SUBJECT TO COMPLETION DATED JULY 21, 1998
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE FUND
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
DREYFUS
STABLE VALUE MUTUAL FUND
Investing in fixed-income securities and money market instruments, and entering
into Wrapper Agreements to provide a high level of current income while
maintaining a stable net asset value per share.
PROSPECTUS September __, 1998
DREYFUS [LOGO]
As with all mutual funds, the Securities and Exchange Commission does not
guarantee that the information in this prospectus is accurate or complete, nor
has it judged this fund for investment
merit. It is a criminal offense to state otherwise.
<PAGE>
CONTENTS
THE FUND
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What every investor should 2 Who May Invest
know about the fund
3 Goal/Approach
5 Main Risks
6 Expenses
8 Management
INVESTOR ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
Information for managing 9 Account Policies
a fund account
13 Distributions and Taxes
14 Services for Fund Investors
16 Instructions for Accounts
FOR MORE INFORMATION
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Where to learn more about Back Cover
this and other
Dreyfus funds
<PAGE>
Dreyfus STABLE VALUE MUTUAL FUND THE FUND
Ticker Symbol: _____________
[ICON] WHO MAY INVEST
The fund is designed for investors seeking preservation of principal, a stable
net asset value per share and a level of current income higher than that of
money market funds over most time periods. For investors "rolling" over assets
from an employee benefit plan to individual retirement plan accounts (IRAs), the
fund is designed as a comparable investment to stable value investment options
offered in employee benefit plans.
The fund offers three classes of shares--Class P, Class S and Class Q.
Class P and Class S shares are offered only to:
* employee benefit plans qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
* employee benefit plans qualified under Section 403(b) of the Code.
* eligible deferred compensation plans as defined in Section 457 of
the Code.
* government plans as defined in Section 414(d) of the Code
(together with the employee benefit plans and deferred
compensation plans, "Plans").
* bank collective investment funds holding exclusively assets of
U.S. employee benefit plans qualified under Section 401(a) of the
Code and tax exempt under Section 501(a) of the Code and other
plans eligible to invest in bank maintained collective investment
funds ("Bank Collective Funds").
Class Q shares are offered only to investors investing in fund shares through a
tax-deferred retirement plan such as:
* traditional IRAs.
* IRAs set up under a Simplified Employee Pension Plan (SEP-IRAs).
* Roth IRAs.
* Keogh Plans.
* 403(b)(7) Plans with only one participant.
* other tax-deferred retirement accounts.
Class P, Class S and Class Q shares are identical, except as to the services
offered to and the expenses borne by each Class. Holders of Class S and Class Q
shares, for example, will receive certain account maintenance services that are
not provided to holders of Class P shares. Because of the differences in
expenses, absent fee waivers or expense reimbursements, the performance of Class
Q shares should be expected to be lower than that of Class S shares and the
performance of Class Q shares and Class S shares should be expected to be lower
than that of Class P shares.
[ICON] GOAL/APPROACH
The fund seeks to provide a high level of current income while maintaining a
stable net asset value per share. The fund is one of a relatively few "stable
value" mutual funds. It is designed to provide a stable net asset value per
share while generating returns higher than money market funds over time and,
thus, may be an attractive investment alternative to money market funds,
short-term bond funds and other high quality fixed-income funds. Like a typical
high quality fixed-income fund, the fund invests in investment grade debt
instruments in pursuit of its objective of current income. What is different is
that the fund's net asset value, while not fixed at $1.00 per share like a money
market fund, should be considerably more stable than a typical high quality
fixed-income fund. This is because the fund will trade the ability to obtain
market value capital appreciation and some yield from its portfolio for
protection from a decline in the value of its portfolio caused by changes in
interest rates. To do so, the fund will purchase Wrapper Agreements from
financial institutions, such as banks and insurance companies ("Wrap
Providers"). Under a typical Wrapper Agreement, if the fund sells a portfolio
security at less than its cost plus interest, the Wrap Provider will pay the
fund the difference. If the fund sells a portfolio security for more than this
amount, the fund will pay the Wrap Provider the difference.
[LEFT SIDE BAR]
CONCEPTS TO UNDERSTAND
WRAPPER AGREEMENTS: are designed to stabilize the fund's net asset value per
share ("NAV") by offsetting fluctuations in the value of the fund's portfolio
securities. The Wrap Provider agrees to maintain the "Book Value" of fund assets
covered by the Wrapper Agreement ("Covered Assets") up to a specified maximum
dollar amount. For example, if the fund has to sell Covered Assets to meet
redemption requests, and their fair market value is less than Book Value, the
Wrap Provider will be obligated to pay the fund all or a portion of the
difference between the fair market value and corresponding Book Value of the
Covered Assets sold. If fair market value of the Covered Assets sold exceeds the
corresponding Book Value, the fund will be obligated to pay all or a portion of
the difference to the Wrap Provider.
BOOK VALUE: the purchase price of the Covered Assets, (i) plus interest at a
rate specified in the Wrapper Agreement ("Crediting Rate," which is less than
the rate on the Covered Assets because it reflects costs payable to the Wrap
Provider under the Wrapper Agreement), and (ii) less an adjustment to reflect
any defaulted securities.
-------------------------------
The fund expects to invest at least 65% of its assets in fixed-income securities
including: securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities (Government Securities); U.S. dollar denominated
debt securities and securities with debt-like characteristics of domestic and
foreign issuers, including corporations, partnerships, trusts or similar
entities, and sovereign or supranational entities; mortgage-related securities,
including collateralized mortgage obligations (CMOs) and real estate mortgage
investment conduits (REMICs); and asset-backed securities.
In addition, the fund may invest up to 35% and, under normal conditions, expects
to invest at least 10% of its assets in short-term money market instruments for
purposes of liquidity. Up to 100% of its assets may be invested in such
instruments for temporary defensive purposes.
Under normal market conditions, the fund will invest in a portfolio of
securities that has an effective duration ranging between 2 and 4.5 years. The
average dollar-weighted credit rating of the fund's portfolio securities will be
at least AA/Aa by a rating agency.
[LEFT SIDE BAR]
CONCEPTS TO UNDERSTAND
DURATION: a way of measuring a security's maturity in terms of the average time
required to receive the present value of all interest and principal payments,
which incorporates the security's yield, coupon interest payments, final
maturity and option features into one measure. Duration is an alternative to the
concept of "term to maturity" in assessing the price volatility associated with
a 1% change in interest rates. Generally, the longer the duration, the more
volatility an investor should expect. For example, the market price of a bond
with a duration of two years would be expected to decline 2% if interest rates
rose 1%.
CREDIT RATING: a measure of the issuer's expected ability to make all required
interest and principal payments in a timely manner. Securities rated in the
highest category (AAA/Aaa) have extremely strong capacity to pay interest and
principal and carry the smallest degree of investment risk. Securities with the
second highest credit rating have very strong capacity to make all payments, but
the margins of protection may not be as large as in the highest category.
Securities rated in the lowest investment grade category (BBB/Baa) are
considered to lack outstanding investment characteristics and may have
speculative characteristics as well.
----------------------------------
The fund's managers will select fixed-income securities for the fund's portfolio
either actively or on an indexed basis. Fixed-income securities selected
actively must be rated AAA/Aaa by a rating agency. In selecting fixed-income
securities on an indexed basis, the fund's managers will seek to overweight
sectors of the Lehman Brothers Aggregate Bond Index that have positive yield
spreads. The Index represents the entire U.S. taxable bond market, including
U.S. Government securities, mortgage-related securities and investment grade
corporate bonds. The managers will use a statistically based "sampling"
technique to select securities from the Index to achieve the desired sector
weightings. Once established, sector weightings will be adjusted at least
quarterly. The manager may use futures contracts instead of buying securities
directly.
The fund will seek to cover all of its portfolio of fixed-income securities with
Wrapper Agreements by investing not more than 15% of its net assets in such
agreements. The fund will enter into Wrapper Agreements with Wrap Providers that
are rated, at the time of purchase, in one of the two highest long-term rating
categories by a rating agency. If a Wrap Provider's credit rating is downgraded
below investment grade, the fund will terminate the Wrapper Agreement and
replace the Wrap Provider.
[ICON] MAIN RISKS
While the combination of portfolio securities and Wrapper Agreements held by the
fund is expected to provide a constant NAV and a current rate of return that is
higher than most money market mutual funds, there can be no guarantee that
either will be accomplished. The fund will incur certain costs in connection
with its Wrapper Agreements which may reduce the fund's investment return as
compared to a direct investment in the Covered Assets. In addition, the Wrap
Provider might default on its obligations, or the fund might not obtain Wrapper
Agreements for all its assets, potentially resulting in a decline in NAV.
[LEFT SIDE BAR]
CONCEPTS TO UNDERSTAND
The fund's net asset value, while not fixed at $1.00 per share like a money
market fund, should be considerably more stable than a typical high quality
fixed-income fund. Nevertheless, it is possible to lose money by investing in
the fund.
----------------------------------
Among the risks that potentially could reduce the fund's return or NAV are:
* any of the fund's portfolio securities could have its
credit rating downgraded or could default. Wrapper
Agreements usually do not require the Wrap Provider to
assume the credit risk associated with the issuer of
any Covered Assets. Downgrades below investment grade
and defaults by the issuer of Covered Assets usually
will cause such assets to be removed from the coverage
of a Wrapper Agreement.
* interest rates could rise sharply, causing the value of
the fund's portfolio securities, and NAV, to drop.
Alternatively, if interest rates decrease sharply and
the value of the fund's portfolio securities rises, the
value of the Wrapper Agreements is expected to
decrease proportionately and may have a negative value
and thus be a liability of the fund.
* failure to obtain a replacement Wrapper Agreement with
substantially the same terms as a maturing or
terminating Wrapper Agreement. If at such time the fair
market value of the Covered Assets is less than or
greater than Book Value, the fund may be required to
reduce or increase, respectively, the fund's NAV
accordingly. Further, if the new Wrapper Agreement
contains unfavorable terms, such as a higher fee, the
fund's return may be adversely affected.
[LEFT SIDE BAR]
OTHER POTENTIAL RISKS
There is no active trading market for Wrapper Agreements, and none is expected
to develop; therefore, the fund will consider them to be illiquid.
The fund may engage in options and futures transactions primarily to hedge its
portfolio but also as a substitute for taking a market position in the
underlying securities. Such practices may reduce returns or increase volatility.
