or cause to be delivered any Securities held for the Fund in exchange for other Securities or cash issued or paid in connection with the liquidation, reorganization, refinancing, merger, consolidation or capitalization of any corporation, or the exercise of any conversion privilege; 5 3. Deliver or cause to be delivered any Securities held for the Fund to any protective committee, reorganization committee or other person in connection with the reorganization, refinancing, merger, consolidation or recapitalization or sale of assets of any corporation, and receive and hold under the terms of this Agreement in the separate account for the Fund such certificates of deposit, interim receipts or other instruments or documents as may be issued to it to evidence such delivery; 4. Make or cause to be made such transfers or exchanges of the assets specifically allocated to the separate account of the Fund and take such other steps as shall be stated in Written Instructions to be for the purpose of effectuating any duly authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Fund; 5. Deliver Securities upon sale of such Securities for the account of the Fund pursuant to Section 5; 6. Deliver Securities upon the receipt of payment in connection with any repurchase agreement related to such Securities entered into by the Fund; 7. Deliver Securities owned by the Fund to the issuer thereof or its agent when such Securities are called, redeemed, retired or otherwise become payable; provided, however, that in any such case the cash or other consideration is to be delivered to the Custodian. Notwithstanding the foregoing, the Custodian shall have no responsibility to the Fund for monitoring or ascertaining any call, redemption or retirement dates with respect to the put bonds which are owned by the Fund and held by the Custodian or its nominee. Nor shall the Custodian have any responsibility or liability to the Fund for any loss by the Fund for any missed payment or other default resulting therefrom; unless the Custodian received timely notification from the Fund specifying the time, place and manner for the presentment of any such put bond owned by the Fund and held by the Custodian or its nominee. The Custodian shall not be responsible and assumes no liability to the Fund for the accuracy or completeness of any notification the Custodian may furnish to the Fund with respect to put bonds; 8. Deliver Securities for delivery in connection with any loans of securities made by the Fund but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities; 6 9. Deliver Securities for delivery as security in connection with any borrowings by the Fund requiring a pledge of Fund assets, but only against receipt of amounts borrowed; 10. Deliver Securities upon receipt of Written Instructions from the Fund for delivery to the Transfer Agent or to the holders of Shares in connection with distributions in kind, as may be described from time to time in the Fund's Prospectus, in satisfaction of requests by holders of Shares for repurchase or redemption; 11. Deliver Securities as collateral in connection with short sales by the Fund of common stock for which the Fund owns the stock or owns preferred stocks or debt securities convertible or exchangeable, without payment or further consideration, into shares of the common stock sold short; 12. Deliver Securities for any purpose expressly permitted by and in accordance with procedures described in the Fund's Prospectus; and 13. Deliver Securities for any other proper business purpose, but only upon receipt of, in addition to Written Instructions, a certified copy of a resolution of the Board of Trustees signed by an Authorized Person and certified by the Secretary of the Fund, specifying the Securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper business purpose, and naming the person or persons to whom delivery of such Securities shall be made. (h) ENDORSEMENT AND COLLECTION OF CHECKS, ETC. The Custodian is hereby authorized to endorse and collect all checks, drafts or other orders for the payment of money received by the Custodian for the account of the Fund. 5. PURCHASE AND SALE OF INVESTMENTS OF THE FUND. --------------------------------------------- (a) Promptly after each purchase of Securities for the Fund, the Fund shall deliver to the Custodian (i) with respect to each purchase of Securities which are not Money Market Securities, a Written Instruction, and (ii) with respect to each purchase of Money Market Securities, either a Written Instruction or Oral Instruction, in either case specifying with respect to each purchase: (1) the name of the issuer and the title of the Securities; (2) the number of shares or the principal amount purchased and accrued interest, if any; (3) the date of purchase and settlement; (4) the purchase price per unit; (5) the total amount payable upon such purchase; (6) the name of the person from whom or the broker through whom the purchase was made, if any; (7) whether or not such purchase is to be settled through the Book-Entry System or the Depository; and (8) whether the Securities purchased are to be deposited in the Book-Entry System or the Depository. The Custodian shall receive the Securities purchased by or for the Fund and upon receipt of Securities shall pay out of the monies held for the account of the Fund the total amount payable upon such 7 purchase, provided that the same conforms to the total amount payable as set forth in such Written or Oral Instruction. (b) Promptly after each sale of Securities of the Fund, the Fund shall deliver to the Custodian (i) with respect to each sale of Securities which are not Money Market Securities, a Written Instruction, and (ii) with respect to each sale of Money Market Securities, either Written Instructions or Oral Instructions, in either case specifying with respect to such sale: (1) the name of the issuer and the title of the Securities; (2) the number of shares or principal amount sold, and accrued interest, if any; (3) the date of sale; (4) the sale price per unit; (5) the total amount payable to the Fund upon such sale; (6) the name of the broker through whom or the person to whom the sale was made; and (7) whether or not such sale is to be settled through the Book-Entry System or the Depository. The Custodian shall deliver or cause to be delivered the Securities to the broker or other person designated by the Fund upon receipt of the total amount payable to the Fund upon such sale, provided that the same conforms to the total amount payable to the Fund as set forth in such Written or Oral instruction. Subject to the foregoing, the Custodian may accept payment in such form as shall be satisfactory to it, and may deliver Securities and arrange for payment in accordance with the customs prevailing among dealers in Securities. 