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PROSPECTUS SEPTEMBER 30, 1998
DREYFUS INVESTMENT PORTFOLIOS
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Dreyfus Investment Portfolios (the "Fund") is an open-end, management
investment company, known as a mutual fund. Shares are offered only to
variable annuity and variable life insurance separate accounts established by
insurance companies to fund variable annuity contracts and variable life
insurance policies and to qualified pension and retirement plans. Individuals
may not purchase shares directly from the Fund. For offers to separate
accounts, this Prospectus should be read in conjunction with the prospectus
of the separate accounts of the specific insurance product. By this
Prospectus, the Fund is offering three separate portfolios (each, a
"Portfolio"), each with a different investment policy:
* The FOUNDERS GROWTH PORTFOLIO'S investment objective is to provide
long-term growth of capital. This Portfolio invests primarily in equity
securities of issuers which are characterized as "growth" companies according
to criteria established by Founders.
* The FOUNDERS INTERNATIONAL EQUITY PORTFOLIO'S investment objective
is to provide long-term growth of capital. This Portfolio invests primarily
in equity securities of foreign issuers which are characterized as "growth"
companies according to criteria established by Founders.
* The FOUNDERS PASSPORT PORTFOLIO'S investment objective is to
provide capital appreciation. This Portfolio invests primarily in equity
securities of foreign issuers in countries with established or emerging
economies which have market capitalizations or annual revenues of $1 billion
or less and are characterized as "growth" companies according to criteria
established by Founders.
The Dreyfus Corporation serves as each Portfolio's investment
adviser. Founders Asset Management LLC ("Founders") serves as each
Portfolio's sub-investment adviser.
This Prospectus sets forth concisely information about the Fund that
an investor should know before investing in a Portfolio. It should be read
and retained for future reference.
The Statement of Additional Information, dated September 30, 1998,
which may be revised from time to time, provides a further discussion of
certain areas in this Prospectus and other matters which may be of interest
to some investors. It has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The Securities and
Exchange Commission maintains a Web site (http://www.sec.gov) that contains
the Statement of Additional Information, material incorporated by reference,
and other information regarding the Fund. For a free copy of the Statement of
Additional Information, write to the Fund at 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144, or call 1-800-554-4611. When telephoning, ask
for Operator 144.
Mutual fund shares are not deposits or obligations of, or guaranteed
or endorsed by, any bank, and are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Mutual fund shares involve certain investment risks, including the possible
loss of principal. The net asset value of funds of this type will fluctuate
from time to time.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Page
ANNUAL FUND OPERATING EXPENSES........................... 4
DESCRIPTION OF THE FUND.................................. 4
MANAGEMENT OF THE FUND................................... 10
HOW TO BUY SHARES........................................ 13
HOW TO REDEEM SHARES..................................... 13
DIVIDENDS, DISTRIBUTIONS AND TAXES....................... 14
PERFORMANCE INFORMATION.................................. 14
GENERAL INFORMATION...................................... 16
APPENDIX................................................. 18
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[This Page Intentionally Left Blank]
[Page 3]
<TABLE>
Annual Fund Operating Expenses
(as a percentage of average daily net assets)
FOUNDERS GROWTH FOUNDERS INTERNATIONAL FOUNDERS PASSPORT
PORTFOLIO EQUITY PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
Management Fees..... .75% 1.00% 1.00%
Other Expenses...... .25% .25% .25%
Total Operating
Expenses ....... 1.00% 1.25% 1.25%
EXAMPLE:
An investor would pay the
following expenses on a
$1,000 investment,assuming
a 5% annual return (cumulatively
through the end of each time period):
FOUNDERS GROWTH FOUNDERS INTERNATIONAL FOUNDERS PASSPORT
PORTFOLIO EQUITY PORTFOLIO PORTFOLIO
1 Year.............. $10 $13 $13
3 Years............. $32 $40 $40
</TABLE>
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE
OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, EACH
PORTFOLIO'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN
GREATER OR LESS THAN 5%.
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The purpose of the foregoing table is to assist investors in
understanding the costs and expenses borne by each Portfolio, the payment of
which will reduce investors' annual return. Other Expenses noted above are
based on estimated amounts for the current fiscal year. The information in
the foregoing table does not reflect deduction of account fees and charges to
separate accounts or related insurance policies that may be imposed by
insurance companies, nor does it reflect any fee waiver or expense
reimbursement arrangements that may be in effect. For a further description of
the various costs and expenses incurred in the operation of the Fund, as well
as expense reimbursement or waiver arrangements, see "Management of the Fund."
DESCRIPTION OF THE FUND
GENERAL
Shares of the Portfolios are offered to variable annuity and variable
life insurance separate accounts established by affiliated and unaffiliated
life insurance companies ("Participating Insurance Companies") to fund
variable annuity contracts ("VA contracts") and variable life insurance
policies ("VLI policies" and, together with VA contracts, "Policies"). The
Policies are described in the separate prospectuses and statements of
additional information issued by the Participating Insurance Companies for
which the Fund assumes no responsibility. Shares of the Portfolios also are
offered to qualified pension and retirement plans and accounts permitting
accumulation of assets on a tax-deferred basis ("Eligible Plans" or "Plans").
Individuals may not purchase shares directly from the Fund.
Differences in tax treatment or other considerations may cause the
interests of VA contract owners, VLI policy owners or Eligible Plan
participants to conflict, although the Fund currently does not foresee any
disadvantages to VA contract owners, VLI policy owners or Eligible Plan
participants arising therefrom.
[Page 4]
Nevertheless, the Fund's Board intends to monitor events in
order to identify any material conflicts which may arise and to determine
what action, if any, should be taken in response thereto. Resolution of an
irreconcilable conflict might result in the withdrawal of a substantial
amount of a Portfolio's assets which could adversely affect the Portfolio's
net asset value per share.
Individual Policy owners and Plan participants are not the
"shareholders" of the Portfolios. Rather, the Participating Insurance
Companies and their separate accounts and the Eligible Plans, respectively,
are the shareholders (the "shareholders"), although the Participating
Insurance Companies and Eligible Plans anticipate passing voting rights
through to their Policy owners and Plan participants, respectively.
Investment Objectives and Management Policies
Each Portfolio pursues its investment objective through separate
investment policies, as described herein. The differences in objectives and
policies among the Portfolios determine the types of portfolio securities in
which each Portfolio invests, and can be expected to affect the degree of
risk to which each Portfolio is subject and each Portfolio's yield or return.
Each Portfolio's investment objective cannot be changed without approval by
the holders of a majority (as defined in the Investment Company Act of 1940,
as amended (the "1940 Act")) of such Portfolio's outstanding voting shares.
There can be no assurance that a Portfolio's investment objective will be
achieved. The types of portfolio securities in which each Portfolio may
invest are described in greater detail below and under "Appendix_Certain
Portfolio Securities."
Founders Growth Portfolio
The Founders Growth Portfolio is a diversified portfolio, the
investment objective of which is to provide long-term growth of capital. The
Portfolio anticipates that at least 65% of the value of its total assets will
be invested in equity securities of well-established high quality "growth"
companies pursuant to criteria established by Founders, the Portfolio's
sub-investment adviser. These companies tend to have strong performance
records, solid market positions and reasonable financial strength, and have
continuous operating records of three years or more. The Portfolio will seek
investment opportunities generally in companies which Founders believes have
fundamental strengths indicating the potential for growth in earnings per
share. Founders will focus on individual stock selection (a "bottom-up"
approach), rather than on forecasting stock market trends (a "top-down"
approach), to identify companies that may offer the best potential for
significant earnings growth. Equity securities consist of common stocks,
convertible securities and preferred stocks. The convertible securities and
preferred stocks in which the Portfolio may invest must be rated not lower
than B by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P"), Fitch IBCA, Inc. ("Fitch") and Duff & Phelps Credit
Rating Co. ("Duff"), or, if unrated, deemed to be of comparable quality by
Founders. See "Investment Considerations and Risks_Lower Rated Securities"
below.
The Portfolio may invest up to 30% of its total assets in foreign
securities, and up to 25% of its total assets in any one foreign country. In
addition, the Portfolio may invest in debt securities of domestic or foreign
issuers that management believes, based on market conditions, the financial
condition of the issuer, general economic conditions and other relevant
factors, offer opportunities for capital growth. The bonds, debentures and
corporate obligations (other than convertible securities and preferred stock)
in which the Portfolio may invest must be rated not lower than Baa by Moody's
or BBB by S&P, Fitch and Duff, or, if unrated, deemed to be of comparable
quality by Founders. See "Investment Considerations and Risks_Fixed-Income
Securities" below.
While seeking desirable investments, the Portfolio may invest in
money market instruments (collectively, "Money Market Instruments")
consisting of U.S. Government securities, certificates of deposit,
[Page 5]
time deposits, bankers' acceptances, short-term investment grade
corporate bonds and other short-term debt instruments, and repurchase
agreements, as set forth under "Appendix_Certain Portfolio Securities_Money
Market Instruments." Under normal market conditions, the Portfolio does not
expect to have a substantial portion of its assets invested in Money Market
Instruments. However, when Founders determines that adverse market conditions
exist, the Portfolio may adopt a temporary defensive posture and invest all
its assets in Money Market Instruments. The Portfolio also may invest in
Money Market Instruments in anticipation of investing cash positions.
In an effort to increase returns, the Portfolio expects to trade
actively and that the annual portfolio turnover rate could exceed 150%. A
turnover rate of 100% is equivalent to the Portfolio 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 transaction costs, and the short-term gains realized from these
transactions are taxable to shareholders as ordinary income. The Portfolio
may engage in various investment techniques, such as options, futures and
foreign currency transactions, and lending portfolio securities. For a
discussion of the investment techniques and their related risks, see
"Investment Considerations and Risks" and "Appendix_Investment Techniques"
below and "Investment Objectives and Management Policies_Management Policies"
in the Statement of Additional Information.
FOUNDERS INTERNATIONAL EQUITY PORTFOLIO
The Founders International Equity Portfolio is a diversified
portfolio, the investment objective of which is to provide long-term growth
of capital. The Portfolio anticipates that at least 65% of the value of its
total assets will be invested in equity securities of foreign issuers from a
minimum of three countries outside the United States. The Portfolio will not
invest more than 50% of its assets in the securities of issuers in any one
foreign country. The Portfolio ordinarily will invest in the securities of
foreign issuers in countries with established or emerging economies which are
characterized as "growth" companies according to criteria established by
Founders, the Portfolio's sub-investment adviser. The Portfolio will seek
investment opportunities generally in companies which Founders believes have
fundamental strengths indicating the potential for growth in earnings per
share. Founders will focus on individual stock selection (a "bottom-up"
approach), rather than on forecasting stock market trends (a "top-down"
approach), to identify companies that may offer the best potential for
significant earnings growth. Equity securities consist of common stocks,
convertible securities and preferred stocks. The convertible securities and
preferred stocks in which the Portfolio may invest must be rated not lower
than B by Moody's, S&P, Fitch and Duff, or, if unrated, deemed to be of
comparable quality by Founders. See "Investment Considerations and
Risks-Lower Rated Securities" below.
The Portfolio may invest in debt securities of foreign issuers that
management believes, based on market conditions, the financial condition of
the issuer, general economic conditions and other relevant factors, offer
opportunities for capital growth. The bonds, debentures and corporate
obligations (other than convertible securities and preferred stock) in which
the Portfolio may invest must be rated not lower than Baa by Moody's or BBB
by S&P, Fitch and Duff, or, if unrated, deemed to be of comparable quality by
Founders. See "Investment Considerations and Risks_Fixed-Income Securities"
below.
While seeking desirable investments, the Portfolio may invest in
Money Market Instruments. Under normal market conditions, the Portfolio does
not expect to have a substantial portion of its assets invested in Money
Market Instruments. However, when Founders determines that adverse market
conditions exist, the Portfolio may adopt a temporary defensive posture and
invest all its assets in Money Market Instruments. The Portfolio also may
invest in Money Market Instruments in anticipation of investing cash
positions.
[Page 6]
In an effort to increase returns, the Portfolio expects to trade
actively and that the annual portfolio turnover rate could exceed 150%. A
turnover rate of 100% is equivalent to the Portfolio 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 transaction costs, and the short-term gains realized from these
transactions are taxable to shareholders as ordinary income. The Portfolio
may engage in various investment techniques, such as options, futures and
foreign currency transactions, and lending portfolio securities. For a
discussion of the investment techniques and their related risks, see
"Investment Considerations and Risks" and "Appendix_Investment Techniques"
below and "Investment Objectives and Management Policies-Management Policies"
in the Statement of Additional Information.