The fund may buy securities with borrowed money (a form of leverage), which
could have the effect of magnifying the fund's gains or losses. The fund also
may lend its portfolio securities to brokers, dealers and other financial
institutions, which could subject the fund to risk of loss if the institution
breaches its agreement with the fund.
The fund may invest in mortgage-related securities that are complex derivative
instruments, subject to both credit and prepayment risk, and may be more
volatile and less liquid than more traditional debt securities. During periods
of rapidly rising interest rates, prepayments of mortgage-related securities may
occur at slower than expected rates. Slower prepayments effectively may lengthen
a mortgage-related security's expected maturity which generally would cause the
value of such security to fluctuate more widely in response to changes in
interest rates. Were prepayments to decrease broadly, the fund's effective
duration, and thus sensitivity to interest rate fluctuations, would increase.
------------------------------------------------
The fund is NOT a money market mutual fund. The fund's portfolio securities will
have a longer average maturity than those of money market funds and,
consequently, its yield will not track the movement of current market rates of
return as closely as a money market fund.
An investment in the fund is not a bank deposit. It is not FDIC-insured or
government endorsed. It is not a complete investment program.
[ICON] EXPENSES
Fund investors pay certain fees and expenses in connection with the fund, which
are described in the table below. Shareholder transaction fees are paid from the
investor's account. Annual fund operating expenses are paid out of fund assets,
so their effect is included in the fund's share price.
- -------------
FEE TABLE
CLASS P CLASS S CLASS Q
SHAREHOLDER TRANSACTION FEES
% OF TRANSACTION AMOUNT
Maximum redemption fee 2.00% 2.00% 2.00%
- -------------
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees 0.35% 0.35% 0.35%
Shareholder Service Plan expenses None 0.25% 0.25%
Other expenses 0.40% 0.40% 0.60%
- -------------------------------------------------------------------------------
TOTAL 0.75% 1.00% 1.20%
-------------
EXPENSE EXAMPLE
ASSUMING REDEMPTION
AT THE END OF EACH PERIOD
SUBJECT TO THE
REDEMPTION FEE: 1 year $____ $____ $____
3 years $____ $____ $____
ASSUMING NO REDEMPTION
AT THE END OF EACH PERIOD: 1 year $____ $____ $____
3 years $____ $____ $____
This example shows what an investor could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses.
Because actual returns and expenses will be different, the example is for
comparison only.
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[LEFT SIDE BAR]
CONCEPTS TO UNDERSTAND
REDEMPTION FEE: the fee retained by the fund primarily to offset the transaction
costs in connection with certain redemptions. Redemptions made upon less than 6
months' prior written notice to the fund are subject to a 2% redemption fee and
those made upon 6 to 12 months' prior written notice to the fund are subject to
a 1% redemption fee. Redemptions made upon at least 12 months' prior written
notice to the fund and certain other redemptions as described herein are not
subject to any redemption fee.
MANAGEMENT FEE: the fee paid to the investment adviser for supervising and
assisting in the fund's management.
SHAREHOLDER SERVICE PLAN EXPENSES: the fund has adopted a Shareholder Services
Plan with respect to Class S and Class Q shares pursuant to which it pays the
fund's distributor for shareholder account service and maintenance provided to
the holders of such shares.
OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal
year for purchasing Wrapper Agreements and for miscellaneous items such as
transfer agency, custody, professional and registration fees.
FEE WAIVERS AND EXPENSE REIMBURSEMENTS: The Dreyfus Corporation has agreed that
if certain fund expenses, including the management fee, exceed 0.55% with
respect to Class P, 0.80% with respect to Class S or 1.00% with respect to Class
Q of the fund's average daily net assets, The Dreyfus Corporation will waive its
management fee or bear certain other fund expenses to the extent of the excess.
This undertaking is voluntary and may be terminated at any time.
------------------------------------------------
[ICON] MANAGEMENT
The fund's investment adviser is The Dreyfus Corporation, 200 Park Avenue, New
York, New York 10166. Founded in 1947, Dreyfus manages one of the nation's
leading mutual fund complexes, with more than $100 billion in over 150 mutual
fund portfolios. Dreyfus is the mutual fund business of Mellon Bank Corporation,
a broad-based financial services company with a bank at its core. With more than
$325 billion of assets under management and $1.6 trillion of assets under
administration, Mellon provides a full range of banking, investment and trust
products and services to individuals, businesses and institutions. Its mutual
fund companies place Mellon as the leading bank manager of mutual funds. Mellon
is headquartered in Pittsburgh, Pennsylvania.
The Dreyfus asset management philosophy is based on the belief that discipline
and consistency are important to investment success. For each fund, Dreyfus
seeks to establish clear guidelines for portfolio management and to be
systematic in making decisions. This approach is designed to provide each fund
with a distinct, stable identity, and offers the potential for measuring
performance and volatility in consistent ways.
The fund's primary portfolio managers are Eric W. Baumhoff and Laurie A.
Carroll. Mr. Baumhoff and Ms. Carroll have been employed by Dreyfus as portfolio
managers since ____________ and October 1994, respectively. Mr. Baumhoff is the
Chief Investment Officer of Certus Asset Advisors, an affiliate of Dreyfus,
where he has been employed since 1990. Ms. Carroll is a Senior Vice President
and portfolio manager at Mellon Bank where she has been employed since 1986.
[LEFT SIDE BAR]
CONCEPT TO UNDERSTAND
YEAR 2000 ISSUES: the fund could be adversely affected if the computer systems
used by Dreyfus and the fund's other service providers do not properly process
and calculate date-related information from and after January 1, 2000.
While year 2000-related computer problems could have a negative effect on the
fund, Dreyfus is working to avoid such problems and to obtain assurances from
service providers that they are taking similar steps.
-------------------------------------
INVESTOR ACCOUNT INFORMATION
[ICON] ACCOUNT POLICIES
BUYING SHARES
Fund shares are sold at NAV, which generally is calculated as of the close of
trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) every
day the exchange is open. Purchase orders will be priced at the next NAV
calculated after the order is accepted by the fund or other entity authorized to
accept orders on behalf of the fund. The fund's investments are valued generally
by using available market quotations or at fair value which may be determined by
one or more pricing services approved by the fund's board. The fair value of a
Wrapper Agreement generally will be equal to the difference between the Book
Value and the market value of the applicable Covered Assets after consideration
is given to the credit rating of the Wrap Provider and its ability to pay
amounts due under the Wrapper Agreement. If the board determines that a Wrap
Provider is unable to make such payments, the board may assign a value to the
Wrapper Agreement that is less than the difference between the Book Value and
the market value of the Covered Assets, which might adversely affect the fund's
ability to maintain a stable NAV.
MINIMUM INVESTMENTS
Initial Additional
- --------------------------------------------------------------------------------
CLASS P $2,500 $100
CLASS S $2,500 $100
CLASS Q $2,500 no minimum
All investments must be in U.S. dollars. Third-party checks cannot be accepted.
An investor may be charged a fee for any check that does not clear.
From time to time, the fund may discontinue offering Class Q shares for certain
periods of time upon notice to investors.
[LEFT SIDE BAR]
TRANSFER RESTRICTIONS
A Plan or Bank Collective Fund investing in the fund must restrict participants
in such Plan or in the employee benefit plans investing in the Bank Collective
Fund, respectively, from transferring any of their investment in the fund to a
different fixed-income investment having a targeted average duration of 3.5
years or less, or seeking to maintain a stable value per unit or share
("Competing Fund"). Such participants may, however, transfer their investment to
a non- Competing Fund and, after at least a three-month period in such
non-Competing Fund, transfer to a Competing Fund without restriction.
-------------------------------------
SELLING SHARES
Investors may sell (redeem) shares at any time. Shares will be redeemed at the
next NAV calculated after the investor's order is accepted by the fund's
transfer agent or other entity authorized to accept orders on behalf of the
fund. However, shares of investors giving prior written notice of a redemption,
will be redeemed at the next NAV calculated after the applicable notice period
has expired. Redemption orders will be processed promptly after receipt of a
redemption request (or, if prior written notice has been given, after the notice
period has expired), and investors generally will receive the redemption
proceeds within a week. Any certificates representing fund shares being redeemed
must be returned with the redemption request. A copy of the form of written
notice required for shareholders who desire to give prior notice of a redemption
may be obtained from the fund.
The fund will deduct a redemption fee of 2% (1% for redemptions made upon at
least 6 but less than 12 months' prior written notice to the fund) of the NAV of
fund shares redeemed or exchanged, except upon the redemption or exchange of
shares of (1) any Class for which at least 12 months' prior written notice has
been given to the fund, (2) Class P or Class S in connection with a redemption
directed by a Plan participant, (3) Class Q because of death or disability, or
(4) Class Q by an investor who has attained the age of 59 1/2 and held the
shares for at least 12 consecutive months.
BEFORE REDEEMING RECENTLY PURCHASED SHARES, please note that:
* if the fund has not yet collected payment for the shares
being redeemed, it may delay sending the proceeds until it
has collected payment, which may take up to eight business
days.
[LEFT SIDE BAR]
WRITTEN SELL (REDEMPTION) ORDERS
Some circumstances require that written sell orders be signature guaranteed.
These include:
* amounts of $100,000 or more
* amounts of $1,000 or more on Class Q accounts if the
investor's address has been changed within the last 30
days
* requests to send the proceeds to a different payee
or address
A SIGNATURE GUARANTEE helps protect against fraud. Investors can obtain one from
most banks or securities dealers, but not from a notary public. Please call us
to ensure that the signature guarantee will be processed correctly.
--------------------------------
GENERAL POLICIES
IF AN ACCOUNT FALLS BELOW $2,500, the fund may ask the account holder to
increase the account balance. If it is still below $2,500 after 45 days, the
fund may close the account and send the proceeds to the account holder.
UNLESS THE INVESTOR DECLINES TELEPHONE PRIVILEGES, the investor may be
responsible for any fraudulent telephone orders as long as Dreyfus takes
reasonable measures to verify the order.
THE FUND RESERVES THE RIGHT TO:
* refuse any purchase or exchange request that could
adversely affect the fund or its operations (such as
requests in excess of 1% of the fund's total assets).
* change or discontinue its exchange privilege, or
temporarily suspend the privilege during unusual market
conditions.
* change its minimum investment amounts.
* delay sending out redemption proceeds for up to seven days
(generally applies only in cases of very large redemptions
or during unusual market conditions).