6. LENDING OF SECURITIES. ---------------------- If the Fund is permitted by the terms of the Master Trust Agreement and as disclosed in its Prospectus to lend Securities, within 24 hours after each loan of Securities, the Fund shall deliver to the Custodian a Written Instruction specifying with respect to each such loan: (a) the name of the issuer and the title of the Securities; (b) the number of shares or the principal amount loaned; (c) the date of loan and delivery; (d) the total amount to be delivered to the Custodian, and specifically allocated against the loan of the Securities, including the amount of cash collateral and the premium, if any, separately identified; (e) the name of the broker, dealer or financial institution to which the loan was made; and (f) whether the Securities loaned are to be delivered through the Book-Entry System or the Depository. Promptly after each termination of a loan of Securities, the Fund shall deliver to the Custodian a Written Instruction specifying with respect to each such loan termination and return of Securities: (a) the name of the issuer and the title of the Securities to be returned; (b) the number of shares or the principal amount to be returned; (c) the date of termination; (d) the total amount to be delivered by the Custodian (including the cash collateral for such Securities minus any offsetting credits as described in said Written Instruction); (e) the name of the broker, dealer or financial institution from which the Securities will be returned; and (f) whether such return is to be effected through the Book-Entry System or the Depository. The Custodian shall receive all Securities returned from the broker, dealer or financial institution to which such Securities were loaned and upon receipt thereof shall pay the total amount payable upon such return of Securities as set forth in the Written Instruction. Securities returned to the Custodian shall be held as they were prior to such loan. 8 7. PAYMENT OF DIVIDENDS OR DISTRIBUTIONS. -------------------------------------- (a) The Fund shall furnish to the Custodian the vote of the Board of Trustees of the Fund certified by the Secretary (i) authorizing the declaration of distributions on a specified periodic basis and authorizing the Custodian to rely on Oral or Written Instructions specifying the date of the declaration of such distribution, the date of payment thereof, the record date as of which shareholders entitled to payment shall be determined, the amount payable per Share to the shareholders of record as of the record date and the total amount payable to the Transfer Agent on the payment date, or (ii) setting forth the date of declaration of any distribution by the Fund, the date of payment thereof, the record date as of which shareholders entitled to payment shall be determined, the amount payable per share to the shareholders of record as of the record date and the total amount payable to the Transfer Agent on the payment date. (b) Upon the payment date specified in such vote, Oral Instructions, or Written Instructions, as the case may be, the Custodian shall pay out the total amount payable to the Transfer Agent of the Fund. 8. SALE AND REDEMPTION OF SHARES OF THE FUND. ------------------------------------------ (a) Whenever the Fund shall sell any Shares, the Fund shall deliver or cause to be delivered to the Custodian a Written Instruction duly specifying: 1. The number of Shares sold, trade date, and price; and 2. The amount of money to be received by the Custodian for the sale of such Shares. The Custodian understands and agrees that Written Instructions may be furnished subsequent to the purchase of Shares and that the information contained therein will be derived from the sales of Shares as reported to the Fund by the Transfer Agent. (b) Upon receipt of such money from the Transfer Agent, the Custodian shall credit such money to the separate account of the Fund. (c) Upon issuance of any Shares in accordance with the foregoing provisions of this Section 8, the Custodian shall pay all original issue or other taxes required to be paid in connection with such issuance upon the receipt of a Written Instruction specifying the amount to be paid. (d) Except as provided hereafter, whenever Any Shares are redeemed, the Fund shall cause the Transfer Agent to promptly furnish to the Custodian Written Instructions, specifying: 9 1. The number of Shares redeemed; and 2. The amount to be paid for the Shares redeemed. The Custodian further understands that the information contained in such Written Instructions will be derived from the redemption of Shares as reported to the Fund by the Transfer Agent. (e) Upon receipt from the Transfer Agent of advice setting forth the number of Shares received by the Transfer Agent for redemption and that such Shares are valid and in good form for redemption, the Custodian shall make payment to the Transfer Agent of the total amount specified in a Written Instruction issued pursuant to paragraph (d) of this Section 8. (f) Notwithstanding the above provisions regarding the redemption of Shares, whenever such Shares are redeemed pursuant to any check redemption privilege which may from time to time be offered by the Fund, the Custodian, unless otherwise instructed by a Written Instruction shall, upon receipt of advice from the Fund or its agent stating that the redemption is in good form for redemption in accordance with the check redemption procedure, honor the check presented as part of such check redemption privilege out of the monies specifically allocated to the Fund in such advice for such purpose. 9. INDEBTEDNESS. ------------- (a) The Fund will cause to be delivered to the Custodian by any bank (excluding the Custodian) from which the Fund borrows money for temporary administrative or emergency purposes using Securities as collateral for such borrowings, a notice or undertaking in the form currently employed by any such bank setting forth the amount which such bank will loan to the Fund against delivery of a stated amount of collateral. The Fund shall promptly deliver to the Custodian Written Instructions stating with respect to each such borrowing: (1) the name of the bank; (2) the amount and terms of the borrowing, which may be set forth by incorporating by reference an attached promissory note, duly endorsed by the Fund, or other loan agreement; (3) the time and date, if known, on which the loan is to be entered into (the "borrowing date"); (4) the date on which the loan becomes due and payable; (5) the total amount payable to the Fund on the borrowing date; (6) the market value of Securities to be delivered as collateral for such loan, including the name of the issuer, the title and the number of shares or the principal amount of any particular Securities; (7) whether the Custodian is to deliver such collateral through the Book-Entry System or the Depository; and (8) a statement that such loan is in conformance with the 1940 Act and the Fund's Prospectus. (b) Upon receipt of the Written Instruction referred to in Subparagraph (a) above, the Custodian shall deliver on the borrowing date the specified collateral and the executed promissory note, if any, against delivery by the lending bank of the total amount of the loan payable, provided that the same conforms to the total amount payable as set forth in the Written Instruction. The Custodian may, at the option of the lending bank, keep such collateral in its possession, but such collateral shall be subject to all rights therein given the lending bank by virtue of any promissory note or loan agreement. The Custodian shall deliver as additional collateral in the manner directed by the 10 Fund from time to time such Securities as may be specified in Written Instruction to collateralize further any transaction described in this Section 9. The Fund shall cause all Securities released from collateral status to be returned directly to the Custodian, and the Custodian shall receive from time to time such return of collateral as may be tendered to it. In the event that the Fund fails to specify in written Instruction all of the information required by this Section 9, the Custodian shall not be under any obligation to deliver any Securities. Collateral returned to the Custodian shall be held hereunder as it was prior to being used as collateral. 