Founders Passport Portfolio
The Founders Passport Portfolio is a diversified portfolio, the
investment objective of which is to provide capital appreciation. The
Portfolio ordinarily will invest in equity securities of foreign issuers in
countries with established or emerging economies, which have market
capitalizations or annual revenues of $1 billion or less and are
characterized as "growth" companies according to criteria established by
Founders, the Portfolio's sub-investment adviser. At least 65% of the value
of the Fund's total assets ordinarily will be invested in securities of
foreign issuers from a minimum of three countries. The Portfolio may invest
in securities of larger foreign issuers or in U.S. issuers if management
believes these securities offer attractive opportunities for capital
appreciation. Equity securities consist of common stocks, convertible
securities and preferred stocks. The convertible securities and preferred
stocks in which the Portfolio may invest must be rated not lower than B by
Moody's, S&P, Fitch and Duff, or, if unrated, deemed to be of comparable
quality by Founders. See "Investment Considerations and Risks-Lower Rated
Securities" below.
The Portfolio will seek investment opportunities generally in
companies which Founders believes have fundamental strengths indicating the
potential for growth in earnings per share. Founders will focus on individual
stock selection (a "bottom up" approach), rather than on forecasting stock
market trends (a "top-down" approach), to identify companies that may offer
the best potential for significant earnings growth.
The Portfolio may invest in debt securities of domestic or foreign
issuers that management believes, based on market conditions, the financial
condition of the issuer, general economic conditions and other relevant
factors, offer opportunities for capital appreciation. The bonds, debentures
and corporate obligations (other than convertible securities and preferred
stock) in which the Portfolio may invest must be rated not lower than Baa by
Moody's or BBB by S&P, Fitch and Duff, or, if unrated, deemed to be of
comparable quality by Founders. See "Investment Considerations and
Risks-Fixed-Income Securities" below.
While seeking desirable investments, the Portfolio may invest in
Money Market Instruments. Under normal market conditions, the Portfolio does
not expect to have a substantial portion of its assets invested in Money
Market Instruments. However, when Founders determines that adverse market
conditions exist, the Portfolio may adopt a temporary defensive posture and
invest all its assets in Money Market Instruments. The Portfolio also may
invest in Money Market Instruments in anticipation of investing cash
positions.
In an effort to increase returns, the Portfolio expects to trade
actively and that the annual portfolio turnover rate could exceed 100%. A
turnover rate of 100% is equivalent to the Portfolio buying and selling all
of the securities in its portfolio once in the course of a year. Higher
portfolio turnover rates
[Page 7]
usually generate additional brokerage commissions and transaction
costs, and the short-term gains realized from these transactions are taxable
to shareholders as ordinary income. The Portfolio may engage in various
investment techniques, such as options, futures and foreign currency
transactions, and lending portfolio securities. For a discussion of the
investment techniques and their related risks, see "Investment Considerations
and Risks" and "Appendix_Investment Techniques" below and "Investment
Objectives and Management Policies_Management Policies" in the Statement of
Additional Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL - Since each Portfolio will pursue different types of investments,
the risks of investing will vary depending on the Portfolio selected for
investment. Before selecting a Portfolio in which to invest, the investor
should assess the risks associated with the types of investments made by the
Portfolio. The net asset value per share of each Portfolio should be expected
to fluctuate. Investors should consider each Portfolio as a supplement to an
overall investment program and should invest only if they are willing to
undertake the risks involved. See "Investment Objectives and Management
Policies" in the Statement of Additional Information for a further discussion
of certain risks.
EQUITY SECURITIEs - Equity securities fluctuate in value, often based on
factors unrelated to the value of the issuer of the securities, and such
fluctuations can be pronounced. Changes in the value of a Portfolio's
investments will result in changes in the value of its shares and thus the
Portfolio's total return to investors. Each Portfolio may purchase securities
in all available securities trading markets, including initial public
offerings and the aftermarket.
Each Portfolio may purchase securities of smaller capitalization
companies, the prices of which may be subject to more abrupt or erratic
market movements than larger, more established companies, because these
securities typically are traded in lower volume and the issuers typically are
more subject to changes in earnings and prospects.
FIXED-INCOME SECURITIES - Each Portfolio may invest in fixed-income
securities to the extent described under "Investment Objectives and
Management Policies" above. Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities generally are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. Certain
securities that may be purchased by each Portfolio, such as those with
interest rates that fluctuate directly or indirectly 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
possibly loss of principal.
The values of fixed-income securities also may be affected by changes
in the credit rating or financial condition of the issuer. Certain debt
securities that may be purchased by each Portfolio, such as those rated Baa
by Moody's and BBB by S&P, Fitch and Duff, may be subject to such risk with
respect to the issuing entity and to greater market fluctuations than certain
lower yielding, higher rated fixed-income securities. Once the rating of a
portfolio security has been changed, the Fund will consider all circumstances
deemed relevant in determining whether to continue to hold the security. See
"Appendix_Certain Portfolio Securities_Ratings" below and "Appendix" in the
Statement of Additional Information.
LOWER RATED SECURITIES - Each Portfolio may invest a portion of its assets
in convertible securities and preferred stocks, which are higher yielding
(and, therefore, higher risk), such as those rated Ba by Moody's or BB by
S&P, Fitch or Duff or as low as those rated B by such rating agencies. The
retail secondary market for these securities may be less liquid than that of
higher rated securities; adverse conditions
[Page 8]
could make it difficult at times for the Portfolio to sell certain
securities or could result in lower prices than those used in calculating the
Portfolio's net asset value. See "Appendix_Certain Portfolio
Securities-Ratings" below and "Appendix" in the Statement of Additional
Information.
FOREIGN SECURITIES - Each Portfolio may invest in foreign securities to the
extent described under "Investment Objectives and Management Policies" above.
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 foreign securities usually are held
outside the United States, a Portfolio investing in such securities 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. Moreover, foreign securities held by a Portfolio may
trade on days when the Portfolio does not calculate its net asset value and
thus affect the Portfolio's net asset value on days when investors have no
access to the Portfolio.
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 Portfolios 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.
USE OF DERIVATIVES - Each Portfolio may invest in derivatives
("Derivatives"). These are financial instruments which derive their
performance, at least in part, from the performance of an underlying asset,
index or interest rate. The Derivatives the Portfolios may use include
options and futures. While Derivatives can be used effectively in furtherance
of the Portfolio's investment objective, under certain market conditions,
they can increase the volatility of the Portfolio's net asset value, decrease
the liquidity of the Portfolio's investments and make more difficult the
accurate pricing of the Portfolio's investments. See "Appendix-Investment
Techniques-Use of Derivatives" below, and "Investment Objectives and
Management Policies-Management Policies-Derivatives" in the Statement of
Additional Information.
STATE INSURANCE REGULATION - The Fund is intended to be a funding vehicle
for VA contracts and VLI policies to be offered by Participating Insurance
Companies and will seek to be offered in as many jurisdictions as possible.
Certain states have regulations concerning concentration of investments,
purchase and sale of futures contracts and short sales of securities, among
other techniques. If applied to the Fund, each Portfolio may be limited in
its ability to engage in such techniques and to manage its portfolio with the
flexibility provided herein. It is the Fund's intention that each Portfolio
operate in material compliance with current insurance laws and regulations,
as applied, in each jurisdiction in which the Portfolio is offered.
[Page 9]
SIMULTANEOUS INVESTMENT - Investment decisions for each Portfolio are made
independently from those of the other Portfolios and investment companies
managed by The Dreyfus Corporation and, where applicable, Founders. However,
if such other Portfolios or investment companies desire to invest in, or
dispose of, the same securities as the Portfolio, available investments or
opportunities for sales will be allocated equitably to each. In some cases,
this procedure may adversely affect the size of the position obtained for or
disposed of by a Portfolio or the price paid or received by a Portfolio.
YEAR 2000 RISKS - Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by The Dreyfus Corporation and, where
applicable, Founders 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." The
Dreyfus Corporation and, where applicable, Founders 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.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES - The business affairs of the Fund are managed under the
general supervision of its Board of Trustees. The Statement of Additional
Information contains the name and general business experience of each
Trustee.
INVESTMENT ADVISERS - The Dreyfus Corporation, located at 200 Park Avenue,
New York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of July 31, 1998, The Dreyfus Corporation managed
or administered approximately $110 billion in assets for approximately 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the Fund,
subject to the authority of the Fund's Board in accordance with Massachusetts
law.
The Dreyfus Corporation has engaged Founders to serve as the
sub-investment adviser to each Portfolio. Founders, a registered investment
adviser located at Founders Financial Center, 2930 East Third Avenue, Denver,
Colorado 80206, is a 90%-owned subsidiary of Mellon Bank, N.A. Founders and
its predecessor companies have been offering tools to help investors pursue
their financial goals since 1938. As of June 30, 1998, Founders managed
mutual funds and other client assets having an aggregate value of
approximately $7.7 billion. Founders, subject to the supervision and approval
of The Dreyfus Corporation, provides investment advisory assistance and
day-to-day management of each Portfolio's investments, as well as investment
research and statistical information, under a Sub-Investment Advisory
Agreement with The Dreyfus Corporation, subject to the overall authority of
the Fund's Board in accordance with Massachusetts law.
The primary portfolio managers of the Portfolios are as follows:
FOUNDERS GROWTH PORTFOLIO - Paul A. LaRocco. He has been the Portfolio's
primary portfolio manager since the Portfolio commenced operations and has
been employed by Founders since March 1998. Prior to joining Founders, Mr.
LaRocco was employed for five years at Oppenheimer Funds Inc. as a Vice
President and portfolio manager.
FOUNDERS INTERNATIONAL EQUITY PORTFOLIO - Douglas A. Loeffler. He has been
the Portfolio's primary portfolio manager since the Portfolio commenced
operations and has been employed by Founders
[Page 10]
since 1995. Prior to joining Founders, Mr. Loeffler was employed for seven
years at Scudder, Stevens & Clark as an international equities and
quantitative analyst.
FOUNDERS PASSPORT PORTFOLIO - Michael W. Gerding. He has been the
Portfolio's primary portfolio manager since the Portfolio commenced
operations and has been employed by Founders since 1990. Prior to joining
Founders, Mr. Gerding was employed for several years at NCNB Texas as a
portfolio manager and research analyst.
The Dreyfus Corporation also provides research services for the Fund
and for other funds advised by The Dreyfus Corporation through a professional
staff of portfolio managers and securities analysts.
Mellon 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 provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$350 billion in assets as of June 30, 1998, including approximately $125
billion in proprietary mutual fund assets. As of June 30, 1998, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.7 trillion in assets
including approximately $54 billion in mutual fund assets.
Under the terms of the Management Agreement, the Fund has agreed to
pay The Dreyfus Corporation a monthly fee at the annual rate set forth below
as a percentage of the relevant Portfolio's average daily net assets:
_______NAME OF PORTFOLIO______ MANAGEMENT FEE
Founders Growth Portfolio .75%
Founders International Equity Portfolio 1.00%
Founders Passport Portfolio 1.00%
Under the terms of the Sub-Investment Advisory Agreement, The Dreyfus
Corporation has agreed to pay Founders a monthly sub-advisory fee at the
annual rate set forth below as a percentage of the relevant Portfolio's
average daily net assets:
NAME OF PORTFOLIO
Sub-Investment
FOUNDERS GROWTH PORTFOLIO ADVISORY FEE
0 to $100 million of average daily net assets .25%
$100 million to $1 billion of average daily net assets .20%
$1 billion to $1.5 billion of average daily net assets .16%
$1.5 billion or more of average daily net assets .10%
FOUNDERS INTERNATIONAL EQUITY PORTFOLIO AND
FOUNDERS PASSPORT PORTFOLIO
0 to $100 million of average daily net assets .35%
$100 million to $1 billion of average daily net assets .30%
$1 billion to $1.5 billion of average daily net assets .26%
$1.5 billion or more of average daily net assets .20%
[Page 11]
In allocating brokerage transactions, The Dreyfus Corporation and
Founders seek to obtain the best execution of orders at the most favorable
net price. Subject to this determination, The Dreyfus Corporation and
Founders 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 The Dreyfus Corporation or its affiliates as factors in the
selection of broker-dealers to execute portfolio transactions for the Fund.