[LEFT SIDE BAR]
PLAN AND BANK COLLECTIVE FUND INVESTMENTS
Plan participant-directed purchases, exchanges and redemptions of fund shares
are made in accordance with the specific provisions of the relevant Plan or Bank
Collective Fund, subject to the fund's restrictions. Plans and Bank Collective
Funds may have different policies about the timing and method of effecting
transactions in fund shares, and may charge transaction fees. Plan participants
should contact their Plan administrator for details. The Bank Collective Fund
and Plan are responsible for transmitting orders to the fund in proper form.
Contact your Plan administrator or recordkeeper if you have questions about your
account.
--------------------------------
The fund also may make a "redemption in kind" -- payment in portfolio securities
or Wrapper Agreements, rather than cash -- if the amount the investor is
redeeming is large enough to affect fund operations (for example, if it
represents more than 1% of the fund's assets).
[ICON] DISTRIBUTIONS AND TAXES
The fund pays its shareholders dividends from its net investment income, and
distributes any net capital gains that it has realized. Dividends will be
declared daily and paid monthly, and any net capital gains will be distributed
annually. An additional annual distribution ("Additional Distribution") may be
paid to satisfy the tax requirement that the fund distribute each year
substantially all of its investment company taxable income. Distributions will
be reinvested in fund shares, unless the investor instructs the fund otherwise.
There are no fees or sales charges on reinvested distributions.
Dividends paid by each Class will be calculated at the same time and in the same
manner and will be of the same amount, except that the expenses attributable
solely to a particular Class will be borne exclusively by such Class. Class Q
shares will receive lower per share dividends than Class S shares which will
receive lower per share dividends than Class P shares because of the higher
expenses borne by the relevant Class.
The fund may declare and pay dividends in amounts which are not equal to the
amount of the net investment income it actually earns. If distributions exceed
the income earned, the excess may be considered a return of capital. If the
income earned exceeds the amount of the dividends distributed, the fund may make
an Additional Distribution of the excess. From time to time, to maintain a
stable NAV, the fund may reverse split shares in an amount that will cause the
total number of shares held by each shareholder that reinvests dividends to
remain the same as before that distribution was paid.
[LEFT SIDE BAR]
CONCEPT TO UNDERSTAND
REVERSE SHARE SPLIT: if the fund declares an Additional Distribution of $0.10
per share when NAV is $10.00, a shareholder holding one share would receive 0.01
additional shares on reinvestment of that distribution. If no reverse split were
declared, NAV would be approximately $9.90 and the total value of the 1.01
shares held by the shareholder would be $10.00. If a 1.01 for 1 reverse share
split were declared, however, the shareholder's 1.01 shares would become one
share having an NAV of $10.00. The reverse share split would not affect the
total value of the shareholder's shares.
-----------------------
Dividends paid by the fund to Plans, certain IRAs and other tax-deferred
accounts ordinarily will not be subject to taxation until the proceeds are
distributed from the Plan or IRA. Plan participants should consult with their
Plan administrator and other investors should consult with a professional tax
adviser regarding the tax consequences associated with an investment in the
fund.
[ICON] SERVICES FOR FUND INVESTORS
EXCHANGE PRIVILEGE
INVESTORS CAN EXCHANGE from one Dreyfus fund into another. Investors can request
an exchange in writing or, for Class Q shares only, by phone. Investors are
urged to read the current prospectus for any fund into which an exchange is
being made. Any new account established through an exchange will have the same
privileges as the original account (as long as they are available). The fund
will impose any applicable redemption fee on the shares being exchanged.
Investors may be charged a sales load on any fund that has one.
ACCOUNT STATEMENTS
EVERY DREYFUS INVESTOR automatically receives regular account statements.
[LEFT SIDE BAR]
RETIREMENT PLANS
Dreyfus offers a variety of retirement plans, including traditional, Roth and
Education IRAs. Here's where to call for information:
* for traditional, rollover and Roth IRAs, call 1-800-645-6561
* for SEP-IRAs, 401(k) and 403(b) accounts, call 1-800-322-7880
* for Keogh accounts, call 1-800-358-5566
DREYFUS FINANCIAL CENTERS
Through a nationwide network of Dreyfus Financial Centers, Dreyfus offers a full
array of investment services and products. This includes information on mutual
funds, brokerage services, tax-advantaged products and retirement planning. Our
experienced financial consultants can help investors make informed choices and
provide personalized attention in handling account transactions. The Financial
Centers also offer informative seminars and events. To find the nearest
Financial Center, call 1-800-499-3327.
--------------------------------------
INSTRUCTIONS FOR ACCOUNTS
TO OPEN AN ACCOUNT
[ICON] In Writing
Complete the appropriate application.
Mail the application and a check to:
The Dreyfus Family of Funds
P.O. Box 9387, Providence, RI 02940-9387
* * *
For Dreyfus retirement plan accounts:
The Dreyfus Trust Company, Custodian
P.O. Box 6427, Providence, RI 02940-6427
[ICON] By Telephone
WIRE Have your bank send your investment to The Bank of New York, with these
instructions:
* DDA# ______________
* the fund name
* your Social Security or tax ID number
* name(s) of investor(s)
Call us to obtain an account number.
Return your application.
(Not available for Class Q.)
[ICON] Via the Internet
COMPUTER Visit the Dreyfus Web site, http://www.dreyfus.com and follow the
instructions to download an account application.
TO ADD TO AN ACCOUNT
Fill out an investment slip, and write your account number on your check.
Mail the slip and the check to:
The Dreyfus Family of Funds
P.O. Box 9387, Providence, RI 02940-9387
* * *
For Dreyfus retirement plan accounts:
The Dreyfus Trust Company, Custodian
P.O. Box 6427, Providence, RI 02940-6427
TO SELL SHARES
Write a letter of instruction that includes:
* your name(s) and signature(s)
* your account number
* the fund name
* the dollar amount you want to sell
* the date the request is to be effective (if 6 months or more)
* how and where to send the proceeds
* whether the distribution is qualified or premature
* whether the 10% TEFRA should be withheld
Obtain a signature guarantee or other documentation, if required (see "Account
Policies--Selling Shares").
Mail your request to:
The Dreyfus Family of Funds
P.O. Box 9387, Providence, RI 02940-9387
* * *
For Dreyfus retirement plan accounts:
The Dreyfus Trust Company, Custodian
P.O. Box 6427, Providence, RI 02940-6427
WIRE Be sure the fund has your bank account information on file. Call us to
request your transaction. Proceeds will be wired to your bank.
CHECK Call us to request your transaction. A check will be sent to the address
of record.
(Not available for Class Q.)
SYSTEMATIC WITHDRAWAL PLAN Call us to request instructions to establish the
plan.
[RIGHT SIDE BAR]
To reach Dreyfus, call toll free in the U.S.
1-800-645-6561
Outside the U.S. call 516-794-5452
Make checks payable to:
THE DREYFUS FAMILY OF FUNDS
* * *
For Dreyfus retirement plan accounts:
THE DREYFUS TRUST COMPANY, CUSTODIAN
Investors also can deliver requests to any Dreyfus Financial Center. Because
processing time may vary, please ask the representative when the account will be
credited or debited.
CONCEPTS TO UNDERSTAND
WIRE TRANSFER: for transferring money from one financial institution to another.
Wiring is the fastest way to move money, although banks may charge a fee to send
or receive wire transfers.
ELECTRONIC CHECK: for transferring money out of a bank account. The transaction
is entered electronically, but may take up to eight business days to clear.
Electronic checks usually are available without a fee at all Automated Clearing
House (ACH) banks.
---------------------------------------
<PAGE>
FOR MORE INFORMATION
DREYFUS STABLE VALUE MUTUAL FUND
SEC file number: 811-________
More information on this fund is available free upon request, including the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the fund and its policies. A current
SAI is on file with the Securities and Exchange Commission (SEC) and is
incorporated by reference (is legally considered part of this prospectus).
[LEFT SIDE BAR]
TO OBTAIN INFORMATION:
BY TELEPHONE
Call 1-800-645-6561
BY MAIL Write to:
Dreyfus Family of Funds
144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
BY E-MAIL Send your request to [email protected]
ON THE INTERNET Text-only versions of fund documents can be viewed online
or downloaded from:
SEC
http://www.sec.gov
DREYFUS
http://www.dreyfus.com
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, DC
20549-6009.
(C) 1998, Dreyfus Service Corporation
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 21, 1998
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
DREYFUS STABLE VALUE MUTUAL FUND
CLASS P, CLASS S AND CLASS Q
STATEMENT OF ADDITIONAL INFORMATION
______________, 1998
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Dreyfus STABLE VALUE Mutual Fund (the "Fund"), dated _________, 1998, as it may
be revised from time to time. To obtain a copy of the Fund's Prospectus, please
write to the Fund at 144 Glenn Curtiss Boulevard, Uniondale, New York
11556-0144, or call the following numbers:
Call Toll Free 1-800-645-6561
In New York City -- Call 1-718-895-1206
Outside the U.S. -- Call 516-794-5452
TABLE OF CONTENTS
PAGE
Description of the Fund....................................................B-2
Management of the Fund.....................................................B-16
Management Agreement.......................................................B-19
How to Buy Shares..........................................................B-21
Shareholder Services Plan..................................................B-21
How to Redeem Shares.......................................................B-21
Shareholder Services.......................................................B-24
Determination of Net Asset Value...........................................B-26
Dividends, Distributions and Taxes.........................................B-26
Portfolio Transactions.....................................................B-28
Performance Information....................................................B-29
Information About the Fund.................................................B-30
Counsel and Independent Auditors...........................................B-31
Appendix...................................................................B-32
Financial Statement and Report of Independent Auditors.....................B-46
DESCRIPTION OF THE FUND
The Fund is a Massachusetts business trust formed on May 14, 1993, and has
not commenced operations as of the date hereof. The Fund is an open-end
management investment company. The Fund is a diversified fund, which generally
means that, with respect to 75% of its total assets, the Fund will not invest
more than 5% of its assets in the securities of any single issuer.
The Dreyfus Corporation (the "Manager") serves as the Fund's investment
adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") serves as the
distributor of the Fund's shares.
WRAPPER AGREEMENTS
A central feature of the Fund's investment program is its ability to
purchase Wrapper Agreements. A Wrapper Agreement is a contract between the Fund
and a bank, insurance company or other financial institution (a "Wrap
Provider"), under which the Wrap Provider agrees to make payments to the Fund
upon the occurrence of certain events. Wrapper Agreements will be purchased by
the Fund to stabilize the Fund's net asset value per share by offsetting
fluctuations in the value of the Fund's portfolio securities under certain
conditions. Under normal circumstances, the value of the Fund's Wrapper
Agreements is expected to vary inversely with the value of the Fund's assets
covered by such Wrapper Agreements (the "Covered Assets"). When the value of the
Covered Assets is less than their "Book Value" (essentially the purchase price
of the Covered Assets plus any accrued net income thereon), the Wrapper
Agreements will be assets of the Fund with a value equal to such deficiency.