10. PERSONS HAVING ACCESS TO ASSETS OF THE FUND. -------------------------------------------- (a) No trustee or agent of the Fund, and no officer, director, employee or agent of the Fund's investment adviser, of any sub-investment adviser of the Fund, or of the Fund's administrator, shall have physical access to the assets of the Fund held by the Custodian or be authorized or permitted to withdraw any investments of the Fund, nor shall the Custodian deliver any assets of the Fund to any such person. No officer, director, employee or agent of the Custodian who holds any similar position with the Fund's investment adviser, with any sub-investment adviser of the Fund or with the Fund's administrator shall have access to the assets of the Fund. (b) Nothing in this Section 10 shall prohibit any officer, employee or agent of the Fund, or any officer, director, employee or agent of the investment adviser, of any sub-investment adviser of the Fund or of the Fund's administrator, from giving Oral Instructions or Written Instructions to the Custodian or executing a Certificate so long as it does not result in delivery of or access to assets of the Fund prohibited by paragraph (a) of this Section 10. 11. OVERDRAFT FACILITY AND SECURITY FOR PAYMENT. -------------------------------------------- In the event that the Custodian is directed by Written Instructions (or Oral Instructions confirmed in writing) to make any payment or transfer of funds on behalf of the Fund for which there would be, at the close of business on the date of such payment or transfer, insufficient funds held by the Custodian on behalf of the Fund, the Custodian may, in its sole discretion, provide an overdraft (an "Overdraft") to the Fund in an amount sufficient to allow the completion of such payment or transfer. Any Overdraft provided hereunder: (a) shall be payable on the next Business Day, unless otherwise agreed by the Fund and the Custodian; and (b) shall accrue interest from the date of the Overdraft to the date of payment in full by the Fund at a rate agreed upon in writing, from time to time, by the Custodian and the Fund. The Custodian and the Fund acknowledge that the purpose of such Overdraft is to temporarily finance the purchase of securities for prompt delivery in accordance with the terms hereof, to meet unanticipated or unusual redemptions, or to meet other emergency expenses not reasonably foreseeable by the Fund. The Custodian shall promptly notify the Fund in writing (an "Overdraft Notice") of any Overdraft by facsimile transmission or in such other manner as the Fund and the Custodian may agree in writing. To secure payment of any Overdraft, the Fund hereby grants to the Custodian a continuing security interest in and right of setoff against the Securities in the Fund's account from time to time in the full amount of such Overdraft. Shall the Fund fail to pay promptly any amounts owed hereunder, the Custodian shall be entitled to use available cash in the Fund's account and to liquidate Securities in the account as is necessary to meet the Fund's 11 obligations under the Overdraft. In any case, and without limiting the foregoing, the Custodian shall be entitled to take such other action(s) or exercise such other options, powers and rights as the Custodian now or hereafter has as a secured creditor under the Massachusetts Uniform Commercial Code or any other applicable law. 12. CONCERNING THE CUSTODIAN. ------------------------- (a) STANDARD OF CONDUCT. Except as otherwise provided herein, neither the Custodian nor its nominee shall be liable for any loss or damage, including counsel fees, resulting from its action or omission to act or otherwise, except for any such loss or damage arising out of its own negligence or willful misconduct. The Custodian may, with respect to questions of law, apply for and obtain the advice and opinion of counsel to the Fund or of its own counsel, at the expense of the Fund, and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice or opinion. The Custodian shall be liable to the Fund for any loss or damage resulting from the use of the Book-Entry System or the Depository arising by reason of any negligence, misfeasance or misconduct on the part of the Custodian or any of its employees or agents. (b) LIMIT OF DUTIES. Without limiting the generality of the foregoing, the Custodian shall be under no duty or obligation to inquire into, and shall not be liable for: 1. The validity of the issue of any Securities purchased by the Fund, the legality of the purchase thereof, or the propriety of the amount paid therefor; 2. The legality of the sale of any Securities by the Fund or the propriety of the amount for which the same are sold; 3. The legality of the issue or sale of any Shares, or the sufficiency of the amount to be received therefore; 4. The legality of the redemption of any Shares, or the propriety of the amount to be paid therefor; 5. The legality of the declaration or payment of any distribution of the Fund; or 6. The legality of any borrowing for temporary or emergency administrative purposes. (c) NO LIABILITY UNTIL RECEIPT. The Custodian shall not be liable for, or considered to be the Custodian of, any money, whether or not represented by 12 any check, draft, or other instrument for the payment of money, received by it on behalf of the Fund until the Custodian actually receives and collects such money directly or by the final crediting of the account representing the Fund's interest in the Book-Entry System or the Depository. (d) AMOUNTS DUE FROM TRANSFER AGENT. The Custodian shall not be under any duty or obligation to take action to effect collection of any amount due to the Fund from the Transfer Agent nor to take any action to effect payment or distribution by the Transfer Agent of any amount paid by the Custodian to the Transfer Agent in accordance with this Agreement. (e) COLLECTION WHERE PAYMENT REFUSED. The Custodian shall not be under any duty or obligation to take action to effect collection of any amount, if the Securities upon which such amount is payable are in default, or if payment is refused after