Brokerage transactions for the Fund may be conducted through Dreyfus
Investment Services Corporation, an affiliate of The Dreyfus Corporation, in
accordance with procedures adopted by the Fund's Board. See "Portfolio
Transactions" in the Statement of Additional Information.
The Dreyfus Corporation, from time to time, may make payments from
its own assets to Participating Insurance Companies and Eligible Plans in
connection with the provision of certain administrative services to one or
more Portfolios and/or to purchasers of VA contracts or VLI policies or Plan
participants.
EXPENSES - All expenses incurred in the operation of the Fund are borne by
the Fund, except to the extent specifically assumed by The Dreyfus
Corporation or, where applicable, Founders. The expenses borne by the Fund
include: organizational costs, taxes, interest, loan commitment fees,
interest and distributions paid on securities sold short, brokerage fees and
commissions, if any, fees of Board members who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of The
Dreyfus Corporation or Founders or any of their affiliates, Securities and
Exchange Commission fees, state Blue Sky qualification fees, advisory fees,
charges of custodians, transfer and dividend disbursing agents' fees, certain
insurance premiums, industry association fees, outside auditing and legal
expenses, costs of independent pricing services, costs of maintaining the
Fund's existence, costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders, costs of
shareholders' reports and meetings, and any extraordinary expenses. Expenses
attributable to a particular Portfolio are charged against the assets of that
Portfolio; other expenses of the Fund are allocated among the Fund's
portfolios on the basis determined by the Board, including, but not limited
to, proportionately in relation to the net assets of each portfolio.
From time to time, The Dreyfus Corporation may waive receipt of its
fees and/or voluntarily assume certain expenses of a Portfolio, which would
have the effect of lowering the expense ratio of that Portfolio and
increasing yield to investors. The Fund will not pay The Dreyfus Corporation
at a later time for any amounts it may waive nor will the Fund reimburse The
Dreyfus Corporation for any amounts it may assume.
DISTRIBUTOR - The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN _ Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, is the Fund's Custodian with respect
to the Founders Growth Portfolio. The Bank of New York, 90 Washington Street,
New York, New York 10286, is the Fund's Custodian with respect to the
Founders International Equity and Founders Passport Portfolios.
[Page 12]
HOW TO BUY SHARES
INDIVIDUALS MAY NOT PLACE PURCHASE ORDERS DIRECTLY WITH THE FUND.
INDIVIDUALS SHOULD CONSULT A PARTICIPATING INSURANCE COMPANY, THE
ADMINISTRATOR OF AN ELIGIBLE PLAN OR A FINANCIAL INTERMEDIARY FOR INFORMATION
ON THE PURCHASE OF PORTFOLIO SHARES. THE FUND DOES NOT ISSUE SHARE
CERTIFICATES. Purchase orders received by the Participating Insurance Company
or Eligible Plan on a given business day will be effected at the net asset
value of the applicable Portfolio determined on such business day if the
orders and Fed Funds (monies of member banks within the Federal Reserve
System which are held on deposit at a Federal Reserve Bank) are received by
the Fund on the next business day in accordance with applicable requirements.
It is each Participating Insurance Company's or Eligible Plan administrator's
or trustee's responsibility to transmit purchase orders in accordance with
appicable requirements.
Wire payments may be made if the bank account of the Participating
Insurance Company or Eligible Plan is in a commercial bank that is a member
of the Federal Reserve System or any other bank having a correspondent bank
in New York City. Immediately available funds may be transmitted by wire to
The Bank of New York (DDA#8900375108/DREYFUS INVESTMENT PORTFOLIOS:FOUNDERS
GROWTH PORTFOLIO; or DDA#8900375108/DREYFUS INVESTMENT PORTFOLIOS:FOUNDERS
INTERNATIONAL EQUITY PORTFOLIO or DDA#8900375108/DREYFUS INVESTMENT
PORTFOLIOS: FOUNDERS PASSPORT PORTFOLIO), for purchase of Portfolio shares.
The wire must include the Portfolio account number (for new accounts, a
taxpayer identification number should be included instead), account
registration and dealer number if applicable of the Participating Insurance
Company or Eligible Plan.
Fund shares are sold on a continuous basis. Net asset value per share
is determined as of the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), on each day that the New York
Stock Exchange is open for business. For purposes of determining net asset
value, options and futures will be valued 15 minutes after the close of
trading on the floor of the New York Stock Exchange. Net asset value per
share is computed by dividing the value of the net assets of each Portfolio
(i.e., the value of its assets less liabilities) by the total number of
Portfolio shares outstanding. Each Portfolio's investments are valued based
on market value, or where market quotations are not readily available, based
on fair value as determined in good faith by the Fund's Board. For further
information regarding the methods employed in valuing each Portfolio's
investments, see "Determination of Net Asset Value" in the Statement of
Additional Information.
HOW TO REDEEM SHARES
Portfolio shares may be redeemed at any time by the separate accounts
of the Participating Insurance Companies or by Eligible Plans. INDIVIDUALS
MAY NOT PLACE REDEMPTION ORDERS DIRECTLY WITH THE FUND. Redemption requests
received by the Participating Insurance Company or Eligible Plan on a given
business day will be effected at the net asset value of the applicable
Portfolio determined on such business day if the requests are received by the
Fund in proper form and in accordance with applicable requirements on the
next business day. It is each Participating Insurance Company's or Eligible
Plan administrator's or trustee's responsibility to properly transmit
redemption requests in accordance with applicable requirements. The value of
the shares redeemed may be more or less than their original cost, depending
on the Portfolio's then-current net asset value.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent or other entity authorized to
accept orders on behalf of the Fund of a redemption request in proper form,
except as provided by the rules of the Securities and Exchange Commission.
[Page 13]
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio declares and pays dividends from net investment income
annually. Each Portfolio will make distributions from net realized securities
gains, if any, once a year, but may make distributions on a more frequent
basis to comply with the distribution requirements of the Internal Revenue
Code of 1986, as amended (the "Code"), in all events in a manner consistent
with the provisions of the 1940 Act. No Portfolio will make distributions
from net realized securities gains unless capital loss carryovers, if any,
have been utilized or have expired. Dividends are automatically reinvested in
additional shares at net asset value unless payment in cash is elected by the
Participating Insurance Company or Eligible Plan. Shares begin earning
dividends on the day the purchase order is effective. If all shares in an
account are redeemed at any time, all dividends to which the shareholder is
entitled will be paid along with the proceeds of the redemption. An omnibus
accountholder may indicate in a partial redemption request that a portion of
any accrued dividends to which such account is entitled belongs to an
underlying accountholder who has redeemed all shares in his or her account,
and such portion of the accrued dividends will be paid to the accountholder
along with the proceeds of the redemption. All expenses are accrued daily and
deducted before declaration of dividends to investors.
Section 817(h) of the Code and regulations thereunder set standards
for diversification of the investments underlying Policies in order for the
Policies to be treated as life insurance. These requirements, which are in
addition to diversification requirements applicable to the Portfolios under
Subchapter M of the Code, may affect the composition of a Portfolio's
investments. Since the shares of the Portfolios currently are sold to
segregated asset accounts underlying such Policies, each Portfolio intends to
comply with the diversification requirements as set forth in the regulations.
By meeting these and other requirements, the Participating Insurance
Companies, rather than the Policy owners, should be subject to tax on
distributions received with respect to Portfolio shares. The tax treatment on
distributions made to a Participating Insurance Company will depend on the
Participating Insurance Company's tax status.
Dividends and distributions made by the Portfolios to Eligible Plans
are not taxable to the Plans or to the participants thereunder. The
Portfolios will be managed without regard to tax ramifications.
Since the Portfolios' shareholders are the Participating Insurance
Companies, their separate accounts and Eligible Plans, no discussion is
included herein as to the Federal income tax consequences to Policy owners
and Eligible Plan participants. For information concerning the Federal income
tax consequences, Policy owners should consult the applicable prospectus of
the separate account of the Participating Insurance Company and Eligible Plan
participants should consult the Plan's administrator or trustee.
Management of the Fund expects that each Portfolio will qualify as a
"regulated investment company" under the Code so long as such qualification
is in the best interests of its shareholders. Qualification as a regulated
investment company relieves the Portfolio of any liability for Federal income
taxes to the extent its earnings are distributed in accordance with
applicable provisions of the Code. The Portfolios may be subject to a
non-deductible 4% excise tax, measured with respect to certain undistributed
amounts of investment income and capital gains. Participating Insurance
Companies and Eligible Plans should consult their tax advisers regarding
specific questions as to Federal, state or local taxes.
PERFORMANCE INFORMATION
GENERAL - Each Portfolio may calculate performance on an average annual
total return or total return basis. Average annual total return is calculated
pursuant to a standardized formula which assumes that
[Page 14]
an investment in the Portfolio was purchased with an initial payment of
$1,000 and that the investment was redeemed at the end of a stated period of
time, after giving effect to the reinvestment of dividends and distributions
during the period. The return is expressed as a percentage rate which, if
applied on a compounded annual basis, would result in the redeemable value of
the investment at the end of the period. Advertisements of the Portfolios'
performance will include the Portfolios' average annual total return for one,
five and ten year periods, or for shorter time periods depending upon the
length of time the Portfolio has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period, which assumes the
application of the percentage rate of total return.
In addition, from time to time, each Portfolio may advertise "yield"
and "actual distribution rate" quotations. A Portfolio's "yield" for any
30-day period is computed by dividing the net investment income per share
earned during such period by the maximum public offering price per share on
the last day of the period, and then annualizing such 30-day yield in
accordance with a formula prescribed by the Securities and Exchange
Commission which provides for compounding on a semi-annual basis. A
Portfolio's "actual distribution rate" is computed in the same manner as
yield except that actual income dividends declared per share during the
period in question is substituted for net investment income per share.
Performance will vary from time to time and past results are not
necessarily representative of future results. Investors should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance. Performance information
for a Portfolio should not be compared with other funds that offer their
shares directly to the public since the figures provided do not reflect
charges imposed by Participating Insurance Companies under their VA contracts
or VLI policies or any charges imposed by Plans. The effective yield and
total return for a Portfolio should be distinguished from the rate of return
of a corresponding sub-account or investment division of a separate account
of a Participating Insurance Company, which rate will reflect the deduction
of additional charges, including mortality and expense risk charges, and will
therefore be lower. Policy owners should consult the prospectus for their
Policy.
Calculations of the Portfolios' performance information may reflect
absorbed expenses pursuant to any undertaking that may be in effect. See
"Management of the Fund." Comparative performance information may be used
from time to time in advertising a Portfolio's shares, including data from
Lipper Analytical Services, Inc., IBC's Money Fund Reporttrademark, Money
Magazine, Bank Rate Monitortrademark, Standard & Poor's 500 Composite Stock
Price Index ("S&P 500 Index"), Standard & Poor's MidCap 400 Index, Russell
2500Registration Mark Index, Morgan Stanley Capital International World (ex
US) Index ("MSCI World (ex US) Index"), the Dow Jones Industrial Average,
Morningstar, Inc., Value Line Mutual Fund Survey and other industry
publications.
PERFORMANCE INFORMATION FOR PUBLIC FUNDS - Although the Portfolios do not
yet have their own performance records, each Portfolio has the same
investment objective and follows substantially the
[Page 15]
same investment policies and strategies as a corresponding series of another
open-end investment company advised by Founders (the "Public Funds"). Set
forth below is total return and average annual total return information for
the Public Funds which correspond to the Portfolios offered in this
Prospectus, calculated as described above, and for an appropriate securities
index. Each Portfolio currently has the same primary portfolio manager as its
corresponding Public Fund. Investors should not consider this performance
data as an indication of the future performance of the Portfolios offered in
this Prospectus. The performance figures below reflect the deduction of the
historical fees and expenses paid by the existing Public Funds, and not those
to be paid by the respective Portfolio. The figures also do not reflect the
deduction of charges or expenses attributable to VA contracts or VLI policies
or Plans, which would lower the performance quoted. Policy owners should
refer to the applicable insurance company disclosure documents and Plan
participants should contact their Plan administrator or trustee for
information on such charges and expenses. Additionally, although it is
anticipated that each of the Portfolios and its corresponding Public Fund
will hold similar securities, their investment results are expected to differ.