Alternatively, when the value of the Covered Assets is more than their Book
Value, the Wrapper Agreements will be liabilities of the Fund with a value equal
to such excess. Under normal conditions, the sum of the total value of the
Fund's Wrapper Agreements plus the total value of all of the Fund's Covered
Assets is expected to equal the purchase price of the Covered Assets, plus
interest on the Covered Assets at the rate determined in the Wrapper Agreements
("Crediting Rate").
The Crediting Rate is the yield on the Covered Assets, adjusted to reflect
amortization of the difference between market value and Book Value of the
Covered Assets over the duration of such Covered Assets, minus Wrap Provider
fees and Fund expenses. The Crediting Rate is reset at least quarterly.
Therefore, among other things, the Crediting Rate may be affected by defaulted
securities and by increases and decreases in the Covered Assets as a result of
purchases and redemptions of Fund shares. In addition, since the Crediting Rate
reflects the amortization of unrealized and realized gains and losses on the
Covered Assets, such rate may not reflect the actual returns achieved by the
Covered Assets. Further, such rate may be significantly greater or less than
current market interest rates; provided, that under each Wrapper Agreement the
Crediting Rate will never be less than zero.
Wrapper Agreements are structured with a number of different features.
Wrapper Agreements which may be purchased by the Fund are of three basic types:
(1) non-participating, (2) participating and (3) "hybrid." In addition, the
Wrapper Agreements will either be of fixed- maturity or open-end maturity
("evergreen"). The Fund enters into particular types of Wrapper Agreements
depending upon their respective cost to the Fund and the Wrap Provider's
creditworthiness, as well as upon other factors.
Under a non-participating Wrapper Agreement, the Wrap Provider becomes
obligated to make a payment to the Fund whenever the Fund sells Covered Assets
at a price below Book Value to meet withdrawals of a type covered by the Wrapper
Agreement (a "Benefit Event"). Conversely, the Fund becomes obligated to make a
payment to the Wrap Provider whenever the Fund sells Covered Assets at a price
above their Book Value in response to a Benefit Event. Accordingly, under this
type of Wrapper Agreement, while the Fund is protected against decreases in the
market value of the Covered Assets below Book Value, it does not realize
increases in the market value of the Covered Assets above Book Value; those
increases are realized by the Wrap Provider.
Under a participating Wrapper Agreement, the obligation of the Wrap
Provider or the Fund to make payments to each other typically does not arise
until all of the Covered Assets have been liquidated. Instead of payments being
made on the occurrence of each Benefit Event, the payment obligations are a
factor in the periodic adjustment of the Crediting Rate.
Under a hybrid Wrapper Agreement, the obligation of the Wrap Provider or
the Fund to make payments does not arise until withdrawals exceed a specified
percentage of the Covered Assets, after which time payment covering the
difference between market value and Book Value will occur.
A fixed-maturity Wrapper Agreement terminates at a specified date, at which
time settlement of any difference between Book Value and market value of the
Covered Assets occurs. A fixed-maturity Wrapper Agreement tends to ensure that
the Covered Assets provide a relatively fixed rate of return over a specified
period of time through bond immunization, which targets the duration of the
Covered Assets to the remaining life of the Wrapper Agreement.
An evergreen Wrapper Agreement has no fixed maturity date on which payment
must be made, and the rate of return on the Covered Assets accordingly tends to
vary. Unlike the rate of return under a fixed-maturity Wrapper Agreement, the
rate of return on assets covered by an evergreen Wrapper Agreement tends to more
closely track prevailing market interest rates and thus tends to rise when
interest rates rise and fall when interest rates fall. An evergreen Wrapper
Agreement may be converted into a fixed-maturity Wrapper Agreement that will
mature in the number of years equal to the duration of the Covered Assets.
The number of Wrap Providers has been increasing in recent years. As of
[November 1996], there were approximately [15] Wrap Providers rated in the top
two long-term rating categories by a rating agency. The cost of Wrapper
Agreements is typically 0.10% to 0.25% per annum of the value of the Covered
Assets. The Fund currently intends to maintain Wrapper Agreements with four or
more Wrap Providers. If the Fund maintains more than one Wrapper Agreement,
coverage of the Covered Assets will be allocated among such Wrapper Agreements.
However, there is no guarantee that the Fund will be able to obtain more than
one Wrapper Agreement, and therefore, it is possible that the Fund may be
totally dependent upon one Wrap Provider for coverage of all of the Covered
Assets.
It is currently contemplated that all of the Fund's fixed-income securities
will be covered by Wrapper Agreements. The Fund, however, may not be able to
purchase or maintain Wrapper Agreements with respect to all portfolio
securities. Moreover, the Fund may determine not to enter into Wrapper
Agreements with respect to certain of its portfolio securities. Further, a
large, sudden increase in the amount of share purchases could result in the Fund
being unable to obtain sufficient Wrapper Agreements to cover all its Covered
Assets. In that event, the Fund may not be able to achieve its investment policy
of maintaining a stable net asset value, because fluctuations in the market
value of assets that are not covered by Wrapper Agreements may affect the Fund's
net asset value per share.
In the event of the default of a Wrap Provider, the Fund could potentially
lose the Book Value protections provided by the Wrapper Agreements with that
Wrap Provider. However, the impact of such a default on the Fund as a whole may
be minimal or non-existent if the market value of the Covered Assets thereunder
is greater than their Book Value at the time of the default, because the Wrap
Provider would have no obligation to make payments to the Fund under those
circumstances. In addition, the Fund may be able to obtain another Wrapper
Agreement from another Wrap Provider to provide Book Value protections with
respect to those Covered Assets. The cost of the replacement Wrapper Agreement
might be higher than the initial Wrapper Agreement due to market conditions or
if the market value (plus accrued interest on the underlying securities) of
those Covered Assets is less than their Book Value at the time of entering into
the replacement agreement. Such cost would be in addition to any premiums
previously paid to the defaulting Wrap Provider. If the Fund were unable to
obtain a replacement Wrapper Agreement, participants redeeming fund shares might
experience losses if the market value of the Fund' s assets no longer covered by
the Wrapper Agreement is below Book Value.
The combination of the default of a Wrap Provider and an inability to
obtain a replacement agreement could adversely affect the Fund's ability to
achieve its investment objective of seeking to maintain a stable value per
share. With respect to payments made under the Wrapper Agreements between the
Fund and the Wrap Provider, some Wrapper Agreements provide that payments may be
due upon disposition of the Covered Assets, while others provide for payment
only upon the total liquidation of the Covered Assets or upon termination of the
Wrapper Agreement. In none of these cases, however, would the terms of the
Wrapper Agreements specify which portfolio securities are to be disposed of or
liquidated. Moreover, because it is anticipated that each Wrapper Agreement will
cover all Covered Assets up to a specified dollar amount, if more than one Wrap
Provider becomes obligated to pay to the Fund the difference between Book Value
and market value (plus accrued interest on the underlying securities), each Wrap
Provider will pay a pro rata amount in proportion to the maximum dollar amount
of coverage provided. Thus, the Fund will not have the option of choosing which
Wrapper Agreement to draw upon in any such payment situation. Under the terms of
most Wrapper Agreements, the Wrap Provider will have the right to terminate the
Wrapper Agreement in the event that material changes are made to the Fund's
investment objective or investment restrictions or to the nature of the Fund's
operations. In such event, the Fund may be obligated to pay the Wrap Provider
termination fees equal in amount to the premiums that would have been due had
the Wrapper Agreement continued through the predetermined period. The Fund will
have the absolute right to terminate a Wrapper Agreement at any time. Such
right, however, may be subject to the payment of termination fees. In the event
of termination of a Wrapper Agreement or conversion of an evergreen Wrapper
Agreement to a fixed-maturity, some Wrapper Agreements may require that the
duration of some portion of the Fund's portfolio securities be reduced to
correspond to the fixed-maturity or termination date and that such securities
maintain a higher credit rating than is ordinarily required, either of which
requirements might adversely affect the Fund's return.
For a description of Wrap Provider ratings, see the Appendix.
CERTAIN PORTFOLIO SECURITIES
The Fund may purchase the securities described below.
VARIABLE AND FLOATING RATE SECURITIES. Variable and floating rate
securities provide for a periodic adjustment in the interest rate paid on the
obligations. The terms of such obligations must provide that interest rates are
adjusted periodically based upon an interest rate adjustment index as provided
in the respective obligations. The adjustment intervals may be regular, and
range from daily up to annually, or may be event based, such as being based on a
change in the prime rate.
The Fund may invest in floating rate debt instruments ("floaters"). The
interest rate on a floater is a variable rate which is tied to another interest
rate, such as a money-market index or Treasury bill rate. The interest rate on a
floater resets periodically, typically every six months. Because of the interest
rate reset feature, floaters provide the Fund with a certain degree of
protection against rises in interest rates, although the Fund will participate
in any declines in interest rates as well.
The Fund also may invest in inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed or inversely to a multiple of the applicable index. An inverse
floating rate security may exhibit greater price volatility than a fixed rate
obligation of similar credit quality.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities are a form of
derivative collateralized by pools of commercial or residential mortgages. Pools
of mortgage loans are assembled as securities for sale to investors by various
governmental, government-related and private organizations. These securities may
include complex instruments such as collateralized mortgage obligations
("CMOs"), mortgage pass-through securities, real estate mortgage investment
conduits ("REMICs"), adjustable rate mortgages, as well as other real
estate-related securities.
In certain instances, the credit risk associated with mortgage-related
securities can be reduced by third party guarantees or other forms of credit
support. Improved credit risk does not reduce prepayment risk which is unrelated
to the rating assigned to the mortgage-related security. Prepayment risk can
lead to fluctuations in value of the mortgage-related security which may be
pronounced. If a mortgage-related security is purchased at a premium, all or
part of the premium may be lost if there is a decline in the market value of the
security, whether resulting from changes in interest rates or prepayments on the
underlying mortgage collateral. Certain mortgage-related securities that may be
purchased by the Fund, such as inverse floating rate CMOs, have coupons that
move inversely to a multiple of a specific index which may result in a form of
leverage. As with other interest-bearing securities, the prices of certain
mortgage-related securities are inversely affected by changes in interest rates.