due demand or presentation, unless and until (a) it shall be directed to take such action by a Certificate and (b) it shall be assured to its satisfaction of reimbursement of its costs and expenses in connection with any such action. (f) APPOINTMENT OF AGENTS AND SUB-CUSTODIANS. The Custodian may appoint one or more banking institutions, including but limited to banking institutions located in foreign countries, to act as Depository or Depositories or as Sub-Custodian or as Sub-Custodians of Securities and monies at any time owned by the Fund, upon terms and conditions specified in a Certificate. The Custodian shall use reasonable care in selecting a Depository and/or Sub-Custodian located in a country other than the United States ("Foreign Sub-Custodian"), and shall oversee the maintenance of any Securities or monies of the Fund by any Foreign Sub-Custodian. In addition, the Custodian shall hold the Fund harmless from, and indemnify the Fund against, any loss that occurs as a result of the failure of any Foreign Sub-Custodian to exercise reasonable care with respect to the safekeeping of Securities and monies of the Fund. (g) NO DUTY TO ASCERTAIN AUTHORITY. The Custodian shall not be under any duty or obligation to ascertain whether any Securities at any time delivered to or held by it for the Fund are such as may properly be held by the Fund under the provisions of the Master Trust Agreement and the Fund's Prospectus. (h) COMPENSATION OF THE CUSTODIAN. The Custodian shall be entitled to receive, and the Fund agrees to pay to the Custodian, such compensation as may be agreed upon from time to time between the Custodian and the Fund. The Custodian may charge against any monies held on behalf of the Fund pursuant to this Agreement such compensation and any expenses incurred by the Custodian in the performance of its duties pursuant to this Agreement. The Custodian shall also be entitled to charge against any money held on behalf of the Fund pursuant to this Agreement the amount of any loss, damage, liability or expense incurred with respect to the Fund, including counsel fees, for which it shall be entitled to reimbursement under the provisions of this Agreement. The expenses which the Custodian may charge against such account include, but are not limited to, the expenses of Sub-Custodians and foreign 13 branches of the Custodian incurred in settling transactions outside of Boston, Massachusetts or New York City, New York involving the purchase and sale of Securities. (i) RELIANCE ON CERTIFICATES AND INSTRUCTIONS. The Custodian shall be entitled to rely upon any Certificate, notice or other instrument in writing received by the Custodian and reasonably believed by the Custodian to be genuine and to be signed by two officers of the Fund. The Custodian shall be entitled to rely upon any Written Instructions or Oral Instructions actually received by the Custodian pursuant to the applicable Sections of this Agreement and reasonably believed by the Custodian to be genuine and to be given by an Authorized Person. The Fund agrees to forward to the Custodian Written Instructions from an Authorized Person confirming such Oral Instructions in such manner so that such Written Instructions are received by the Custodian, whether by hand delivery, telex or otherwise, by the close of business on the same day that such Oral Instructions are given to the Custodian. The Fund agrees that the fact that such confirming instructions are not received by the Custodian shall in no way affect the validity of the transactions or enforceability of the transactions hereby authorized by the Fund. The Fund agrees that the Custodian shall incur no liability to the Fund in acting upon Oral Instructions given to the Custodian hereunder concerning such transactions provided such instructions reasonably appear to have been received from a duly Authorized Person. (j) INSPECTION OF BOOKS AND RECORDS. The books and records of the Custodian shall be open to inspection and audit at reasonable times by officers and auditors employed by the Fund and by the appropriate employees of the Securities and Exchange Commission. The Custodian shall provide the Fund with any report obtained by the Custodian on the system of internal accounting control of the Book-Entry System or the Depository and with such reports on its own systems of internal accounting control as the Fund may reasonably request from time to tune. 13. TERM AND TERMINATION. --------------------- (a) This Agreement shall become effective on the date first set forth above (the "Effective Date") and shall continue in effect thereafter as the parties may mutually agree. (b) Either of the parties hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than 60 days after the date of receipt of such notice. In the event such notice is given by the Fund, it shall be accompanied by a certified vote of the Board of Trustees of the Fund, electing to terminate this Agreement and designating a successor custodian or custodians, which shall be a person qualified to so act under the 1940 Act. In the event such notice is given by the Custodian, the Fund shall, on or before the termination date, deliver to the Custodian a certified vote of the Board of Trustees of the Fund, designating a successor custodian or custodians. In the absence of such designation by the Fund, the Custodian may designate a successor custodian, which shall be a person qualified to so act under the 1940 Act. If the Fund fails to designate a successor custodian, the Fund shall upon 14 the date specified in the notice of termination of this Agreement and upon the delivery by the Custodian of all Securities (other than Securities held in the Book-Entry System which cannot be delivered to the Fund) and monies then owned by the Fund, be deemed to be its own custodian, and the Custodian shall thereby be relieved of all duties and responsibilities pursuant to this Agreement, other than the duty with respect to Securities held in the Book-Entry System which cannot be delivered to the Fund. (c) Upon the date set forth in such notice under paragraph (b) of this Section 13, this Agreement shall terminate to the extent specified in such notice, and the Custodian shall upon receipt of a notice of acceptance by the successor custodian on that date deliver directly to the successor custodian all Securities and monies then held by the Custodian on behalf of the Fund, after deducting all fees, expenses and other amounts for the payment or reimbursement of which it shall then be entitled. 14. LIMITATION OF LIABILITY. ------------------------ The Fund and the Custodian agree that the obligations of the Fund under this Agreement shall not be binding upon any of the Trustees, shareholders, nominees, officers, employees or agents, whether past, present or future, of the Fund, individually, but are binding only upon the assets and property of the Fund, as provided in the Master Trust Agreement. The execution and delivery of this Agreement have been Authorized by the Trustees of the Fund, and signed by an authorized officer of the Fund, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them or any shareholder of the Fund individually or to impose any liability on any of them or any shareholder of the Fund personally, but shall bind only the assets and property of the Fund as provided in the Master Trust Agreement. 