In particular, differences in asset size and in cash flow resulting from
purchases and redemptions of Portfolio shares may result in different
security selections, differences in the relative weightings of securities or
differences in the price paid for particular portfolio holdings. Historical
performance information for the corresponding Public Funds and for the
securities indexes for various periods ended June 30, 1998 is set forth
below. Please note that as a result of market volatility during the third
quarter of 1998, the performance of the Public Funds for the periods ending
September 30, 1998 is expected to be lower than that quoted below.
<TABLE>
YEAR-TO-DATE
NAME OF PUBLIC FUND TOTAL RETURN AVERAGE ANNUAL TOTAL RETURN
AND INDEX PERIOD ENDED JUNE 30, 1998 PERIOD ENDED JUNE 30, 1998
One Three Five Ten
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C> <C>
Founders Growth Fund 19.50% 27.91% 28.08% 22.04% 19.83%
S&P 500 Index1 17.63% 30.13% 30.21% 23.07% 18.54%
Founders International Equity Fund 22.41% 22.05% 23.23%* N/A N/A
MSCI World (ex US) Index2 15.60% 6.30% 9.81%* N/A N/A
Founders Passport Fund 22.95% 15.77% 18.49% 13.03%** N/A
MSCI World (ex US) Index2 15.60% 6.30% 11.01% 11.09%** N/A
1 The S&P 500 Index is an unmanaged, market value weighted index composed of
500 common stocks from a wide range of industries that are traded on the
NYSE, the AMEX and the Nasdaq Market. The performance data for the S&P 500
assumes the reinvestment of all dividends, but does not deduct any fees or
expenses which are charged the Public Funds and the Portfolios.
2 The MSCI World (ex US) Index is an arithmetical average of the performance
of over 1,000 securities listed on the stock exchanges of Europe, Canada,
Australia, New Zealand and the Far East. Total return figures for the Index
assume change in share price and reinvestment of dividends after deduction of
local taxes, but does not deduct any fees or expenses which are charged the
Public Funds and the Portfolios.
* The performance data for the Public Fund is from December 29, 1995
(inception of the Public Fund) through June 30, 1998; the performance data
for the corresponding Index is from December 31, 1995 through June 30, 1998.
** The performance data for the Public Fund is from November 16, 1993
(inception of the Public Fund) through June 30, 1998; the performance data
for the corresponding Index is from November 30, 1993 through June 30, 1998.
</TABLE>
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated May 14, 1993, and
commenced operations on May 1, 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. The Fund ordinarily will not hold shareholder
meetings; however, shareholders under certain circumstances may have the
right to call a meeting of shareholders for the purpose of voting to remove
Trustees.
[Page 16]
In accordance with current law, the Fund anticipates that a
Participating Insurance Company issuing a VA contract or VLI policy or an
Eligible Plan that participates in the Fund will request voting instructions
from Policy holders or Plan participants and will vote shares in proportion
to the voting instructions received. A Participating Insurance Company could,
from time to time, be deemed to control a Portfolio to the extent that its
separate account(s) may own in the aggregate more than 25% of the Portfolio's
shares. For further information on voting rights, Policy holders should refer
to the prospectus for their policies and Plan participants should consult the
Plan's administrator or trustee.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio.
To date, the Board has authorized the creation of five portfolios of
shares. The other portfolios are not being offered by this Prospectus. All
consideration received by the Fund for shares of one of the portfolios, and
all assets in which such consideration is invested, will belong to that
portfolio (subject only to the rights of creditors of the Fund) and will be
subject to the liabilities related thereto. The income attributable to, and
the expenses of, one portfolio would be treated separately from those of the
other portfolios. The Fund has the ability to create, from time to time, new
portfolios without shareholder approval.
The Transfer Agent maintains a record of each shareholder's ownership
and will send confirmations and statements of account. Shareholder inquiries
may be made by writing to the Fund at 144 Glenn Curtiss Boulevard, Uniondale,
New York 11556-0144, or by calling 516-338-3300.
Owners of VLI policies and VA contracts issued by Participating
Insurance Companies for which Portfolio shares are an investment vehicle will
receive from the Participating Insurance Companies audited year-end financial
statements certified by the Fund's independent public accountants and
unaudited semi-annual financial statements. Each report will show the
investments owned by each Portfolio and the market values thereof and will
provide other information about the Portfolio and its operations.
[Page 17]
APPENDIX
INVESTMENT TECHNIQUES
BORROWING MONEY - (All Portfolios) Each Portfolio is permitted to borrow to
the extent permitted under the 1940 Act, which permits an investment company
to borrow in an amount up to 331/3% of the value of its total assets. Each
Portfolio currently intends to borrow money only for temporary or emergency
(not leveraging) purposes. While borrowings exceed 5% of such Portfolio's
total assets, the Portfolio will not make any additional investments.
USE OF DERIVATIVES - (All Portfolios) Each Portfolio may invest in the types
of Derivatives enumerated under "Description of the Fund - Investment
Considerations and Risks - Use of Derivatives." These instruments and
certain related risks are described more specifically under "Investment
Objectives and Management Policies - Management Policies - Derivatives" in
the Statement of Additional Information.
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 Portfolio's performance.
If a Portfolio invests in Derivatives at inopportune times or judges
market conditions incorrectly, such investments may lower the Portfolio's
return or result in a loss. The Portfolio also could experience losses if its
Derivatives were poorly correlated with its other investments, or if the
Portfolio 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.
Although neither the Fund nor any Portfolio will be a commodity pool,
certain Derivatives subject the Portfolios to the rules of the Commodity
Futures Trading Commission which limit the extent to which a Portfolio can
invest in such Derivatives. Each Portfolio may invest in futures contracts
and options with respect thereto for hedging purposes without limit. However,
no Portfolio may invest in such contracts and options for other purposes if
the sum of the amount of initial margin deposits and premiums paid for
unexpired options with respect to such contracts, other than for bona fide
hedging purposes, exceeds 5% of the liquidation value of the Portfolio's
assets, after taking into account unrealized profits and unrealized losses on
such contracts and options; provided, however, that in the case of an option
that is in-the-money at the time of purchase, the in-the-money amount may be
excluded in calculating the 5% limitation.
Each Portfolio may purchase call and put options and write (i.e.,
sell) covered call and put option contracts. When required by the Securities
and Exchange Commission, the Portfolio will set aside permissible liquid
assets in a segregated account to cover its obligations relating to its
purchase of Derivatives. To maintain this required cover, the Portfolio may
have to sell portfolio securities at disadvantageous prices or times since it
may not be possible to liquidate a Derivative position at a reasonable price.
LENDING PORTFOLIO SECURITIES - (All Portfolios) Each Portfolio may lend
securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions.
In connection with such loans, the Portfolio continues to be entitled to
payments in amounts equal to the dividends, interest or other distributions
payable on the loaned securities which affords the Portfolio an opportunity
to earn interest on the amount of the loan and at the same time to earn
income on the loaned securities' collateral. Loans of portfolio securities
may not exceed 33 1/3% of the value of the Portfolio's total assets, and the
Portfolio will receive collateral consisting of cash, U.S.
[Page 18]
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. Such loans are terminable by the
Portfolio at any time upon specified notice. The Portfolio might experience
risk of loss if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Portfolio.
FOREIGN CURRENCY TRANSACTIONS - (All Portfolios) Foreign currency
transactions may be entered into for a variety of purposes, including: to fix
in U.S. dollars, between trade and settlement date, the value of a security
the Portfolio has agreed to buy or sell; to hedge the U.S. dollar value of
securities the Portfolio already owns, particularly if it expects a decrease
in the value of the currency in which the foreign security is denominated; or
to gain exposure to the foreign currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the
Portfolio's purchase of foreign currencies for U.S. dollars or the
maintenance of short positions in foreign currencies, which would involve the
Portfolio agreeing to exchange an amount of a currency it did not currently
own for another currency at a future date in anticipation of a decline in the
value of the currency sold relative to the currency the Fund contracted to
receive in the exchange. The Portfolio's success in these transactions will
depend principally on Founders' ability to predict accurately the future
exchange rates between foreign currencies and the U.S. dollar.
Currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by intervention by U.S. or
foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the United States or abroad.
FORWARD COMMITMENTS - (All Portfolios) Each Portfolio 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
Portfolio enters into the commitment, but the Portfolio does not make a
payment until it receives delivery from the counter party. The Portfolio will
commit to purchase such securities only with the intention of actually
acquiring the securities, but the Portfolio may sell these securities before
the settlement date if it is deemed advisable. The Portfolio will set aside
in a segregated account permissible liquid assets at least equal at all times
to the amount of the commitments.
CERTAIN PORTFOLIO SECURITIES
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES - (All
Portfolios) Each Portfolio 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 Founders to be of
comparable quality to the other obligations in which the Portfolio 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.
CONVERTIBLE SECURITIES - (All Portfolios) Convertible securities are
fixed-income securities that may be converted at either a stated price or
stated rate into underlying shares of common stock. Convertible
[Page 19]
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 common stock, of the same issuer. Because of the subordination feature,
however, convertible securities typically have lower ratings than similar
non-convertible securities.
WARRANTS - (All Portfolios) A warrant is an instrument issued by a
corporation which gives the holder the right to subscribe to a specified
amount of the corporation's capital stock at a set price for a specified
period of time. Each Portfolio may invest up to 5% of its net assets in
warrants, except that this limitation does not apply to warrants purchased by
the Portfolio that are sold in units with, or attached to, other securities.
DEPOSITARY RECEIPTS - (All Portfolios) Each Portfolio may invest in the
securities of foreign issuers in the form of American Depositary Receipts and
American Depositary Shares (collectively, "ADRs") and Global Depositary
Receipts and Global Depositary Shares (collectively, "GDRs"). These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically
issued by a United States bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. GDRs are receipts
issued outside the United States typically by non-United States banks and
trust companies that evidence ownership of either foreign or domestic
securities. Generally, ADRs in registered form are designed for use in the
United States securities markets and GDRs in bearer form are designed for use
outside the United States.
MONEY MARKET INSTRUMENTS - (All Portfolios) Each Portfolio may invest in the
following types of Money Market Instruments.
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.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio 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 insolvency of the other party to the agreement, including possible delays
or restrictions upon the Portfolio's ability to dispose of the underlying
securities. The Portfolio may enter into repurchase agreements with certain
banks or non-bank dealers.
BANK OBLIGATIONS. Each Portfolio 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
[Page 20]
Portfolio may be subject to additional investment risks that are
different in some respects from those incurred by a fund which invests only
in debt obligations of U.S. domestic issuers. See "Description of the Fund _
Investment Considerations and Risks - Foreign Securities."
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 Portfolios will consist only of direct
obligations which, at the time of their purchase, are (a) rated not lower
than Prime-1 by Moody's, A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, (b)
issued by companies having an outstanding unsecured debt issue currently
rated at least A3 by Moody's or A- by S&P, Fitch or Duff, or (c) if unrated,
determined by Founders to be of comparable quality to those rated obligations
which may be purchased by the Portfolio.
INVESTMENT COMPANIES - (All Portfolios) Each Portfolio may invest in
securities issued by investment companies. Under the 1940 Act, the
Portfolio's investment in such securities, subject to certain exceptions,
currently is limited to (i) 3% of the total voting stock of any one
investment company, (ii) 5% of the Portfolio's total assets with respect to
any one investment company and (iii) 10% of the Portfolio's total assets in
the aggregate. Investments in the securities of other investment companies
may involve duplication of advisory fees and certain other expenses.
ILLIQUID SECURITIES - (All Portfolios) Each Portfolio may invest up to 15%
of the value of its net assets in securities as to which a liquid trading
market does not exist, provided such investments are consistent with the
Portfolio's investment objective. Such securities may include securities that
are not readily marketable, such as certain securities that are subject to
legal or contractual restrictions on resale, repurchase agreements providing
for settlement in more than seven days after notice, and certain privately
negotiated, non-exchange traded options and securities used to cover such
options. As to these securities, the Portfolio is subject to a risk that
should the Portfolio desire to sell them when a ready buyer is not available
at a price the Portfolio deems representative of their value, the value of
the Portfolio's net assets could be adversely affected.