However, although the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the security are more likely
to be prepaid. For this and other reasons, a mortgage-related security's stated
maturity may be shortened by unscheduled prepayments on the underlying
mortgages, and, therefore, it is not possible to predict accurately the
security's return to the Fund.
GOVERNMENT-AGENCY SECURITIES--Mortgage-related securities issued by the
Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
GOVERNMENT-RELATED SECURITIES--Mortgage-related securities issued by the Federal
National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of FNMA and are not backed by or entitled to the full faith and
credit of the United States. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also
known as "Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the
United States created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States or
by any Federal Home Loan Bank and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by FHLMC. FHLMC guarantees
either ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
COMMERCIAL MORTGAGE-RELATED SECURITIES--Commercial mortgage-related securities
generally are multi-class debt or pass-through certificates secured by mortgage
loans on commercial properties. These mortgage-related securities generally are
structured to provide protection to the senior classes' investors against
potential losses on the underlying mortgage loans. This protection generally is
provided by having the holders of subordinated classes of securities
("Subordinated Securities") take the first loss if there are defaults on the
underlying commercial mortgage loans. Other protection, which may benefit all of
the classes or particular classes, may include issuer guarantees, reserve funds,
additional Subordinated Securities, cross- collateralization and
over-collateralization.
The Fund may invest in Subordinated Securities issued or sponsored by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Subordinated
Securities have no governmental guarantee, and are subordinated in some manner
to the payment of principal and/or interest to the holders of more senior
mortgage-related securities arising out of the same pool of mortgages. The
holders of Subordinated Securities typically are compensated with a higher
stated yield than are the holders of more senior mortgage-related securities. On
the other hand, Subordinated Securities typically subject the holder to greater
risk than senior mortgage-related securities and tend to be rated in a lower
rating category, and frequently a substantially lower rating category, than the
senior mortgage-related securities issued in respect of the same pool of
mortgages. Subordinated Securities generally are more sensitive to changes in
prepayment and interest rates and the market for such securities may be less
liquid than is the case for traditional fixed-income securities and senior
mortgage-related securities.
The market for commercial mortgage-related securities developed more
recently and in terms of total outstanding principal amount of issues is
relatively small compared to the market for residential single-family
mortgage-related securities. In addition, commercial lending generally is viewed
as exposing the lender to a greater risk of loss than one- to four-family
residential lending. Commercial lending, for example, typically involves larger
loans to single borrowers or groups of related borrowers than residential one-
to four-family mortgage loans. In addition, the repayment of loans secured by
income producing properties typically is dependent upon the successful operation
of the related real estate project and the cash flow it generates. Consequently,
adverse changes in economic conditions and circumstances are more likely to have
an adverse impact on mortgage-related securities secured by loans on commercial
properties than on those secured by loans on residential properties.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")--A CMO is a multiclass bond backed
by a pool of mortgage pass-through certificates or mortgage loans. CMOs may be
collateralized by (a) Ginnie Mae, Fannie Mae or Freddie Mac pass-through
certificates, (b) unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of Veterans' Affairs, (c)
unsecuritized conventional mortgages, (d) other mortgage-related securities, or
(e) any combination thereof. Each class of CMOs, often referred to as a
"tranche," is issued at a specific coupon rate and has a stated maturity or
final distribution date. Principal prepayments on collateral underlying a CMO
may cause it to be retired substantially earlier than the stated maturities or
final distribution dates. The principal and interest on the underlying mortgages
may be allocated among the several classes of a series of a CMO in many ways.
One or more tranches of a CMO may have coupon rates which reset periodically at
a specified increment over an index, such as the London Interbank Offered Rate
("LIBOR") (or sometimes more than one index). These floating rate CMOs typically
are issued with lifetime caps on the coupon rate thereon. The Fund also may
invest in inverse floating rate CMOs. Inverse floating rate CMOs constitute a
tranche of a CMO with a coupon rate that moves in the reverse direction to an
applicable index such as LIBOR. Accordingly, the coupon rate will increase as
interest rates decrease. Inverse floating rate CMOs are typically more volatile
than fixed or floating rate tranches of CMOs.
Many inverse floating rate CMOs have coupons that move inversely to a
multiple of the applicable indexes. When the coupon varies inversely to a
multiple of an applicable index, it creates a leverage factor. Inverse floaters
based on multiples of a stated index are designed to be highly sensitive to
changes in interest rates and can subject the holders thereof to extreme
reductions of yield and loss of principal. The markets for inverse floating rate
CMOs with highly leveraged characteristics at times may be very thin. The Fund's
ability to dispose of its positions in such securities will depend on the degree
of liquidity in the markets for such securities. It is impossible to predict the
amount of trading interest that may exist in such securities, and therefore, the
future degree of liquidity.
ADJUSTABLE-RATE MORTGAGE LOANS ("ARMS")--ARMs eligible for inclusion in a
mortgage pool will generally provide for a fixed initial mortgage interest rate
for a specified period of time, generally for either the first three, six,
twelve, thirteen, thirty-six or sixty scheduled monthly payments. Thereafter,
the interest rates are subject to periodic adjustment based on changes in an
index. ARMs typically have minimum and maximum rates beyond which the mortgage
interest rate may not vary over the lifetime of the loans. Certain ARMs provide
for additional limitations on the maximum amount by which the mortgage interest
rate may adjust for any single adjustment period. Negatively amortizing ARMs may
provide limitations on changes in the required monthly payment. Limitations on
monthly payments can result in monthly payments that are greater or less than
the amount necessary to amortize a negatively amortizing ARM by its maturity at
the interest rate in effect during any particular month.
OTHER MORTGAGE-RELATED SECURITIES--Other mortgage-related securities include
securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including CMO residuals. Other mortgage-related securities may
be equity or debt securities issued by agencies or instrumentalities of the U.S.
Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, homebuilders, mortgage banks,
commercial banks, investment banks, partnerships, trusts and special purpose
entities of the foregoing.
ASSET-BACKED SECURITIES. Asset-backed securities are a form of derivative.
These securities include debt securities and securities with debt-like
characteristics. The collateral for these securities has included home equity
loans, automobile and credit card receivables, boat loans, computer leases,
airplane leases, mobile home loans, recreational vehicle loans and hospital
account receivables. The Fund may invest in these and other types of
asset-backed securities that may be developed in the future.
The securitization techniques used for asset-backed securities are similar
to those used for mortgage-backed securities. Asset-backed securities present
certain risks that are not presented by mortgage-backed securities. Primarily,
these securities may provide the Fund with a less effective security interest in
the related collateral than do mortgage-backed securities. Therefore, there is
the possibility that recoveries on the underlying collateral may not, in some
cases, be available to support payments on these securities.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES. The
Fund may invest in U.S. dollar denominated obligations issued or guaranteed by
one or more foreign governments or any of their political subdivisions, agencies
or instrumentalities that are determined by the Manager to be of comparable
quality to the other obligations in which the Fund may invest. Such securities
also include debt obligations of supranational entities. 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.
ILLIQUID SECURITIES. The Fund may invest up to 15% of the value of its net
assets in Wrapper Agreements and other securities as to which a liquid trading
market does not exist, provided such investments are consistent with the Fund'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 Fund is subject to a risk that should it
desire to sell them when a ready buyer is not available at a price the Fund
deems representative of their value, the value of the Fund's net assets could be
adversely affected.
ZERO COUPON SECURITIES. The Fund may invest in zero coupon U.S. Treasury
securities, which are Treasury Notes and Bonds that have been stripped of their
unmatured interest coupons, the coupons themselves and receipts or certificates
representing interests in such stripped debt obligations and coupons. Zero
coupon securities are issued by corporations and financial institutions and
constitute a proportionate ownership of the issuer's pool of underlying U.S.
Treasury securities. A zero coupon security pays no interest to its holder
during its life and is sold at a discount to its face value at maturity. The
amount of the discount fluctuates with the market price of the security. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to a greater degree to changes in interest rates than non-zero coupon
securities having similar maturities and credit qualities.
MONEY MARKET INSTRUMENTS. Under normal conditions, the Fund may invest up
to 35%, and will invest at least 10%, of its assets in money market instruments,
consisting of U.S. Government securities, certificates of deposit, time
deposits, bankers' acceptances, short-term investment grade corporate bonds and
other short-term debt instruments, and repurchase agreements. When the Manager
determines that adverse market conditions exist, the Fund may adopt a temporary
defensive position and invest up to 100% of its assets in money market
instruments, including U.S. Government securities, repurchase agreements, bank
obligations and commercial paper.
INVESTMENT TECHNIQUES
The Fund may engage in the investment techniques described below.
LEVERAGE. Leveraging (that is, buying securities using borrowed money)
exaggerates the effect on net asset value of any increase or decrease in the
market value of the Fund's portfolio. These borrowings will be subject to
interest costs which may or may not be recovered by appreciation of the
securities purchased; in certain cases, interest costs may exceed the return
received on the securities purchased. For borrowings for investment purposes,
the Investment Company Act of 1940, as amended (the "1940 Act"), requires the
Fund to maintain continuous asset coverage (that is, total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of the amount
borrowed. If the required coverage should decline as a result of market
fluctuations or other reasons, the Fund 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 Fund 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.
The Fund may enter into reverse repurchase agreements with banks, brokers
or dealers. This form of borrowing involves the transfer by the Fund of an
underlying debt instrument in return for cash proceeds based on a percentage of
the value of the security. The Fund retains the right to receive interest and
principal payments on the security. At an agreed upon future date, the Fund
repurchases the security at principal plus accrued interest. Except for these
transactions, the Fund's borrowings generally will be unsecured.
DERIVATIVES. The Fund may invest in, or enter into, derivatives
("Derivatives") for a variety of reasons, including to hedge certain market
risks, to provide a substitute for purchasing or selling particular securities
or to increase potential income gain. Derivatives may provide a cheaper, quicker
or more specifically focused way for the Fund to invest than "traditional"
securities would. The Derivatives the Fund may use include options and futures,
mortgage- related securities, asset-backed securities and Wrapper Agreements.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may entail investment exposures that are greater than their
cost would suggest, meaning that a small investment in Derivatives could have a
large potential impact on the Fund's performance.