15. MISCELLANEOUS. -------------- (a) Annexed hereto as Appendix A is a certification signed by the Secretary of the Fund setting forth the names and the signatures of the present Authorized Persons. The Fund agrees to furnish to the Custodian a new certification in similar form in the event that any such present Authorized Person ceases to be such an Authorized Person or in the event that other or additional Authorized Persons are elected or appointed. Until such new certification shall be received, the Custodian shall be fully protected in acting under the provisions of this Agreement upon Oral Instructions or signatures of the present Authorized Persons as set forth in the last delivered certification. (b) Annexed hereto as Appendix B is a certification signed by the Secretary of the Fund setting forth the names and the signatures of certain officers of the Fund. The Fund agrees to furnish to the Custodian a new certification in similar form in the event any such present officer ceases to be an officer of the Fund or in the event that other or additional officers are elected or appointed. Until such new certification shall be received, the Custodian shall be fully protected in acting under the provisions of this Agreement upon the signature of the officers as set forth in the last delivered certification. 15 (c) Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Custodian, shall be sufficiently given if addressed to the Custodian and mailed or delivered to it at its offices at One Mellon Bank Center, Pittsburgh Pennsylvania 15258 or at such other place as the Custodian may from time to time designate in writing. (d) Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Fund shall be sufficiently given if addressed to the Fund or the Fund and mailed or delivered to it at its offices at 200 Park Avenue, New York, New York 10166 or at such other place as the Fund may from time to time designate in writing. (e) This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties with the same formality as this Agreement, (i) authorized and approved by a vote of the Board of Trustees of the Fund, including a majority of the members of the Board of Trustees of the Fund who are not "interested persons" of the Fund (as defined in the 1940 Act), or (ii) authorized and approved by such other procedures as may be permitted or required by the 1940 Act. (f) This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by the Fund without the written consent of the Custodian, or by the Custodian without the written consent of the Fund authorized or approved by a vote of the Board of Trustees of the Fund, and any attempted assignment without such written consent shall be null and void. (g) The Fund represents that a copy of the Master Trust Agreement is on file with the Secretary of State of The Commonwealth of Massachusetts and with the Boston City Clerk. (h) This Agreement shall be construed in accordance with the laws of The Commonwealth of Massachusetts. (i) The captions of the Agreement are included for convenience of reference only and no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. (j) This agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective representatives duly authorized as of the day and year first above written THE DREYFUS HIGH YIELD STRATEGIES FUNDS TRUST /s/ Marie E. Connolly BY:-------------------- Name: Marie E. Connolly Title: President MELLON BANK, N.A. BY: Name: Title: 17 FORM OF APPENDIX A I, John E. Pelletier, Secretary of The Dreyfus High Yield Strategies Funds Trust, a business trust organized under the laws of The Commonwealth of Massachusetts (the "Fund"), do hereby certify that: The following individuals have been duly authorized as Authorized Persons to give Oral Instructions and Written Instructions on behalf of the Fund and the signatures set forth opposite their respective names are their true and correct signatures: Name Signature Marie E. Connolly _____________________________ Douglas C. Conroy _____________________________ Richard W. Ingram _____________________________ Mary A. Nelson _____________________________ Michael S. Petrucelli _____________________________ Joseph F. Tower, III _____________________________ Elba Vasque _____________________________ Kathleen Morrisey _____________________________ Christopher J. Kelley _____________________________ _____________________________ President Dated: 18 FORM OF APPENDIX B I, John E. Pelletier, Secretary of The Dreyfus High Yield Strategies Funds Trust, a business trust organized under the laws of The Commonwealth of Massachusetts (the "Fund"), do hereby certify that: The following individuals serve in the following positions with the Fund and each individual has been duly elected or appointed to each such position and qualified therefor in conformity with the Fund's Master Trust Agreement and the signatures set forth opposite their respective names are their true and correct signatures: NAME POSITION SIGNATURE Marie E. Connolly President and Treasurer _______________________ Douglas C. Conroy Vice President and Assistant Secretary Richard W. Ingram Vice President and _______________________ Assistant Treasurer Mary A. Nelson Vice President and _______________________ Assistant Secretary Michael S. Petrucelli Vice President and _______________________ Assistant Treasurer Joseph F. Tower, III Vice President and _______________________ Assistant Treasurer Elba Vasquez Vice President and _______________________ Assistant Secretary Kathleen Morrisey Vice President and _______________________ Assistant Secretary Christopher J. Kelley Vice President and _______________________ Assistant Secretary _______________________ President Dated: 19 EX-99.2K 9 SHAREHOLDER SERVICING AGREEMENT SHAREHOLDER SERVICING AGREEMENT (the "Agreement"), dated April __, 1998, between Dreyfus High Yield Strategies Fund (the "Fund") and PaineWebber Incorporated ("PaineWebber"). WHEREAS, the Fund is a closed-end, non-diversified management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), and its common shares of beneficial interest are registered under the Securities Act of 1933, as amended; and WHEREAS, the Fund desires to retain PaineWebber to provide shareholder servicing and market information with respect to the Fund, and PaineWebber is willing to render such services; NOW, THEREFORE, in consideration of the mutual terms and conditions set forth below, the parties hereto agree as follows: l. The Fund hereby employs PaineWebber, for the period and on the terms and conditions set forth herein, to provide the following services: (a) Undertake to make public information pertaining to the Fund on an ongoing basis and to communicate to investors and prospective investors the Fund's features and benefits (including periodic seminars or conference calls, responses to questions from