RATINGS - Securities rated Baa by Moody's are considered medium grade
obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Bonds rated BBB by
S&P, Fitch and Duff are investment grade and regarded as having adequate
capacity to pay interest and repay principal; however, adverse changes in
economic conditions and circumstances are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. Securities rated
Ba by Moody's are judged to have speculative elements; their future cannot be
considered as well assured and often the protection of interest and principal
payments may be very moderate. Securities rated BB by S&P, Fitch or Duff are
regarded as having predominantly speculative characteristics and, while such
obligations have less near-term vulnerability to default than other
speculative grade debt, they face major ongoing uncertainties or exposure to
adverse business, financial or economic conditions
[Page 21]
which could lead to inadequate capacity to meet timely interest and
principal payments. Securities rated B by Moody's, S&P, Fitch and Duff are
highly speculative and assurance of principal or interest payments over any
long period of time may be small. Such securities, though high yielding, are
characterized by great risk. See "Appendix" in the Statement of Additional
Information for a general description of securities ratings.
The ratings of Moody's, S&P, Fitch and Duff 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, Founders also will
evaluate these securities and the ability of the issuers of such securities
to pay interest and principal. A Portfolio's ability to achieve its
investment objective may be more dependent on Founders' credit analysis than
might be the case for a fund that invested in higher rated securities.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
[Page 22]
[This Page Intentionally Left Blank]
[Page 23]
Dreyfus
Investment
Portfolios
Prospectus
Registration Mark
Copy Rights 1998 Dreyfus Service Corporation
176/177/178p0998
DREYFUS INVESTMENT PORTFOLIOS
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
SEPTEMBER 30, 1998
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Core Value Portfolio and MidCap Stock Portfolio, dated May 1, 1998, and
Founders Growth Portfolio, Founders International Equity Portfolio and
Founders Passport Portfolio, dated September 30, 1998 (collectively, the
"Portfolios"), each a separate series of Dreyfus Investment Portfolios (the
"Fund"), as each Prospectus may be revised from time to time. To obtain a
copy of the relevant Portfolio's Prospectus, please write to the Fund at 144
Glenn Curtiss Boulevard, Uniondale, New York 11556-0144, or call (516) 338-
3300.
Shares of the Portfolios are offered only to variable annuity and
variable life insurance separate accounts established by insurance companies
("Participating Insurance Companies") to fund variable annuity contracts and
variable life insurance policies (collectively, "Policies") and qualified
pension and retirement plans and accounts permitting accumulation of assets
on a tax-deferred basis (collectively, "Eligible Plans") outside the
separate account context.
The Dreyfus Corporation (the "Manager") serves as each Portfolio's
investment adviser. The Manager has engaged Founders Asset Management LLC
("Founders") to serve as sub-investment adviser to each of Founders Growth
Portfolio, Founders International Equity Portfolio and Founders Passport
Portfolio (collectively, the "Founders Portfolios") and to provide day-to-
day management of the Founders Portfolios' investments, subject to the
supervision of the Manager.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Portfolios' shares.
TABLE OF CONTENTS
Page
Investment objective and Management Policies B-2
Management of the Fund B-12
Management Arrangements B-16
Purchase of Shares B-18
Redemption of Shares B-18
Determination of Net Asset Value B-19
Dividends, Distributions and Taxes B-20
Portfolio Transactions B-22
Performance Information B-23
Information About the Fund B-24
Transfer and Dividend Disbursing Agent, Custodian B-25
Appendix B-27
Financial Statement and Report of Independent Auditors B-36
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The following information supplements and should be read in conjunction
with the sections in the relevant Prospectus entitled "Description of the
Fund" and "Appendix."
Portfolio Securities
Depositary Receipts. (All Portfolios) These securities may be
purchased through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the underlying security and
a depositary, whereas a depositary may establish an unsponsored facility
without participation by the issuer of the deposited security. Holders of
unsponsored depositary receipts generally bear all the costs of such
facilities and the depositary of an unsponsored facility frequently is under
no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through voting rights to the
holders of such receipts in respect of the deposited securities.
Repurchase Agreements. (All Portfolios) The Fund's custodian or sub-
custodian will have custody of, and will hold in a segregated account,
securities acquired by a Portfolio under a repurchase agreement. Repurchase
agreements are considered by the staff of the Securities and Exchange
Commission to be loans by the Portfolio. In an attempt to reduce the risk of
incurring a loss on a repurchase agreement, each Portfolio will enter into
repurchase agreements only with domestic banks with total assets in excess
of $1 billion, or primary government securities dealers reporting to the
Federal Reserve Bank of New York, with respect to securities of the type in
which the Portfolio may invest, and will require that additional securities
be deposited with it if the value of the securities purchased should
decrease below the resale price.
Commercial Paper and Other Short-Term Corporate Obligations. (All
Portfolios) These instruments include variable amount master demand notes,
which are obligations that permit a Portfolio to invest fluctuating amounts
at varying rates of interest pursuant to direct arrangements between the
Portfolio, 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 Portfolio'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 a
Portfolio 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.
Convertible Securities. (All Portfolios) Although to a lesser extent
than with fixed-income securities generally, 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 stocks. 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
appreciation 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 appreciation, 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 appreciation.
Illiquid Securities. (All Portfolios) When purchasing securities that
have not been registered under the Securities Act of 1933, as amended, and
are not readily marketable, a Portfolio 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 Portfolio'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 Portfolio pursuant to Rule 144A under the
Securities Act of 1933, as amended, the Portfolio 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 the Manager (and Founders with
respect to the Founders Portfolios) to monitor carefully the relevant
Portfolio'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, a Portfolio's investing in such securities may have the effect of
increasing the level of illiquidity in its investment portfolio during such
period.
Management Policies
Leverage. (Core Value Portfolio and MidCap Stock Portfolio) For
borrowings for investment purposes, the Investment Company Act of 1940, as
amended (the "1940 Act"), requires the Portfolio to maintain continuous
asset coverage (that is, total assets including borrowings, less liabilities
exclusive of borrowings) of 300% of the amount borrowed. If the required
coverage should decline as a result of market fluctuations or other reasons,
the Portfolio may be required to sell some of its portfolio securities
within three days to reduce the amount of its borrowings and restore the
300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time. The Portfolio also
may be required to maintain minimum average balances in connection with such
borrowing or pay a commitment or other fee to maintain a line of credit;
either of these requirements would increase the cost of borrowing over the
stated interest rate. To the extent a Portfolio enters into a reverse
repurchase agreement, the Portfolio will maintain in a segregated account
permissible liquid assets at least equal to the aggregate amount of its
reverse repurchase obligations, plus accrued interest, in certain cases, in
accordance with releases promulgated by the Securities and Exchange
Commission. The Securities and Exchange Commission views reverse repurchase
transactions as collateralized borrowings by a Portfolio.
Lending Portfolio Securities. (All Portfolios) In connection with its
securities lending transactions, a Portfolio may return to the borrower or a
third party which is unaffiliated with the Portfolio, and which is acting as
a "placing broker," a part of the interest earned from the investment of
collateral received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Portfolio 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
Portfolio must be able to terminate the loan at any time; (4) the Portfolio
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 Portfolio 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.
Derivatives. (All Portfolios) A Portfolio may invest in Derivatives
(as defined in the Fund's Prospectus) 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 Portfolio 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 a Portfolio 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 Portfolio can increase
or decrease the level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities.
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 which 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, the Manager (or Founders with respect to the Founders
Portfolios) 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 a Portfolio. 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 Transactions--In General. A Portfolio may enter into 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,
except for the MidCap Stock Portfolio, on exchanges located outside the
United States, such as the London International Financial Futures Exchange
and the Sydney Futures Exchange Limited. Foreign markets may offer
advantages such as trading 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 a Portfolio might realize in trading could be
eliminated by adverse changes in the exchange rate, or the Portfolio could
incur losses as a result of those changes. Transactions on foreign
exchanges may include both commodities which are traded on domestic
exchanges and those which are not. Unlike trading on domestic commodity
exchanges, trading on foreign commodity exchanges is not regulated by the
Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss to a Portfolio
which could adversely affect the value of the Portfolio's net assets.
Although each Portfolio intends to purchase or sell futures contracts only
if there is an active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract at any
particular time. Many futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit or
trading may be suspended for specified periods during the trading day.
Futures contract prices could move to the limit for several consecutive
trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and potentially subjecting the Portfolio to
substantial losses.
Successful use of futures by a Portfolio also is subject to the ability
of the Manager (or Founders with respect to the Founders Portfolios) 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. For example, if a
Portfolio 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 Portfolio will lose part or all of the
benefit of the increased value of securities which it has hedged because it
will have offsetting losses in its futures positions. Furthermore, if in
such circumstances the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. A Portfolio 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, a Portfolio may be required to segregate
permissible liquid assets in connection with its commodities 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 Portfolio's
ability otherwise to invest those assets.
Specific Futures Transactions. Each Portfolio may purchase and sell stock
index futures contracts. A stock index future obligates the Portfolio 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 stock prices of the securities that comprise it at
the opening of trading in such securities on the next business day.
The Core Value Portfolio and the Founders Portfolios may purchase and
sell currency futures. A foreign currency future obligates the Portfolio to
purchase or sell an amount of a specific currency at a future date at a
specific price.
Each Portfolio may purchase and sell interest rate futures contracts.
An interest rate future obligates the Portfolio to purchase or sell an
amount of a specific debt security at a future date at a specific price.
Options--In General. Each Portfolio 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 a Portfolio is a call option with
respect to which the Portfolio owns the underlying security or otherwise
covers the transaction by segregating cash or other securities. A put
option written by a Portfolio is covered when, among other things, cash or
liquid securities having a value equal to or greater than the exercise price
of the option are placed in a segregated account 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. A Portfolio receives a
premium from writing covered call or put options which it retains whether or
not the option is exercised.
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 Portfolio 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. Each Portfolio may purchase and sell call
and put options in respect of specific securities (or groups or "baskets" of
specific securities) or stock indices listed on national securities
exchanges or traded in the over-the-counter market. An option on a stock
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 stock 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 stock index
options will depend upon price movements in the level of the index rather
than the price of a particular stock.
Each Portfolio 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.
Each Portfolio may purchase cash-settled options on equity index swaps
in pursuit of its investment objective. Equity index swaps involve the
exchange by the Portfolio with another party of cash flows based upon the
performance of an index or a portion of an index of securities which usually
includes dividends. 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 a Portfolio of options will be subject to the ability
of the Manager (or Founders with respect to the Founders Portfolios) to
predict correctly movements in the prices of individual stocks, the stock
market generally, foreign currencies or interest rates. To the extent such
predictions are incorrect, a Portfolio may incur losses.
Future Developments. (All Portfolios) A Portfolio may take advantage
of opportunities in the area of options and futures contracts and options on
futures contracts and any other Derivatives which are not presently
contemplated for use by the Portfolio or which are not currently available
but which may be developed, to the extent such opportunities are both
consistent with the Portfolio's investment objective and legally permissible
for the Portfolio. Before entering into such transactions or making any
such investment on behalf of a Portfolio, the Fund will provide appropriate
disclosure in its Prospectus or Statement of Additional Information.
Forward Commitments. (All Portfolios) 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 may expose a Portfolio 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 a Portfolio is fully or almost fully invested may result in greater
potential fluctuation in the value of the Portfolio's net assets and its net
asset value per share.
Investment Considerations and Risks
Lower Rated Securities. (All Portfolios, except MidCap Stock
Portfolio) The Core Value Portfolio is permitted to invest up to 5% of the
value of its net assets in securities rated Ba or lower by Moody's Investors
Service, Inc. ("Moody's") or BB or lower by Standard & Poor's Ratings Group
("S&P"), Fitch IBCA, Inc. ("Fitch") and Duff & Phelps Credit Rating Co.
("Duff") and as low as the lowest rating assigned by Moody's, S&P, Fitch and
Duff. Each Founders Portfolio is permitted to invest a portion of the value
of its net assets in convertible securities and preferred stocks rated as
low as B by Moody's, S&P, Fitch or Duff, or if unrated, deemed to be of
comparable quality by Founders. These lower rated securities, though higher
yielding, are characterized by risk. See "Appendix" for a general
description of Moody's, S&P, Fitch and Duff ratings. Although ratings may
be useful in evaluating the safety of interest and principal payments, they
do not evaluate the market value risk of these securities. These Portfolios
will rely on the Manager's (or Founders' with respect to the Founders
Portfolios) judgment, analysis and experience in evaluating the
creditworthiness of an issuer.