If the Fund invests in Derivatives at inopportune times or judges market
conditions incorrectly, such investments may lower the Fund's return or result
in a loss. The Fund also could experience losses if its Derivatives were poorly
correlated with its other investments, or if the Fund were unable to liquidate
its position because of an illiquid secondary market. The market for many
Derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid and unpredictable changes in the prices for
Derivatives.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter Derivatives.
Exchange-traded Derivatives generally are guaranteed by the clearing agency
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 will consider the
creditworthiness of counterparties to over-the-counter Derivatives in the same
manner as it would review the credit quality of a security to be purchased by
the Fund. Over-the-counter Derivatives are less liquid than exchange-traded
Derivatives since the other party to the transaction may be the only investor
with sufficient understanding of the Derivative to be interested in bidding for
it.
FUTURES TRANSACTIONS--IN GENERAL. The Fund 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. Engaging in these
transactions involves risk of loss to the Fund which could adversely affect the
value of the Fund's net assets. Although the Fund intends to purchase or sell
futures contracts only if there is an active market for such contracts, no
assurance can be given that a liquid market will exist for any particular
contract at any particular time. Many futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit or trading
may be suspended for specified periods during the trading day. Futures contract
prices could move to the limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions and
potentially subjecting the Fund to substantial losses.
Successful use of futures by the Fund also is subject to the ability of the
Manager 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 the Fund uses
futures to hedge against the possibility of a decline in the market value of
securities held in its portfolio and the prices of such securities instead
increase, the Fund will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. The Fund may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities and
Exchange Commission, the Fund may be required to segregate 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 Fund's ability otherwise to invest those
assets.
SPECIFIC FUTURES TRANSACTIONS. The Fund may purchase and sell interest rate
futures contracts. An interest rate future obligates the Fund to purchase or
sell an amount of a specific debt security at a future date at a specific price.
INTEREST RATE SWAPS. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest (for
example, an exchange of floating rate payments for fixed-rate payments). The
exchange commitments can involve payments to be made in the same currency or in
different currencies. The use of interest rate swaps is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. If the Manager is
incorrect in its forecasts of market values, interest rates and other applicable
factors, the investment performance of the Fund would diminish compared with
what it would have been if these investment techniques were not used. Moreover,
even if the Manager is correct in its forecasts, there is a risk that the swap
position may correlate imperfectly with the price of the asset or liability
being hedged. There is no limit on the amount of interest rate swap transactions
that may be entered into by the Fund. These transactions do not involve the
delivery of securities or other underlying assets or principal. Accordingly, the
risk of loss with respect to interest rate swaps is limited to the net amount of
interest payments that the Fund is contractually obligated to make. If the other
party to an interest rate swap defaults, the Fund's risk of loss consists of the
net amount of interest payments that the Fund contractually is entitled to
receive.
OPTIONS--IN GENERAL. The Fund may purchase and write (i.e., sell) call or put
options with respect to specific securities. A call option gives the purchaser
of the option the right to buy, and obligates the writer to sell, the underlying
security or securities at the exercise price at any time during the option
period, or at a specific date. Conversely, a put option gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
security or securities at the exercise price at any time during the option
period, or at a specific date.
A covered call option written by the Fund is a call option with respect to
which the Fund owns the underlying security or otherwise covers the transaction
by segregating cash or other securities. A put option written by the Fund 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 with the Fund's custodian to fulfill the obligation undertaken. The
principal reason for writing covered call and put options is to realize, through
the receipt of premiums, a greater return than would be realized on the
underlying securities alone. The Fund receives a premium from writing covered
call or put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, at times have rendered certain of the
clearing facilities inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
SPECIFIC OPTIONS TRANSACTIONS. The Fund may purchase and sell call and put
options in respect of specific securities (or groups or "baskets" of specific
securities) or indices listed on national securities exchanges or traded in the
over-the-counter market. An option on an index is similar to an option in
respect of specific securities, except that settlement does not occur by
delivery of the securities comprising the index. Instead, the option holder
receives an amount of cash if the closing level of the index upon which the
option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. Thus, the effectiveness of
purchasing or writing index options will depend upon price movements in the
level of the index rather than the price of a particular security.
The Fund may purchase cash-settled options on swaps in pursuit of its
investment objective. A cash-settled option on a swap gives the purchaser the
right, but not the obligation, in return for the premium paid, to receive an
amount of cash equal to the value of the underlying swap as of the exercise
date. These options typically are purchased in privately negotiated transactions
from financial institutions, including securities brokerage firms.
Successful use by the Fund of options will be subject to the ability of the
Manager to predict correctly movements in the prices of individual securities,
the market generally, or interest rates. To the extent such predictions are
incorrect, the Fund may incur losses.
FUTURE DEVELOPMENTS. The Fund may take advantage of opportunities in the
area of options and futures contracts and options on futures contracts and any
other Derivatives which are not presently contemplated for use by the Fund or
which are not currently available but which may be developed, to the extent such
opportunities are both consistent with the Fund's investment objective and
legally permissible for the Fund. Before entering into such transactions or
making any such investment, the Fund will provide appropriate disclosure in its
Prospectus or Statement of Additional Information.
LENDING PORTFOLIO SECURITIES. The Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to borrow
securities to complete certain transactions. The Fund continues to be entitled
to payments in amounts equal to the interest, dividends or other distributions
payable on the loaned securities which affords the Fund an opportunity to earn
interest on the amount of the loan and on the loaned securities' collateral.
Loans of portfolio securities may not exceed 33-1/3% of the value of the Fund's
total assets, and the Fund will receive collateral consisting of cash, U.S.
Government securities or irrevocable letters of credit which will be maintained
at all times in an amount equal to at least 100% of the current market value of
the loaned securities. Such loans are terminable by the Fund at any time upon
specified notice. The Fund might experience risk of loss if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement with
the Fund.
FORWARD COMMITMENTS. The Fund may purchase or sell securities on a forward
commitment, when-issued or delayed-delivery basis, which means that delivery and
payment take place a number of days after the date of the commitment to purchase
or sell the securities at a predetermined price and/or yield. Typically, no
interest accrues to the purchaser until the security is delivered. When
purchasing a security on a forward commitment basis, the Fund assumes the rights
and risks of ownership of the security, including the risk of price and yield
fluctuations, and takes such fluctuations into account when determining its net
asset value. Because the Fund is not required to pay for these securities until
the delivery date, these risks are in addition to the risks associated with the
Fund's other investments. If the Fund is fully or almost fully invested when
forward commitment purchases are outstanding, such purchases may result in a
form of leverage. The Fund intends to engage in forward commitments to increase
its portfolio's financial exposure to the types of securities in which it
invests. Leveraging the portfolio in this manner will increase the Fund's
exposure to changes in interest rates and will increase the volatility of its
returns. The Fund will set aside in a segregated account permissible liquid
assets at least equal at all times to the amount of the Fund's purchase
commitments.
FORWARD ROLL TRANSACTIONS. To enhance current income, the Fund may enter
into forward roll transactions with respect to mortgage-related securities. In a
forward roll transaction, the Fund sells a mortgage-related security to a
financial institution, such as a bank or broker-dealer, and simultaneously
agrees to repurchase a similar security from the institution at a later date at
an agreed upon price. The securities that are repurchased will bear the same
interest rate as those sold, but generally will be collateralized by different
pools of mortgages with different pre- payment histories than those sold. During
the period between the sale and repurchase, the Fund will not be entitled to
receive interest and principal payments on the securities sold. Proceeds of the
sale will be invested in short-term instruments, particularly repurchase
agreements, and the income from these investments, together with any additional
fee income received on the sale will generate income for the Fund exceeding the
yield on the securities sold. Forward roll transactions involve the risk that
the market value of the securities sold by the Fund may decline below the
purchase price of those securities. The Fund will establish a segregated account
consisting of permissible liquid assets at least equal to the amount of the
repurchase price (including accrued interest).
INVESTMENT RESTRICTIONS
The Fund's investment objective is a fundamental policy, which cannot be
changed without approval by the holders of a majority (as defined in the 1940
Act) of the Fund's outstanding voting shares. In addition, the Fund has adopted
investment restrictions numbered 1 through 10 as fundamental policies.
Investment restrictions numbered 11 and 12 are not fundamental policies and may
be changed by a vote of a majority of the Fund's Board members at any time. The
Fund may not:
1. Invest more than 5% of its assets in the obligations of any single
issuer, except that up to 25% of the value of the Fund'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
limitation.
2. Hold more than 10% of the outstanding voting securities of any single
issuer. This Investment Restriction applies only with respect to 75% of the
Fund's total assets.
3. 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.
4. Invest in commodities, except that the Fund 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 the Fund may purchase and
sell securities that are secured by real estate or issued by companies that
invest or deal in real estate or real estate investment trusts.
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 Fund'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, the Fund may lend its
portfolio securities in an amount not to exceed 33-1/3% of the value of its
total assets. Any loans of portfolio securities will be made according to
guidelines established by the Securities and Exchange Commission and the Fund's
Board.
8. Act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed an underwriter under the Securities Act of 1933,
as amended, by virtue of disposing of portfolio securities.
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 and 11 may be deemed to give rise to a senior security.
10. Purchase securities on margin, but the Fund may make margin deposits in
connection with transactions in options, forward contracts, futures contracts,
including those relating to indices, and options on futures contracts or
indices.
11. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when- issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with respect
to options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices.
12. Enter into repurchase agreements providing for settlement in more than
seven days after notice or purchase securities which are illiquid, if, in the
aggregate, more than 15% of the value of the Fund's net assets would be so
invested.
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.
MANAGEMENT OF THE FUND
The Fund's Board is responsible for the management and supervision of the
Fund. The Board approves all significant agreements between the Fund and those
companies that furnish services to the Fund. These companies are as follows:
The Dreyfus Corporation..................................Investment Adviser
Premier Mutual Fund Services, Inc........................Distributor
Dreyfus Transfer, Inc....................................Transfer Agent
Mellon Bank, N.A.........................................Custodian
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. The aggregate amount of
compensation estimated to be paid to each Board member by the Fund 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 ending December 31, 1998, is as
follows:
TOTAL COMPENSATION FROM
AGGREGATE ESTIMATED FUND AND FUND
NAME OF BOARD COMPENSATION FROM COMPLEX PAID TO
MEMBER FUND BOARD MEMBER
Joseph S. DiMartino $3,750 $600,878(95)
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 certain other investment companies advised or administered by the
Manager. From December 1989 through November 1996, he was employed by GE
Investment Services where he held various financial, business development
and compliance positions. He also served as Treasurer of the GE Funds and
as 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. She is 29 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 34 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 & 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. From December 1991 to March 1993, he was employed as a Fund
Accountant at The Boston Company, Inc. He is 29 years old.