or current or prospective shareholders and specific shareholder contact where appropriate); (b) Make available to investors and prospective investors market price, net asset value, yield and other information regarding the Fund, if reasonably obtainable, for the purpose of maintaining the visibility of the Fund in the investor community; (c) At the request of the Fund, provide certain economic research and statistical information and reports, if reasonable obtainable, on behalf of the Fund and consult with representatives and Trustees of the Fund in connection therewith, which information and reports shall include: (i) statistical and financial market information with respect to the Fund's market performance; and (ii) comparative information regarding the Fund and other closed-end management investment companies with respect to (x) the net asset value of their respective shares, (y) the respective market performance of the Fund and such other companies, and (z) other relevant performance indicators; and (d) At the request of the Fund, provide information to and consult with the Board of Trustees of the Fund with respect to applicable strategies designed to address market value discounts, which may include share repurchases, tender offers, modifications to dividend policies or capital structure, repositioning or restructuring of the Fund, conversion of the Fund to an open-end investment company, liquidation or merger; including providing information concerning the use and impact of the above strategic alternatives by other market participants. 2. The Fund will pay PaineWebber a fee computed weekly and payable quarterly at an annualized rate of 0.10% of the Fund's average weekly value of the total assets of the Fund minus the sum of accrued liabilities (other than the aggregate indebtedness constituting financial leverage). 3. The Fund acknowledges that the shareholder services of PaineWebber provided for hereunder do not include any advice as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund's portfolio. No provision of this Agreement shall be considered as creating, nor shall any provision create, any obligation on the part of PaineWebber, and PaineWebber is not hereby agreeing, to: (i) furnish any advice or make any recommendations regarding the purchase or sale of portfolio securities or (ii) render any opinions, valuations or recommendations of any kind or to perform any such similar services in connection with providing the services described in Section 1 hereof. 4. Nothing herein shall be construed as prohibiting PaineWebber or its affiliates from providing similar or other services to any other clients (including other registered investment companies or the investment managers thereof), so long as PaineWebber's services to the Fund is not impaired thereby. 5. The term of this Agreement shall commence upon the date referred to above, shall be in effect for a period of two years and shall thereafter continue for successive one year periods provided that the agreement may be terminated by either party upon 60 days written notice of the intention to terminate. 6. The Fund will furnish PaineWebber with such information as PaineWebber believes appropriate to its assignment hereunder (all such information so furnished being the "Information"). The Fund recognizes and confirms that PaineWebber (a) will use and rely primarily on the Information and on information available from generally recognized public sources in performing the services contemplated by this Agreement without having independently verified the same and (b) does not assume responsibility for the accuracy or completeness of the Information and such other information. To the best of the Fund's knowledge, the Information to be furnished by the Fund when delivered, will be true and correct in all material respects and will not contain any material misstatement of fact or omit to state any material fact necessary to make the statements contained therein not misleading. The Fund will promptly notify PaineWebber if it learns of any material inaccuracy or misstatement in, or material omission from, any Information thereto delivered to PaineWebber. 7. It is understood that PaineWebber is being engaged hereunder solely to provide the services described above to the Fund and that PaineWebber is not acting as an agent or fiduciary of, and shall have no duties or liability to the current or future shareholders of the Fund, the current or future shareholders of the Fund or any other third party in connection with its engagement hereunder, all of which are hereby expressly waived. 8. The Fund agrees that PaineWebber shall have no liability to the Fund for any act or omission to act by PaineWebber in the course of its performance under this Agreement, in the absence of gross negligence or willful misconduct on the part of PaineWebber. The Fund agrees to the indemnification and other 2 agreements set forth in the Indemnification Agreement attached hereto, the provisions of which are incorporated herein by reference and shall survive the termination, expiration or supersession of this Agreement. 9. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK FOR CONTRACTS TO BE PERFORMED ENTIRELY THEREIN AND WITHOUT REGARD TO THE CHOICE OF LAW PRINCIPLES THEREOF. 10. EACH OF THE FUND AND PAINEWEBBER AGREE THAT ANY ACTION OR PROCEEDING BASED HEREON, OR ARISING OUT OF PAINEWEBBER'S ENGAGEMENT HEREUNDER, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. PAINEWEBBER EACH HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH ACTION OR PROCEEDING AS SET FORTH ABOVE AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH ACTION OR PROCEEDING. EACH OF THE FUND AND PAINEWEBBER HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 11. The Fund and PaineWebber each hereby irrevocably waive any right they may have to a trial by jury in respect of any claim based upon or arising out of this Agreement or the transactions contemplated hereby. This Agreement may not be assigned by either party without the prior written consent of the other party. 12. This Agreement (including the attached Indemnification Agreement) embodies the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. If any provision of this Agreement is determined to be invalid or unenforceable in any respect, such determination will not affect such provision in any other respect or any other provision of this Agreement, which will remain in full force and effect. This Agreement may not be amended or otherwise modified or waived except by an instrument in writing signed by both PaineWebber and the Fund. 13. All notices required or permitted to be sent under this Agreement shall be sent, if to the Fund: 3 Dreyfus High Yield Strategies Fund 200 Park Avenue New York, New York 10166 Attention: Marie E. Connolly or if to PaineWebber: PaineWebber Incorporated 1285 Avenue of the Americas New York, New York 10019 Attention: Oscar J. Junquera or such other name or address as may be given in writing to the other parties. Any notice shall be deemed to be given or received on the third day after deposit in the U. S. mail with certified postage prepaid or when actually received, whether by hand, express delivery service or facsimile transmission, whichever is earlier. 