Investors should be aware that the market values of many of these
securities tend to be more sensitive to economic conditions than are higher
rated securities. These securities generally are considered by S&P,
Moody's, Fitch and Duff to be, on balance, predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation and generally will involve more credit risk than
securities in the higher rating categories.
Companies that issue certain of these securities often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of
such issuers generally is greater than is the case with higher rated
securities and will fluctuate over time. For example, during an economic
downturn or a sustained period of rising interest rates, highly leveraged
issuers of these securities may experience financial stress. During such
periods, 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 affected adversely by specific corporate
developments, or the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss
because of default by the issuer is significantly greater for the holders of
these securities because such securities generally are unsecured and often
are subordinated to other creditors of the issuer.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these securities does exist, it
generally is not as liquid as the secondary market for higher rated
securities. The lack of a liquid secondary market may have an adverse
impact on market price and yield and the Portfolio's ability to dispose of
particular issues when necessary to meet such Portfolio's liquidity needs or
in response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid security market for
certain securities also may make it more difficult for the Portfolio to
obtain accurate market quotations for purposes of valuing its portfolio and
calculating its net asset value. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of these securities. In such cases, judgment may play
a greater role in valuation because less reliable, objective data may be
available.
These securities may be particularly susceptible to economic downturns.
It is likely that any economic recession could disrupt severely the market
for such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn could
adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and increase the incidence of default for
such securities.
The Core Value Portfolio and the Founders Portfolios may acquire these
securities during an initial offering. Such securities may involve special
risks because they are new issues. The Fund has no arrangement with any
persons concerning the acquisition of such securities, and the Manager (or
Founders with respect to the Founders Portfolios) will review carefully the
credit and other characteristics pertinent to such new issues.
Investment Restrictions
Each Portfolio has adopted investment restrictions numbered 1 through
10 as fundamental policies. These restrictions cannot be changed, as to a
Portfolio, without approval by the holders of a majority (as defined in the
1940 Act) of such Portfolio's outstanding voting shares. Investment
restrictions numbered 11 through 15 are not fundamental policies and may be
changed, as to a Portfolio, by vote of a majority of the Fund's Board
members at any time. No Portfolio may:
1. Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, provided that there shall be
no limitation on the purchase of obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
2. Invest more than 5% of its assets in the obligations of any
one issuer, except that up to 25% of the value of the Portfolio's total
assets may be invested, and securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities may be purchased, without
regard to any such limitations.
3. Purchase the securities of any issuer if such purchase would
cause the Portfolio to hold more than 10% of the voting securities of such
issuer. This restriction applies only with respect to 75% of the
Portfolio's total assets.
4. Invest in commodities, except that a Portfolio may purchase
and sell options, forward contracts, futures contracts, including those
relating to indices, and options on futures contracts or indices.
5. Purchase, hold or deal in real estate, or oil, gas or other
mineral leases or exploration or development programs, but a Portfolio 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.
6. Borrow money, except to the extent permitted under the 1940
Act (which currently limits borrowing to no more than 33-1/3% of the value
of the Portfolio's total assets). For purposes of this Investment
Restriction, the entry into options, forward contracts, futures contracts,
including those relating to indices, and options on futures contracts or
indices shall not constitute borrowing.
7. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, a Portfolio
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.
8. Act as an underwriter of securities of other issuers, except to
the extent a Portfolio may be deemed an underwriter under the Securities Act
of 1933, as amended, by virtue of disposing of portfolio securities.
9. Issue any senior security (as such term is defined in Section
18(f) of the 1940 Act), except to the extent the activities permitted in
Investment Restriction Nos. 4, 6, 12 and 13 may be deemed to give rise to a
senior security.
10. Purchase securities on margin, but a Portfolio may make
margin deposits in connection with transactions in options, forward
contracts, futures contracts, including those relating to indices, and
options on futures contracts or indices.
11. Invest in the securities of a company for the purpose of
exercising management or control, but the Portfolio will vote the securities
it owns as a shareholder in accordance with its views.
12. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to
the purchase of securities on a when-issued or forward commitment basis and
the deposit of assets in escrow in connection with writing covered put and
call options and collateral and initial or variation margin arrangements
with respect to options, forward contracts, futures contracts, including
those relating to indices, and options on futures contracts or indices.
13. Purchase, sell or write puts, calls or combinations thereof,
except as described in the Prospectus and Statement of Additional
Information.
14. Enter into repurchase agreements providing for settlement in
more than seven days after notice or purchase securities which are illiquid,
if, in the aggregate, more than 15% of the value of its net assets would be
so invested.
15. Purchase securities of other investment companies, except to
the extent permitted under the 1940 Act.
* * *
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will
not constitute a violation of such restriction.
In addition, each Portfolio has adopted the following policies as non-
fundamental policies. Each Portfolio intends (i) to comply with the
diversification requirements prescribed in regulations under Section 817(h)
of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) to
comply in all material respects with insurance laws and regulations that the
Fund has been advised are applicable to investments of separate accounts of
Participating Insurance Companies. As non-fundamental policies, these
policies may be changed by vote of a majority of the Board members at any
time.
MANAGEMENT OF THE FUND
Board members and officers of the Fund, together with information as to
their principal business occupations during at least the last five years,
are shown below.
Board Members of the Fund
JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman of
the Board of various funds in the Dreyfus Family of Funds. He also is
a director of The Muscular Dystrophy Association, The Noel Group, Inc.,
a venture capital company (for which, from February 1995 until November
1997, he was Chairman of the Board), Career Blazers, Inc. (formerly,
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.
(formerly, International Alliance Services, Inc.), a provider of
various outsourcing functions for small and medium sized companies.
For more than five years prior to January 1995, he was President, a
director and, until August 1994, Chief Operating Officer of the Manager
and Executive Vice President and a director of Dreyfus Service
Corporation, a wholly-owned subsidiary of the Manager. From August
1994 until December 31, 1994, he was a director of Mellon Bank
Corporation. He is 55 years old and his address is 200 Park Avenue,
New York, New York 10166.
CLIFFORD L. ALEXANDER, JR., Board Member. President of Alexander &
Associates, Inc., a management consulting firm. From 1977 to 1981, Mr.
Alexander served as Secretary of the Army and Chairman of the Board of
the Panama Canal Company, and from 1975 to 1977, he was a member of the
Washington, D.C. law firm of Verner, Liipfert, Bernhard, McPherson and
Alexander. He is a director of American Home Products Corporation,
Cognizant Corporation, a service provider of marketing information and
information technology, The Dun & Bradstreet Corporation, MCI
Communications Corporation, Mutual of America Life Insurance Company
and TLC Beatrice International Holdings, Inc. He is 64 years old and
his address is 400 C Street, N.E., Washington, D.C. 20002.
LUCY WILSON BENSON, Board Member. President of Benson and Associates,
consultants to business and government. Mrs. Benson is a director of
COMSAT Corporation, General Re Corporation and Logistics Management
Institute. She is also a Trustee of the Alfred P. Sloan Foundation,
Vice Chairman of the Board of Trustees of Lafayette College, Vice
Chairman of the Citizens Network for Foreign Affairs, and a member of
the Council on Foreign Relations. Mrs. Benson served as a consultant
to the U.S. Department of State and to SRI International from 1980 and
1981. From 1977 to 1980, she was Under Secretary of State for Security
Assistance, Science and Technology. She is 69 years old and her
address is 46 Sunset Avenue, Amherst, Massachusetts 01002.
There ordinarily will be no meetings of shareholders for the purpose of
electing Board members unless and until such time as less than a majority of
the Board members holding office have been elected by shareholders, at which
time the Board members then in office will call a shareholders' meeting for
the election of Board members. Under the 1940 Act, shareholders of record
of not less than two-thirds of the outstanding shares of the Fund may remove
a Board member through a declaration in writing or by vote cast in person or
by proxy at a meeting called for that purpose. The Board members are
required to call a meeting of shareholders for the purpose of voting upon
the question of removal of any Board member when requested in writing to do
so by the shareholders of record of not less than 10% of the Fund's
outstanding shares.
The Fund typically pays its Board members an annual retainer and a per
meeting fee and reimburses them for their expenses. The Chairman of the
Board receives an additional 25% of such compensation. Emeritus Board
members are entitled to receive an annual retainer and a per meeting fee of
one-half the amount paid to them as Board members. The aggregate amount of
compensation estimated to be paid by the Fund to each Board member for the
fiscal year ending December 31, 1998, and paid by all other funds in the
Dreyfus Family of Funds for which such person is a Board member (the number
of which is set forth in parenthesis next to each Board member's total
compensation) for the year ended December 31, 1997, is as follows:
Aggregate Estimated Total Compensation
Name of Board Compensation From From Fund and Fund
Member Fund Complex Paid
to Board Member
Joseph S. DiMartino $3,750 $597,128 (94)
Clifford L. Alexander, Jr. $3,000 $ 91,350 (18)
Lucy Wilson Benson $3,000 $ 77,055 (16)
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President, Chief Executive
Officer, Chief Compliance Officer and a director of the Distributor
and Funds Distributor, Inc., the ultimate parent of which is Boston
Institutional Group, Inc., and an officer of other investment
companies advised or administered by the Manager. She is 40 years
old.
MARGARET W. CHAMBERS, Vice President and Secretary. Senior Vice President
and General Counsel of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
August 1996 to March 1998, she was Vice President and Assistant General
Counsel for Loomis, Sayles & Company, L.P. From January 1986 to July
1996, she was an associate with the law firm of Ropes & Gray. She is
38 years old.
MICHAEL S. PETRUCELLI, Vice President, Assistant Treasurer and Assistant
Secretary. Senior Vice President of Funds Distributor, Inc., and an
officer of other investment companies advised or administered by the
Manager. From December 1989 through November 1996, he was employed by
GE Investments where he held various financial, business development
and compliance positions. He also served as Treasurer of the GE Funds
and as a Director of GE Investment Services. He is 36 years old.
STEPHANIE D. PIERCE, Vice President, Assistant Treasurer and Assistant
Secretary. Vice President and Client Development Manager of Funds
Distributor, Inc., and an officer of other investment companies advised
or administered by the Manager. From April 1997 to March 1998, she was
employed as a Relationship Manager with Citibank, N.A. From August
1995 to April 1997, she was an Assistant Vice President with Hudson
Valley Bank, and from September 1990 to August 1995, she was a Second
Vice President with Chase Manhattan Bank. She is 30 years old.
MARY A. NELSON, Vice President and Assistant Treasurer. Vice President of
the Distributor and Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
September 1989 to July 1994, she was an Assistant Vice President and
Client Manager for The Boston Company, Inc. She is 33 years old.
GEORGE A. RIO, Vice President and Assistant Treasurer. Executive Vice
President and Client Service Director of Funds Distributor, Inc., and
an officer of other investment companies advised or administered by the
Manager. From June 1995 to March 1998, he was Senior Vice President
and Senior Key Account Manager for Putnam Mutual Funds. From May 1994
to June 1995, he was Director of Business Development for First Data
Corporation. From September 1983 to May 1994, he was Senior Vice
President and Manager of Client Services and Director of Internal Audit
at The Boston Company, Inc. He is 43 years old.
JOSEPH F. TOWER, III, Vice President and Assistant Treasurer. Senior Vice
President, Treasurer, Chief Financial Officer and a director of the
Distributor and Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
July 1988 to August 1994, he was employed by The Boston Company, Inc.
where he held various management positions in the Corporate Finance
and Treasury areas. He is 35 years old.
DOUGLAS C. CONROY, Vice President and Assistant Secretary. Assistant Vice
President of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
April 1993 to January 1995, he was a Senior Fund Accountant for
Investors Bank & Trust Company. He is 28 years old.
CHRISTOPHER J. KELLEY, Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of the Distributor and
Funds Distributor, Inc., and an officer of other investment companies
advised or administered by the Manager. From April 1994 to July 1996,
he was Assistant Counsel at Forum Financial Group. From October 1992
to March 1994, he was employed by Putnam Investments in legal and
compliance capacities. He is 33 years old.
KATHLEEN K. MORRISEY, Vice President and Assistant Secretary. Vice
President and Assistant Secretary of Funds Distributor, Inc., and an
officer of other investment companies advised or administered by the
Manager. From July 1994 to November 1995, she was a Fund Accountant
for Investors Bank & Trust Company. She is 25 years old.