CHRISTOPHER J. KELLEY, VICE PRESIDENT AND ASSISTANT SECRETARY. Vice President
and Senior Associate General Counsel of 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. Manager of
Treasury Services Administration 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.
MANAGEMENT AGREEMENT
The Manager is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). 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.
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") dated July __, 1998 with the Fund, which 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 the Fund,
provided that in either event its 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. The Agreement was approved by the Fund's
sole shareholder on _______, 1998. The Agreement is terminable without penalty,
on not more than 60 days' notice, by the Fund's Board or by vote of the holders
of a majority of the Fund's outstanding voting shares, or, on not less than 90
days' notice, by the Manager. The Agreement will terminate automatically 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.,
Senior Vice President and Chief Financial Officer; Mark N. Jacobs, Vice
President, General Counsel and Secretary; Patrice M. Kozlowski, Vice
President-Corporate Communications; Mary Beth Leibig, Vice President-Human
Resources; Andrew S. Wasser, Vice President-Information Systems; William V.
Healey, Assistant Secretary; and Mandell L. Berman, Burton C. Borgelt, Frank V.
Cahouet and Richard F. Syron, directors.
The Manager manages the Fund's portfolio of investments in accordance with
the stated policies of the Fund, subject to the approval of the Fund's Board.
The Manager is responsible for investment decisions, and provides the Fund with
portfolio managers who are authorized by the Board to execute purchases and
sales of securities. The Fund's portfolio managers are Eric W. Baumhoff and
Laurie A. Carroll. The Manager also maintains a research department with a
professional staff of portfolio managers and securities analysts who provide
research services for the Fund and for other funds advised by the Manager.
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.
All expenses incurred in the operation of the Fund are borne by the Fund,
except to the extent specifically assumed by the Manager. The expenses borne by
the Fund include: taxes, interest, 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, 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 printing prospectuses
and statements of additional information for regulatory purposes and for
distribution to existing stockholders, costs of shareholder reports and
corporate meetings and any extraordinary expenses. In addition, Class S and
Class Q shares are subject to an annual shareholder service fee. See
"Shareholder Services Plan."
As compensation for the Manager's services, the Fund has agreed to pay the
Manager a monthly management fee at the annual rate of .35 of 1% of the value of
the Fund's average daily net assets.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of the Fund's net assets increases.
THE DISTRIBUTOR. Premier Mutual Fund Services, Inc., located at 60 State
Street, Boston, Massachusetts 02109, serves as the Fund's distributor on a best
efforts basis pursuant to an agreement which is renewable annually. The Manager
may pay the Distributor for shareholder services from the Manager's own assets,
including past profits but not including the management fee paid by the Fund.
The Distributor may use part or all of such payments to pay Service Agents (as
defined below) in respect of these services.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN. Dreyfus Transfer,
Inc. (the "Transfer Agent"), 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, is the Fund's custodian (the "Custodian"). Under
a custody agreement with the Fund, the Custodian holds the Fund's securities and
keeps all necessary accounts and records. For its custody services, the
Custodian receives a monthly fee based on the market value of the Fund's assets
held in custody and receives certain securities transactions charges.
HOW TO BUY SHARES
The initial investment must be accompanied by the Account Application.
Fund shares are sold on a continuous basis at the net asset value per share
next determined after an order in proper form is received by the Transfer Agent
or other entity authorized to receive orders on behalf of the Fund.
For certain institutions that have entered into agreements with the
Distributor, payment for the purchase of Fund shares may be transmitted, and
must be received by the Transfer Agent, within three business days after the
order is placed. If such payment is not received within three business days
after the order is placed, the order may be canceled and the institution could
be held liable for resulting fees and/or losses.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan (the "Plan") pursuant to
which the Fund pays the Distributor for providing certain services to the
holders of Class S and Class Q shares. The services provided may include
personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Fund and providing reports and other
information, and services related to the maintenance of such shareholder
accounts. Under the Plan, the Distributor may make payments to certain financial
institutions (which include banks), securities dealers and other financial
industry professionals (collectively, "Service Agents") in respect of these
services.
A quarterly report of the amounts expended under the Plan, and the purposes
for which such expenditures were incurred, must be made to the Board members for
their review. In addition, the Plan provides that material amendments to the
Plan must be approved by the Fund's Board, and by the Board members who are not
"interested persons" (as defined in the 1940 Act) of the Fund and have no direct
or indirect financial interest in the operation of the Plan or in any agreements
entered into in connection with the Plan, by vote cast in person at a meeting
called for the purpose of considering such amendments. The Plan is subject to
annual approval by such vote of the Board members cast in person at a meeting
called for the purpose of voting on the Plan. The Plan is terminable, as to each
such Class, at any time by vote of a majority of the Board members who are not
"interested persons" and who have no direct or indirect financial interest in
the operation of the Plan.
HOW TO REDEEM SHARES
REDEMPTION FEE. The Fund will deduct a redemption fee equal to 2% (1% for
redemptions made upon at least 6 but less than 12 months' prior written notice
to the Fund) of the net asset value of Fund shares redeemed (including
redemptions through the use of the Fund Exchanges service). Redemptions made
upon at least 12 months' prior written notice to the Fund and certain other
redemptions as described in the Fund's Prospectus are not subject to any
redemption fee. The redemption fee will be deducted from the redemption proceeds
and retained by the Fund.
WIRE REDEMPTION PRIVILEGE. By using this Privilege, you authorize the
Transfer Agent to act on wire, telephone or letter redemption instructions from
any person representing himself or herself to be you, or a representative of
your Service Agent acting on your behalf, and reasonably believed by the
Transfer Agent to be genuine. Ordinarily, the Fund will initiate payment for
shares redeemed pursuant to the Privilege on the next business day after receipt
by the Transfer Agent of a redemption request in proper form. Redemption
proceeds ($1,000 minimum) will be transferred by Federal Reserve wire only to
the commercial bank account specified by you on the Account Application or
Shareholder Services Form, or to a correspondent bank if your bank is not a
member of the Federal Reserve System. Fees ordinarily are imposed by such bank
and borne by you. Immediate notification by the correspondent bank to your bank
is necessary to avoid a delay in crediting the funds to the investor's bank
account.
If you have access to telegraphic equipment, you may wire redemption
requests to the Transfer Agent by employing the following transmittal code which
may be used for domestic or overseas transmissions:
Transfer Agent's
TRANSMITTAL CODE ANSWER BACK SIGN
144295 144295 TSSG PREP
If you do not have direct access to telegraphic equipment, you may have the
wire transmitted by contacting a TRT Cables operator at 1-800-654-7171, toll
free. You should advise the operator that the above transmittal code must be
used and should also inform the operator of the Transfer Agent's answer back
sign.
To change the commercial bank or account designated to receive redemption
proceeds, a written request must be sent to the Transfer Agent. This request
must be signed by each shareholder, with each signature guaranteed as described
below under "Stock Certificates; Signatures."
STOCK CERTIFICATES; SIGNATURES. Any certificates representing Fund shares
to be redeemed must be submitted with the redemption request. Written redemption
requests must be signed by each shareholder, including each owner of a joint
account, and each signature must be guaranteed. Signatures on endorsed
certificates submitted for redemption also must be guaranteed. The Transfer
Agent has adopted standards and procedures pursuant to which
signature-guarantees in proper form generally will be accepted from domestic
banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations,
as well as from participants in the New York Stock Exchange Medallion Signature
Program, the Securities Transfer Agents Medallion Program ("STAMP") and the
Stock Exchanges Medallion Program. Guarantees must be signed by an authorized
signatory of the guarantor and "Signature-Guaranteed" must appear with the
signature. The Transfer Agent may request additional documentation from
corporations, executors, administrators, trustees or guardians, and may accept
other suitable verification arrangements from foreign investors, such as
consular verification. For more information with respect to
signature-guarantees, please call one of the telephone numbers listed on the
cover.
REDEMPTION COMMITMENT. The Fund has committed itself to pay in cash all
redemption requests by any shareholder of record, limited in amount during any
90-day period to the lesser of $250,000 or 1% of the value of the Fund's net
assets at the beginning of such period. Such commitment is irrevocable without
the prior approval of the Securities and Exchange Commis sion. 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
Fund, including Wrapper Agreements, in case of an emergency or any time a cash
distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. In such event, the securities would be valued in the same
manner as the Fund's portfolio is valued. To the extent that any such payment in
kind includes a Wrapper Agreement, the Fund will assign a portion of one or more
Wrapper Agreements to the redeeming shareholder. The economic terms and
conditions of each assigned Wrapper Agreement will be substantially similar to
the Wrapper Agreements held by the Fund. By purchasing shares in the Fund the
shareholders agree that they will accept an assignment of a Wrapper Agreement as
part of an in-kind redemption, provided that at the time of the redemption
payment such assignment would not violate applicable law.
If a payment in kind is made with securities, a shareholder may incur
transaction expenses in disposing of the securities. Therefore, a shareholder
receiving securities may incur costs that may exceed such shareholder's share of
the operating expenses incurred by the Fund. In addition, Wrapper Agreements
assigned to a shareholder as a payment in kind are illiquid and will require the
shareholder to pay fees directly to the Wrap Provider rather than through the
Fund. Further, the Wrapper Agreement may contain restrictions on the securities
subject to such agreement, including, but not limited to the types, maturities,
duration and credit quality of each security. Therefore, to obtain the benefits
of a Wrapper Agreement, the shareholder may not be able to freely trade the
securities underlying the agreement. Also, Wrapper Agreements assigned to a
shareholder will not provide protection against the credit risk associated with
the issuer of any Covered Assets.
The Fund does not anticipate exercising its rights to redeem in-kind if a
request for redemption is received in connection with a benefit responsive
payment event or with 12 months notice. A Wrap Provider, prior to the assignment
of a Wrapper Agreement to a Class P or Class S shareholder, may require the
shareholder to represent and warrant that such assignment does not violate any
applicable laws. Moreover, the Wrap Provider may require the shareholder to
obtain at its own expense the services of a qualified professional asset manager
("QPAM") acceptable to the Wrap Provider to manage the securities distributed in
kind in conformity with the Wrapper Agreement provisions. If a Wrapper Agreement
cannot be assigned to the shareholder, the Fund in its discretion may satisfy
the redemption request through (a) a cash payment, (b) a redemption in-kind
consisting entirely of securities, (c) a combination of cash and securities, or
(d) the Fund may give the redeeming shareholder the opportunity to choose
between one of the foregoing options or providing the Fund with 12 months'
notice of its request for such redemption (which 12-month notice option would
cause the redemption not to be subject to the redemption fee).