14. This Agreement may be exercised on separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. 4 IN WITNESS WHEREOF, the parties hereto have duly executed this Shareholder Servicing Agreement as of the date first above written. DREYFUS HIGH YIELD STRATEGIES FUND By: ------------------------------- Name: Marie E. Connolly Title: President PAINEWEBBER INCORPORATED By: ------------------------------ Name: Oscar J. Junquera Title: Managing Director -------------------------------- PAINEWEBBER INDEMNIFICATION AGREEMENT ------------------------------- PAINEWEBBER INDEMNIFICATION AGREEMENT - -------------------------------------------------------------------------------- Date ______________, 19__ PaineWebber Incorporated 1285 Avenue of the Americas New York, NY 10019 Gentlemen: In connection with the engagement of PaineWebber Incorporated ("PaineWebber") to advise and assist the undersigned (referred to herein as "we", "our" or "us") with the matters set forth in the Agreement dated ____________, 199_ between us and PaineWebber, we hereby agree to indemnify and hold harmless PaineWebber, its affiliated companies, and each of PaineWebber's and such affiliated companies' respective officers, directors, agents, employees and controlling persons (within the meaning of each of Section 20 of the Securities Exchange Act of 1934 and Section 15 of the Securities Act of 1933) (each of the foregoing, including PaineWebber, being hereinafter referred to as an "Indemnified Person") to the fullest extent permitted by law from and against any and all losses, claims, damages, expenses (including reasonable fees, disbursements and other charges of counsel), actions (including actions brought by us or our equity holders or derivative actions brought by any person claiming through us or in our name), proceedings, arbitrations or investigations (whether formal or informal), or threats thereof (all of the foregoing being hereinafter referred to as "Liabilities"), based upon, relating to or arising out of such engagement or any Indemnified Person's role therein; provided, however, that we shall not be liable under this paragraph: (a) for any amount paid in settlement of claims without our consent, unless our consent is unreasonably withheld, or (b) to the extent that it is finally judicially determined, or expressly stated in an arbitration award, that such Liabilities resulted primarily from the willful misconduct or gross negligence of the Indemnified Person seeking indemnification. If multiple claims are brought against any Indemnified Person in an arbitration or other proceeding and at least one such claim is based upon, relates to or arises out of the engagement of PaineWebber by us or any Indemnified Person's role therein, we agree that any award, judgment and other Liabilities resulting therefrom shall be deemed conclusively to be based on, relate to or arise out of the engagement of PaineWebber by us or any Indemnified Person's role therein, except to the extent that such award or judgment expressly states that the award or judgment, or any portion thereof, is based solely upon, relates to or arises out of other matters for which indemnification is not available hereunder. In connection with our obligation to indemnify for expenses as set forth above, we further agree to reimburse each Indemnified Person for all such expenses (including reasonable fees, disbursements and other charges of counsel) as they are incurred by such Indemnified Person; provided, however, that if an Indemnified Person is reimbursed hereunder for any expenses, the amount so paid shall be refunded if and to the extent it is finally judicially determined, or expressly stated in an arbitration award, that the Liabilities in question resulted primarily from the willful misconduct or gross negligence of such Indemnified Person. We hereby also agree that neither PaineWebber nor any other Indemnified Person shall have any liability to us (or anyone claiming through us or in our name) in connection with PaineWebber's engagement by us except to the extent that such Indemnified Person has engaged in willful misconduct or been grossly negligent. - -------------------------------------------------------------------------------- 2 PaineWebber Indemnification Agreement - -------------------------------------------------------------------------------- Promptly after PaineWebber receives notice of the commencement of any action or other proceeding in respect of which indemnification or reimbursement may be sought hereunder, PaineWebber will notify us thereof; but the omission so to notify us shall not relieve us from any obligation hereunder unless, and only to the extent that, such omission results in our forfeiture of substantive rights or defenses. If any such action or other proceeding shall be brought against any Indemnified Person, we shall, upon written notice given reasonably promptly following your notice to us of such action or proceeding, be entitled to assume the defense thereof at our expense with counsel chosen by us and reasonably satisfactory to such Indemnified Person; provided, however, that any Indemnified Person may at its own expense retain separate counsel to participate in such defense. Notwithstanding the foregoing, such Indemnified Person shall have the right to employ separate counsel at our expense and to control its own defense of such action or proceeding if, in the reasonable opinion of counsel to such Indemnified Person, (i) there are or may be legal defenses available to such Indemnified Person or to other Indemnified Persons that are different from or additional to those available to us, or (ii) a difference of position or potential difference of position exists between us and such Indemnified Person that would make such separate representation advisable; provided, however, that in no event shall we be required to pay fees and expenses under this indemnity for more than one firm of attorneys (in addition to local counsel) in any jurisdiction in any one legal action or group of related legal actions. We agree that we will not, without the prior written consent of PaineWebber, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated by PaineWebber's engagement (whether or not any Indemnified Person is a party thereto) unless such settlement, compromise or consent includes an unconditional release of PaineWebber and each other Indemnified Person from all liability arising or that may arise out of such claim, action or proceeding. If the indemnification of an Indemnified Person provided for hereunder is finally judicially determined by a court of competent jurisdiction to be unenforceable, then we agree, in lieu of indemnifying such Indemnified Person, to contribute to the amount paid or payable by such Indemnified Person as a result of such Liabilities in such proportion as is appropriate to reflect the relative benefits received, or sought to be received, by us on