ELBA VASQUEZ, Vice President and Assistant Secretary. Assistant Vice
President of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
March 1990 to May 1996, she was employed by U.S. Trust Company of New
York, where she held various sales and marketing positions. She is 36
years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
As of September 14, 1998, none of the Fund's Board members or officers
owned shares of any Portfolio.
MANAGEMENT ARRANGEMENTS
The following information supplements and should be read in conjunction
with the section in the relevant Prospectus entitled "Management of the
Fund."
Management Agreement. The Manager provides management services
pursuant to the Management Agreement (the "Agreement") with the Fund dated
April 16, 1998, as amended July 16, 1998. As to each Portfolio, the
Agreement is subject to annual approval by (i) the Fund's Board or (ii) vote
of a majority (as defined in the 1940 Act) of the outstanding voting
securities of such Portfolio, 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 1940 Act) of the Fund or the Manager, by vote
cast in person at a meeting called for the purpose of voting on such
approval. As to each Portfolio, 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 shares of such Portfolio, or, upon not less than 90
days' notice, by the Manager. The Agreement will terminate automatically,
as to the relevant Portfolio, in the event of its assignment (as defined in
the 1940 Act).
The following persons are officers and/or directors of the Manager: 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; J. David Officer, Vice
Chairman and a director; Ronald P. O'Hanley III, Vice Chairman; William T.
Sandalls, Jr., Executive Vice President; Mark N. Jacobs, Vice President,
General Counsel and Secretary; Patrice M. Kozlowski, Vice President-
Corporate Communications; Mary Beth Leibig, Vice President- Human Resources;
Andrew S. Wasser, Vice President-Information Services; Richard Terres, Vice
President; Wendy Strutt, Vice President; William H. Maresca, Controller;
James Bitetto, Assistant Secretary; Steven F. Newman, Assistant Secretary;
and Mandell L. Berman, Burton C. Borgelt, Frank V. Cahouet and Richard F.
Syron, directors.
Sub-Investment Advisory Agreement. With respect to the Founders
Portfolios, the Manager has entered into a Sub-Investment Advisory
Agreement with Founders dated July 16, 1998 (the "Founders Sub-Advisory
Agreement"). As to each Founders Portfolio, the Founders Sub-Advisory
Agreement is subject to annual approval by (i) the Fund's Board or (ii)
vote of a majority (as defined in the 1940 Act) of the Portfolio's
outstanding voting securities, 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 1940 Act) of the Fund or Founders,
by vote cast in person at a meeting called for the purpose of voting on
such approval. As to each Founders Portfolio, the Founders Sub-Advisory
Agreement is terminable without penalty, (i) by the Manager on 60 days'
notice, (ii) by the Fund's Board or by vote of the holders of a majority of
the Portfolio's outstanding voting securities on 60 days' notice, or (iii)
upon not less than 90 days' notice, by Founders. The Founders Sub-Advisory
Agreement will terminate automatically, as to the relevant Founders
Portfolio, in the event of its assignment (as defined in the 1940 Act).
The following persons are officers of Founders: Christopher M.
Condron, Chairman; Stephen E. Canter, Acting Chief Executive Officer;
Gregory P. Contillo, Senior Vice President and Chief Marketing Officer;
Michael W. Gerding, Senior Vice President; Michael K. Haines, Senior Vice
President; David L. Ray, Senior Vice President, Treasurer and Assistant
Secretary; Robert T. Ammann, Vice President; Angelo Barr, Vice President
and National Sales Manager; Kenneth R. Christoffersen, Vice President,
General Counsel and Secretary; Frank Gaffney, Vice President; Roberto
Galindo, Jr., Vice President; Laurine Garrity, Vice President; Brian F.
Kelly, Vice President; Paul A. LaRocco, Vice President; Douglas A.
Loeffler, Vice President; John B. Mezger, Vice President and Director of
Private Advisory Services; and Linda M. Ripley, Vice President.
The Manager manages the investments of each Portfolio in accordance
with the stated policies of the Portfolio, subject to the approval of the
Fund's Board. With respect to each Founders Portfolio, Founders provides
day-to-day management of the Portfolio's investments, subject to the
supervision of the Manager and the Fund's Board. The Manager and Founders
are responsible for investment decisions with respect to the Core Value and
MidCap Stock Portfolios and Founders Portfolios, respectively, and provide
the Fund with portfolio managers who are authorized by the Fund's Board to
execute purchases and sales of securities for the relevant Portfolio. The
portfolio managers who comprise the committee responsible for making
investment decisions for Core Value Portfolio are Francis DeAngelis, William
Goldenberg and Valerie Sill. The primary portfolio manager of Founders
Growth Portfolio is Paul A. LaRocco. The primary portfolio manager of
Founders International Equity Portfolio is Douglas A. Loeffler. The primary
portfolio manager of Founders Passport Portfolio is Michael W. Gerding. The
portfolio managers of MidCap Stock Portfolio are John O'Toole, Ronald Gala,
Steven Falci, Robert Wilke, Mark Sickorski, Harry Grosse and Jocelyn Reed.
The Manager and Founders maintain research departments with
professional portfolio managers and securities analysts who provide research
services for the Portfolios and for other funds advised by the Manager or
Founders.
All expenses incurred in the operation of the Fund are borne by the
Fund, except to the extent specifically assumed by the Manager (or, if
applicable, Founders). The expenses borne by the Fund include:
organizational costs, taxes, interest, loan commitment fees, dividends and
interest on securities sold short, brokerage fees and commissions, if any,
fees of Board members who are not officers, directors, employees or holders
of 5% or more of the outstanding voting securities of the Manager or
Founders or any of their affiliates, Securities and Exchange Commission
fees, state Blue Sky qualification fees, advisory fees, charges of
custodians, transfer and dividend disbursing agents' fees, certain insurance
premiums, industry association fees, outside auditing and legal expenses,
costs of maintaining the Fund's existence, costs of independent pricing
services, costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of shareholders'
reports and meetings, costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders, and any extraordinary expenses.
Expenses attributable to a particular Portfolio are charged against the
assets of that Portfolio; other expenses of the Fund are allocated among the
Portfolios on the basis determined by the Fund's Board, including, but not
limited to, proportionately in relation to the net assets of each Portfolio.
The Manager 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. The Manager also may make such advertising and
promotional expenditures, using its own resources, as it from time to time
deems appropriate.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of a Portfolio's assets increases.
PURCHASE OF SHARES
The following information supplements and should be read in conjunction
with the section in the relevant Prospectus entitled "How to Buy Shares."
The Distributor. The Distributor serves as the Fund's distributor on a
best efforts basis pursuant to an agreement which is renewable annually.
The Distributor also acts as distributor for the other funds in the Dreyfus
Family of Funds and for certain other investment companies.
REDEMPTION OF SHARES
The following information supplements and should be read in conjunction
with the section in the relevant Prospectus entitled "How to Redeem Shares."
Redemption Commitment. The Fund has committed to pay in cash all
redemption requests by any shareholder of record, limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the value of a
Portfolio's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission. In the case of requests for redemption in excess of such
amount, the Fund's Board reserves the right to make payments in whole or
part in securities or other assets of the Portfolio in case of an emergency
or any time a cash distribution would impair the liquidity of the Portfolio
to the detriment of the existing shareholders. In such event, the
securities would be valued in the same manner as the Portfolio's investments
are valued. If the recipient sold such securities, brokerage charges might
be incurred.
Suspension of Redemptions. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b)
when trading in the markets the Fund ordinarily utilizes is restricted, or
when an emergency exists as determined by the Securities and Exchange
Commission so that disposal of the Fund's investments or determination of
its net asset value is not reasonably practicable, or (c) for such other
periods as the Securities and Exchange Commission by order may permit to
protect the Fund's shareholders.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in the relevant Prospectus entitled "How to Buy Shares."
Each Portfolio's investment securities are valued at the last sale
price on the securities exchange or national securities market on which such
securities are primarily traded. Securities not listed on an exchange or
national securities market, or securities in which there were no
transactions, are valued at the average of the most recent bid and asked
prices, except in the case of open short positions where the asked price is
used for valuation purposes. Bid price is used when no asked price is
available. Market quotations for foreign securities denominated in foreign
currencies are translated into U.S. dollars at the prevailing rates of
exchange. Because of the need to obtain prices as of the close of trading
on various exchanges throughout the world, the calculation of net asset
value may not take place contemporaneously with the determination of prices
of the Core Value Portfolio's or any Founders Portfolio's foreign investment
securities. If events materially affecting the value of such securities
occur between the time when their price is determined and the time when the
Portfolio's net asset value is calculated, such securities may be valued at
fair value as determined in good faith by the Board. Short-term investments
are carried at amortized cost, which approximates value. Any securities or
other assets for which recent market quotations are not readily available
are valued at fair value as determined in good faith by the Fund's Board.
Expenses and fees, including the management fee (reduced by the expense
limitation, if any), are accrued daily and taken into account for the
purpose of determining the net asset value of shares.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by the Fund's Board, are valued at fair value as determined
in good faith by the Fund's Board. The Fund's 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 Fund's Board if the Board members believe that it no
longer reflects the value of the restricted securities. Restricted
securities not of the same class as securities for which a public market
exists usually will be valued initially at cost. Any subsequent adjustment
from cost will be based upon considerations deemed relevant by the Fund's
Board.
New York Stock Exchange Closings. 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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in conjunction
with the section in the relevant Prospectus entitled "Dividends,
Distributions and Taxes."
It is expected that each Portfolio will qualify as a regulated
investment company under the Code. Each Portfolio intends to continue to so
qualify as long as such qualification is in the best interests of its
shareholders. As a regulated investment company, each Portfolio will pay no
Federal income tax on net investment income and net realized securities
gains to the extent that such income and gains are distributed to
shareholders in accordance with applicable provisions of the Code. To
qualify as a regulated investment company, the Portfolio must meet several
requirements. These requirements include the following: (1) at least 90% of
the Portfolio's gross income must be derived from dividends, interest,
payments with respect to securities loans, gains from the sale or
disposition of stock, securities or foreign currencies or other income
(including gain from options, futures or forward contracts) derived in
connection with the Portfolio's investment business, (2) at the close of
each quarter of the Portfolio's taxable year, (a) at least 50% of the value
of the Portfolio's assets must consist of cash, United States Government
securities, securities of other regulated investment companies and other
securities (limited generally with respect to any one issuer to not more
than 5% of the total assets of the Portfolio and not more than 10% of the
outstanding voting securities of such issuer) and (b) not more than 25% of
the value of the Portfolio's assets may be invested in the securities of any
one issuer (other than United States Government securities or securities of
other regulated investment companies) or of two or more issuers which the
Portfolio controls and which are determined to be engaged in similar or
related trades or businesses and (3) at least 90% of the Portfolio's net
income (consisting of net investment income and net short-term capital gain)
must be distributed to its shareholders. The Portfolios may be subject to a
non-deductible 4% excise tax, measured with respect to certain undistributed
amount of investment income and capital gains. The term "regulated
investment company" does not imply the supervision of management or
investment practices or policies by any government agency.
Investment by a Portfolio in securities issued or acquired at a
discount or providing for deferred interest or for payment of interest in
the form of additional obligations could, under special tax rules, affect
the amount, timing and character of distributions to shareholders by causing
the Portfolio to recognize income prior to the receipt of cash payments.
For example, the Portfolio could be required to accrue a portion of the
discount (or deemed discount) at which the securities were issued each year
and to distribute such income in order to maintain its qualification as a
regulated investment company. In such case, the Portfolio may have to
dispose of securities which it might otherwise have continued to hold in
order to generate cash to satisfy these distribution requirements. In
addition, if a Portfolio invests in an entity that is classified as a
"passive foreign investment company" ("PFIC") for Federal income tax
purposes, the operation of certain provisions of the Code applying to PFICs
could result in the imposition of certain Federal income taxes on the
Portfolio.
Shareholders of the Portfolios will be variable annuity and variable
life insurance separate accounts established by insurance companies to fund
Policies and Eligible Plans. Section 817(h) of the Code and the regulations
thereunder set standards for diversification of the investments underlying
Policies in order for the Policies to be treated as life insurance. These
requirements, which are in addition to diversification requirements
applicable to the Portfolios under Subchapter M of the Code, may affect the
composition of a Portfolio's investments.
The Secretary of the Treasury may in the future issue additional
regulations or revenue rulings that will prescribe the circumstances in
which a Policy owner's control of the investments of a separate account may
cause the Policy owner, rather than the insurance company, to be treated as
the owner of assets of the separate account. Failure to comply with Section
817(h) of the Code or any regulation thereunder, or with any regulations or
revenue rulings on Policy owner control, if promulgated, would cause
earnings regarding a Policy owner's interest in the separate account to be
includable in the Policy owner's gross income in the year earned.
If a Portfolio fails to qualify as a regulated investment company, the
Portfolio will be subject to federal, and possibly state, corporate taxes on
its taxable income and gains, distributions to its shareholders will be
taxed as ordinary dividend income to the extent of such Portfolio's
available earnings and profits, and Policy owners could be subject to
current tax on distributions received with respect to Portfolio shares.
The Fund will not report dividends paid to Eligible Plans to the
Internal Revenue Service ("IRS"). Generally, distributions from Eligible
Plans, except those representing returns of non-deductible contributions
thereto, will be taxable as ordinary income and, if made prior to the time
the participant reaches age 59-1/2, generally will be subject to an
additional tax equal to 10% of the taxable portion of the distribution. If
the distribution from an Eligible Plan (other than certain governmental or
church plans) for any taxable year following the year in which the
participant reaches age 70-1/2 is less than the "minimum required
distribution" for that taxable year, an excise tax equal to 50% of the
deficiency may be imposed by the IRS. (In some cases, minimum required
distributions need not commence until the participant retires, if later.)
The administrator, trustee or custodian of such a Plan will be responsible
for reporting distributions from the Plan to the IRS. Participants in
Eligible Plans will receive a disclosure statement describing the
consequences of a distribution from the Plan from the administrator, trustee
or custodian of the Plan prior to receiving the distribution. Moreover,
certain contributions to an Eligible Plan in excess of the amounts permitted
by law may be subject to an excise tax. For more information concerning
the Federal income tax consequences, Policy owners should refer to the
prospectus for their contracts or policies and Eligible Plan participants
should consult the Plan's administrator or trustee.
PORTFOLIO TRANSACTIONS
Purchases and sales of portfolio securities on a securities exchange
are effected by the Manager (or Founders with respect to the Founders
Portfolios) through brokers who charge a negotiated commission for their
services based on the quality and quantity of execution services provided by
the broker in the light of generally prevailing rates. In the over-the-
counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to
the dealer. In underwritten offerings, securities are purchased at a fixed
price that includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. Transactions are
allocated to various dealers by the Fund's portfolio managers in their best
judgment. The primary consideration is prompt and effective execution of
orders at the most favorable price.
Subject to that primary consideration, dealers may be selected for
research, statistical or other services to enable the Manager and Founders
to supplement their own research and analysis with the views and information
of other securities firms. Such services may include advice concerning the
value of securities; the advisability of investing in, purchasing, or
selling securities; and the availability of securities or the purchasers or
sellers of securities. In addition, such broker-dealers may furnish
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy, and performance of accounts; and
effect securities transactions, and perform functions incidental thereto
(such as clearance and settlement).
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager and Founders in advising
other funds or accounts and, conversely, research services furnished to the
Manager and Founders by brokers in connection with other funds or accounts
may be used in advising a Portfolio. Although it is not possible to place a
dollar value on these services, it is the opinion of the Manager that the
receipt and study of such services should not reduce the overall research
department expenses.
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 in the Dreyfus Family
of Funds being engaged simultaneously in the purchase or sale of the same
security. Certain of the Portfolios' transactions in securities of foreign
issuers may not benefit from the negotiated commission rates available for
transactions in securities of domestic issuers. Higher portfolio turnover
rates are likely to result in comparatively greater brokerage expenses. The
overall reasonableness of brokerage commissions paid is evaluated based upon
knowledge of available information as to the general level of commissions
paid by other institutional investors for comparable services.
The Fund contemplates that, consistent with the policy of obtaining the
most favorable net price, brokerage transactions may be conducted through
the Manager or Founders or their affiliates, including Dreyfus Investment
Services Corporation. The Fund's Board has adopted procedures in conformity
with Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions
paid to the Manager or Founders or their affiliates are reasonable and fair.
PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
with the section in the relevant Prospectus entitled "Performance
Information."
Performance figures for the Portfolios will not reflect the separate
charges applicable to the variable annuity contracts and variable life
policies offered by Participating Insurance Companies.
Current yield is computed pursuant to a formula which operates as
follows: The amount of the relevant Portfolio's expenses accrued for the 30-
day period (net of reimbursements) is subtracted from the amount of the
dividends and interest earned (computed in accordance with regulatory
requirements) by such Portfolio during the period. That result is then
divided by the product of: (a) the average daily number of such Portfolio's
shares outstanding during the period that were entitled to receive
dividends, and (b) the net asset value per share on the last day of the
period less any undistributed earned income per share reasonably expected to
be declared as a dividend shortly thereafter. The quotient is then added to
1, and that sum is raised to the 6th power, after which 1 is subtracted. The
current yield is then arrived at by multiplying the result by 2.
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000
payment made at the beginning of the period (assuming the reinvestment of
dividends and distributions), dividing by the amount of the initial
investment, taking the "n"th root of the quotient (where "n" is the number
of years in the period) and subtracting 1 from the result.
Total return is calculated by subtracting the amount of the relevant
Portfolio's net asset value per share at the beginning of a stated period
from the net asset value per share at the end of the period (after giving
effect to the reinvestment of dividends and distributions during the
period), and dividing the result by the net asset value per share at the
beginning of the period.
From time to time, advertising materials for the Fund may refer to or
discuss then-current or past economic or financial conditions, developments
and/or events. From time to time advertising materials for the Fund also may
refer to Morningstar ratings and related analyses supporting the rating.
From time to time, advertising materials from the Fund may refer to, or
include, commentary by the Fund's portfolio managers relating to their
investment strategy, asset growth of the Portfolio, current or past
business, political, economic or financial conditions and other matters of
general interest to shareholders.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in conjunction
with the section in the relevant Prospectus entitled "General Information."
Each Portfolio share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Portfolio 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.
Under Massachusetts law, shareholders, under certain circumstances,
could be held personally liable for the obligations of the Fund. However,
the Fund's Agreement and Declaration of Trust (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's 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.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of any
investment company, such as the Fund, will not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each portfolio affected by such matter. Rule 18f-2
further provides that a portfolio shall be deemed to be affected by a matter
unless it is clear that the interests of each portfolio in the matter are
identical or that the matter does not affect any interest of such portfolio.
However, the Rule exempts the selection of independent accountants and the
election of Board members from the separate voting requirements of the rule.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
TRANSFER AND DIVIDEND DISBURSING AGENT, CUSTODIAN,
COUNSEL AND INDEPENDENT AUDITORS
Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, P.O.
Box 9671, Providence, Rhode Island 02940-9671, is the Fund's transfer and
dividend disbursing agent. Under a transfer agency agreement with the Fund,
the Transfer Agent arranges for the maintenance of shareholder account
records for the Fund, the handling of certain communications between
shareholders and the Fund and the payment of dividends and distributions
payable by the Fund. For these services, the Transfer Agent receives a
monthly fee computed on the basis of the number of shareholder accounts it
maintains for the Fund during the month, and is reimbursed for certain out-
of-pocket expenses.
Mellon Bank, N.A., the Manager's parent, One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258, serves as the Fund's Custodian with respect
to the Core Value, Founders Growth, and MidCap Stock Portfolios. Under a
custody agreement with the Fund, Mellon Bank, N.A. holds each such
Portfolio's securities and keeps all necessary accounts and records. For
its custody services, Mellon Bank, N.A. receives a monthly fee based on the
market value of each such Portfolio's assets held in custody and receives
certain securities transaction charges.
The Bank of New York, 90 Washington Street, New York, New York 10286,
serves as the Fund's custodian with respect to the Founders International
Equity and Founders Passport Portfolios. The Bank of New York has no part
in determining the investment policies of the Portfolios or which securities
are to be purchased or sold by the Portfolios.
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the
shares being sold pursuant to the Fund's Prospectuses.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund. The
auditors examine the Fund's financial statements and provide other audit,
tax and related services.
APPENDIX
Description of certain ratings:
S&P
Bond Ratings
AAA
Bonds rated AAA have the highest rating assigned to a debt obligation.
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 bonds 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 bonds. 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 bonds subordinated to senior debt
which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to bonds subordinated to senior debt
which is assigned an actual or implied CCC- 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, which is used to show relative standing within the major ratings
categories, except in the AAA (Prime Grade) category.
Commercial Paper Ratings
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. Issues assigned an A rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1
This designation indicates the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation.
A-2
Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated A-1.
Moody's
Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby 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 rating for the
security in the higher end of a rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates a ranking in the lower end
of a rating category.
Commercial Paper Ratings
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The ratings
take into consideration special features of the issue, its relationship to
other obligations of the issuer, the current financial condition and
operative performance of the issuer and of any guarantor, as well as the
political and economic environment that might affect the issuer's future
financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if
not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual default of interest and/or
principal payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for
recovery on these bonds and D represents the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-
1+.
Duff
Bond Ratings
AAA
Bonds rated AAA are considered highest credit quality. The risk factors
are negligible, being only slightly more than for risk-free U.S. Treasury
debt.
AA
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because
of economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated BBB are considered to have below average protection factors
but still considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
BB
Bonds rated BB are below investment grade but are deemed by Duff as
likely to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within the
category.
B
Bonds rated B are below investment grade and possess the risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in quality rating
within this category or into a higher or lower quality rating grade.
CCC
Bonds rated CCC are well below investment grade securities. Such bonds
may be in default or have considerable uncertainty as to timely payment of
interest, preferred dividends and/or principal. Protection factors are
narrow and risk can be substantial with unfavorable economic or industry
conditions and/or with unfavorable company developments.
DD
Defaulted debt obligations. Issuer has failed to meet scheduled
principal and/or interest payments.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA)
to indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor.
FINANCIAL STATEMENT AND REPORT OF INDEPENDENT AUDITORS
Statement of Assets and Liabilities
April 20, 1998
Core Value MidCap
Portfolio Stock Portfolio
ASSETS
Cash........................... $50,000 $50,000
Deferred organization
expenses...................... 30,250 30,250
Total Assets................... 80,250 80,250
LIABILITIES
Accrued organization
expenses...................... 30,250 30,250
NET ASSETS applicable to the
shares of beneficial
interest ($.001 par value)
issued and outstanding $50,000 $50,000
(unlimited number of
shares authorized).............
SHARES OUTSTANDING.............. 4,000 4,000
NET ASSET VALUE
PER SHARE...................... $12.50 $12.50
NOTE - Dreyfus Investment Portfolios (the "Fund") is organized as a
Massachusetts business trust and has had no operations as of the date hereof
other than matters relating to its organization and registration as an open-
end investment company under the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended, and the sale and issuance of
4,000 shares of beneficial interest each of the Core Value Portfolio and
MidCap Stock Portfolio, respectively, to Premier Mutual Fund Services, Inc.
("Initial Shares"). Organization expenses payable by the Fund have been
deferred and will be amortized to operations from the date operations
commence over a period which it is expected that a benefit will be realized,
not to exceed five years. If any of the Initial Shares are redeemed during
the amortization period by any holder thereof, the redemption proceeds will
be reduced by any unamortized organization expenses in the same proportion
as the number of Initial Shares being redeemed bears to the number of
Initial Shares outstanding at the time of the redemption.
Pursuant to a management agreement with The Dreyfus Corporation, the
management fee for each Portfolio is computed at the annual rate of .75 of
1% of the value of the average daily net assets of each Portfolio and is
payable monthly.
Report of Independent Auditors
Shareholder and Board of Trustees
Dreyfus Investment Portfolios
We have audited the accompanying statement of assets and liabilities of
Dreyfus Investment Portfolios (comprised of Core Value Portfolio and MidCap
Stock Portfolio) as of April 20, 1998. This statement of assets and
liabilities is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this statement of assets and
liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of assets and
liabilities is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
statement of assets and liabilities. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall statement of assets and liabilities
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the statement of assets and liabilities referred to
above presents fairly, in all material respects, the financial position of
Dreyfus Investment Portfolios at April 20, 1998, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
April 22, 1998