the one hand and by PaineWebber on the other from the transactions in connection with which PaineWebber has been engaged. If the allocation provided in the preceding sentence is not permitted by applicable law, then we agree to contribute to the amount paid or payable by such Indemnified Person as a result of such Liabilities in such proportion as is appropriate to reflect not only the relative benefits referred to in such preceding sentence but also the relative fault of us and of such Indemnified Person. Notwithstanding the foregoing, in no event shall the aggregate amount required to be contributed by all Indemnified Persons taking into account our contributions as described above exceed the amount of fees actually received by PaineWebber pursuant to such engagement. The relative benefits received or sought to be received by us on the one hand and by PaineWebber on the other shall be deemed to be in the same proportion as (a) the total value of the transactions with respect to which PaineWebber has been engaged bears to (b) the fees paid or payable to PaineWebber with respect to such engagement. The rights accorded to Indemnified Persons hereunder shall be in addition to any rights that any Indemnified Person may have at common law, by separate agreement or otherwise. - -------------------------------------------------------------------------------- 3 PaineWebber Indemnification Agreement - -------------------------------------------------------------------------------- THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. WE HEREBY CONSENT, SOLELY FOR THE PURPOSE OF ALLOWING AN INDEMNIFIED PERSON TO ENFORCE ITS RIGHTS HEREUNDER, TO PERSONAL JURISDICTION AND SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM FOR WHICH INDEMNIFICATION MAY BE SOUGHT HEREUNDER IS BROUGHT AGAINST PAINEWEBBER OR ANY OTHER INDEMNIFIED PERSON. We and PaineWebber also hereby irrevocably waive any right we and PaineWebber may have to a trial by jury in respect of any claim based upon or arising out of this agreement. This agreement may not be amended or otherwise modified except by an instrument signed by both PaineWebber and us. If any provision hereof shall be determined to be invalid or unenforceable in any respect, such determination shall not affect such provision in any other respect or any other provision of this agreement, which shall remain in full force and effect. If there is more than one indemnitor hereunder, each indemnifying person agrees that its liabilities hereunder shall be joint and several. Each Indemnified Person is an intended beneficiary hereunder. The foregoing indemnification agreement shall remain in effect indefinitely, notwithstanding any termination of PaineWebber's engagement. Very truly yours, --------------------------------- Name of Client By: ----------------------------- Name: Title: Acknowledged and Agreed to: PAINEWEBBER INCORPORATED By: ------------------------------- Name: Title: - -------------------------------------------------------------------------------- 4 EX-99.2L 10 Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, N.W. Washington, D.C. 20036 April 21, 1998 Dreyfus High Yield Strategies Fund 200 Park Avenue New York, New York 10166 Dear Sirs: This opinion is furnished in connection with the registration by Dreyfus High Yield Strategies Fund, a business trust organized under the laws of the Commonwealth of Massachusetts (the "Fund"), of 57,500,000 shares of common stock, par value $.001 per share (the "Shares"), under the Securities Act of 1933, as amended, pursuant to a registration statement on Form N-2 (File No. 333-48117), as amended (the "Registration Statement"), in the amounts set forth under "Amount Being Registered" on the facing page of the Registration Statement. As counsel for the Fund, we are familiar with the proceedings taken by it in connection with the authorization, issuance and sale of the Shares. In addition, we have examined and are familiar with the Declaration of Trust, as amended, of the Fund, the By-Laws of the Fund, and such other documents as we have deemed relevant to the matters referred to in this opinion. Based upon the foregoing, we are of the opinion that the Shares, upon issuance and sale in the manner referred to in the Registration Statement, will be legally issued, fully paid and non-assessable shares of common stock of the Fund. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name in the Prospectus constituting a part thereof. Very truly yours, /s/ Kirkpatrick & Lockhart LLP INDEPENDENT AUDITORS' CONSENT Corporate High Yield Fund III, Inc.: We consent to the use in Pre-Effective Amendment No. 1 to Registration Statement No. 333-48117 of our report dated April __, 1998 and to the reference to us under the caption "Experts" both of which appear in the Prospectus, which is a part of such Registration Statement. KPMG/Peat Marwick LLP New York, New York April __, 1998 EX-99.2N 11 Independent Auditors' Report To the Shareholders and Board of Trustees The Dreyfus High Yield Strategies Fund We have audited the accompanying statement of assets and liabilities of Dreyfus High Yield Strategies Fund (in organization) as of April 15, 1998. This financial statement is the responsibility of the Fund's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of assets and liabilities is free of material misstatement. An audit of a statement of assets and liabilities includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of assets and liabilities. An audit of a statement of assets and liabilities also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement of assets and liabilities presentation. We believe that our audit of the statement of assets and liabilities provides a reasonable basis for our opinion. In our opinion, the statement of assets and liabilities referred to above presents fairly, in all material respects, the financial position of Dreyfus High Yield Strategies Fund (in organization) as of April 15, 1998 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP -------------------------------- KPMG Peat Marwick LLP New York, New York April 22, 1998 Independent Auditors' Consent To the Shareholders and Board of Trustees The Dreyfus High Yield Strategies Fund We consent to the use of our report dated April 22, 1998 with respect to the statement of assets and liabilities dated April 15, 1998 of the Dreyfus High Yield Strategies Fund (in organization) included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP ------------------------------------ KPMG Peat Marwick LLP New York, New York April 22, 1998 EX-99.2P 12 THE DREYFUS CORPORATION April 21, 1998 Dreyfus High Yield Strategies Fund 200 Park Avenue New York, New York 10166 Ladies and Gentlemen: We are writing in connection with our purchase of 6,667 Shares of Beneficial Interest ("Shares") of Dreyfus High Yield Fund at a price of $15 per share. This is to advise you that the Shares were purchased for investment only with no present intention of selling the Shares, and we do not now have any intention of selling the Shares. Sincerely, -----END PRIVACY-ENHANCED MESSAGE-----