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or the
date of payment postponed (a) during any period when the New York Stock Exchange
is closed (other than customary weekend and holiday closings), (b) when trading
in the markets the Fund ordinarily utilizes is restricted, or when an emergency
exists as determined by the Securities and Exchange Commission so that disposal
of the Fund's investments or determination of its net asset value is not
reasonably practicable, or (c) for such other periods as the Securities and
Exchange Commission by order may permit to protect the Fund's shareholders.
SHAREHOLDER SERVICES
FUND EXCHANGES. You may purchase, in exchange for shares of the Fund,
shares of certain other funds managed or administered by the Manager, to the
extent such shares are offered for sale in your state of residence. A redemption
fee as described under "How to Redeem Shares" will be charged upon an exchange
of Fund shares, except under certain circumstances described in the Fund's
Prospectus. Shares of other funds purchased by exchange will be purchased on the
basis of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a sales load will
be made without a sales load.
B. Shares of funds purchased without a sales load may be exchanged for
shares of other funds sold with a sales load, and the applicable sales load will
be deducted.
C. Shares of funds purchased with a sales load may be exchanged without a
sales load for shares of other funds sold without a sales load.
D. Shares of funds purchased with a sales load, shares of funds acquired by
a previous exchange from shares purchased with a sales load and additional
shares acquired through reinvestment of dividends or distributions of any such
funds (collectively referred to herein as "Purchased Shares") may be exchanged
for shares of other funds sold with a sales load (referred to herein as "Offered
Shares"), provided that, if the sales load applicable to the Offered Shares
exceeds the maximum sales load that could have been imposed in connection with
the Purchased Shares (at the time the Purchased Shares were acquired), without
giving effect to any reduced loads, the difference will be deducted.
To accomplish an exchange under item D above, you must notify the Transfer
Agent of your prior ownership of fund shares and your account number.
To request an exchange, you or your Service Agent acting on your behalf
must give exchange instructions to the Transfer Agent in writing or by
telephone. The ability to issue exchange instructions by telephone is given to
all Fund shareholders automatically, unless you check the applicable "No" box on
the Account Application, indicating that you specifically refuse this Privilege.
By using the Telephone Exchange Privilege, you authorize the Transfer Agent to
act on telephonic instructions (including over The Dreyfus Touch(R) automated
telephone system) from any person representing himself or herself to be you, and
reasonably believed by the Transfer Agent to be genuine. Telephone exchanges may
be subject to limitations as to the amount involved or the number of telephone
exchanges permitted. Shares issued in certificate form are not eligible for
telephone exchange.
To establish a personal retirement plan by exchange, shares of the fund
being exchanged must have a value of at least the minimum initial investment
required for the fund into which the exchange is being made.
SYSTEMATIC WITHDRAWAL PLAN. A Systematic Withdrawal Plan permits you with a
$5,000 minimum account to request withdrawal of a specified dollar amount
(minimum of $50) on either a monthly or quarterly basis. Withdrawal payments are
the proceeds from sales of Fund shares, not the yield on the shares. If
withdrawal payments exceed reinvested dividends and distributions, your shares
will be reduced and eventually may be depleted. Automatic Withdrawal may be
terminated at any time by you, the Fund or the Transfer Agent. Shares for which
certificates have been issued may not be redeemed through the Automatic
Withdrawal Plan.
MONTHLY OR QUARTERLY DISTRIBUTION PLANS. The Distribution Plans permit you
to receive monthly or quarterly payments from the Fund consisting of proceeds
from the redemption of shares purchased for your account through the automatic
reinvestment of dividends declared on your account during the preceding month or
calendar quarter.
CORPORATE PENSION/PROFIT-SHARING AND PERSONAL RETIREMENT PLANS. The Fund
makes available to corporations a variety of prototype pension and
profit-sharing plans including a 401(k) Salary Reduction Plan. In addition, the
Fund makes available Keogh Plans, IRAs, (including regular IRAs, spousal IRAs
for a non-working spouse, Roth IRAs, IRA's set up under a Simplified Employee
Pension Plan ("SEP-IRAs"), Education IRAs and "Rollover Accounts") and 403(b)(7)
Plans. Plan support services are also available.
Investors who wish to purchase Fund shares in conjunction with a Keogh
Plan, a 403(b)(7) Plan or an IRA, including a SEP-IRA, may request from the
Distributor forms for adoption of such plans.
The entity acting as custodian for Keogh Plans, 403(b)(7) Plans or IRAs may
charge a fee, payment of which could require the liquidation of shares. All fees
charged are described in the appropriate form.
SHARES MAY BE PURCHASED IN CONNECTION WITH THESE PLANS ONLY BY DIRECT
REMITTANCE TO THE ENTITY ACTING AS CUSTODIAN. PURCHASES FOR THESE PLANS MAY NOT
BE MADE IN ADVANCE OF RECEIPT OF FUNDS.
The minimum initial investment for corporate plans, Salary Reduction Plans,
403(b)(7) Plans and SEP-IRAs with more than one participant, is $2,500 with no
minimum for subsequent purchases. The minimum initial investment is $750 for
Dreyfus-sponsored Keogh plans, IRAs (including regular IRAs, spousal IRAs for a
non-working spouse, Roth IRAs, SEP-IRAs and rollover IRAs) and 403(b)(7) Plans
with only one participant and $500 for Dreyfus-sponsored Education IRAs, with no
minimum for subsequent purchases.
Each shareholder should read the prototype retirement plan and the
appropriate form of custodial agreement for further details as to eligibility,
service fees and tax implications, and should consult a tax adviser.
DETERMINATION OF NET ASSET VALUE
VALUATION OF PORTFOLIO SECURITIES. The Fund's investments are valued each
business day using available market quotations or at fair value as determined by
one or more independent pricing services (collectively, the "Service") approved
by the Board. The Service may use available market quotations, employ electronic
data processing techniques and/or a matrix system to determine valuations. The
Service's procedures are reviewed by the Fund's officers under the general
supervision of the Board.
The value of a Wrapper Agreement ("Wrapper Value") generally will be equal
to the difference between the Book Value and the market value (plus accrued
interest on the underlying securities) ("Market Value") of the Covered Assets.
If the Market Value of the Covered Assets is greater than their Book Value, the
Wrapper Value will be reflected as a liability of the Fund in the amount of the
difference, i.e., a negative value, reflecting the potential liability of the
Fund to the Wrap Provider. If the Market Value of the Covered Assets is less
than their Book Value, the Wrapper Value will be reflected as an asset of the
Fund in the amount of the difference, i.e., a positive value, reflecting the
potential liability of the Wrap Provider to the Fund. The Fund will consider the
creditworthiness and ability of a Wrap Provider to pay amounts due under the
Wrapper Agreement. If the Wrap Provider is unable to make such payments, the
Wrapper Agreement will be assigned a fair value that is less than the difference
between the Book Value and the Market Value of the applicable Covered Assets and
the Fund might be unable to maintain a stable net asset value.
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 Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"), if such qualification is
in the best interests of its shareholders. As a regulated investment company,
the Fund will pay no Federal income tax on net investment income and net
realized securities gains to the extent that such income and gains are
distributed to shareholders in accordance with applicable provisions of the
Code. To qualify as a regulated investment company, the Fund must distribute at
least 90% of its net income (consisting of net investment income and net
short-term capital gain) to its shareholders, and meet certain asset
diversification and other requirements. The term "regulated investment company"
does not imply the supervision of management or investment practices or policies
by any government agency.
Any dividend or distribution paid shortly after an investor's purchase may
have the effect of reducing the aggregate net asset value of the shares below
the cost of the investment. Such a dividend or distribution would be a return of
investment in an economic sense, although taxable as stated in the Fund's
Prospectus. In addition, the Code provides that if a shareholder holds shares of
the Fund for six months or less and has received a capital gain distribution
with respect to such shares, any loss incurred on the sale of such shares will
be treated as long-term capital loss to the extent of the capital gain
distribution received. No dividend paid by the Fund will qualify for the
dividends received deduction allowable to certain U.S. corporate shareholders.
Ordinarily, gains and losses realized from portfolio transactions will be
treated as capital gains or losses. However, a portion of the gain or loss
realized from the disposition of foreign currencies (including foreign currency
denominated bank deposits) and non-U.S. dollar denominated securities (including
debt instruments and certain forward contracts and options) may be treated as
ordinary income or loss under Section 988 of the Code. In addition, all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds will be treated as ordinary income under Section 1276 of
the Code. Finally, all or a portion of the gain realized from engaging in
"conversion transactions" may be treated as ordinary income under Section 1258
of the Code. "Conversion transactions" are defined to include certain forward,
futures, options and straddle transactions, transactions marketed or sold to
produce capital gains, or transactions described in Treasury regulations to be
issued in the future.
Under Section 1256 of the Code, any gain or loss realized by the Fund from
certain forward contracts and options transactions will be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. Gain or
loss will arise upon exercise or lapse of such contracts and options as well as
from closing transactions. In addition, any such contract or option remaining
unexercised at the end of the Fund's taxable year will be treated as sold for
its then fair market value, resulting in additional gain or loss to the Fund
characterized in the manner described above.
Offsetting positions held by the Fund involving certain foreign currency
forward contracts or options may constitute "straddles." "Straddles" are defined
to include "offsetting positions" in actively traded personal property. The tax
treatment of "straddles" is governed by Sections 1092 and 1258 of the Code,
which, in certain circumstances, overrides or modifies the provisions of
Sections 1256 and 988 of the Code. As such, all or a portion of any short- or
long-term capital gain from certain "straddle" transactions may be
recharacterized as ordinary income.
If the Fund were treated as entering into "straddles" by reason of its
engaging in certain forward contracts or options transactions, such "straddles"
would be characterized as "mixed straddles" if the forward contracts or options
transactions comprising a part of such "straddles" were governed by Section 1256
of the Code. The Fund may make one or more elections with respect to "mixed
straddles." Depending on which election is made, if any, the results to the Fund
may differ. If no election is made, to the extent the "straddle" and conversion
transaction rules apply to positions established by the Fund, losses realized by
the Fund will be deferred to the extent of unrealized gain in the offsetting
position. Moreover, as a result of the "straddle" and conversion transaction
rules, short-term capital loss on "straddle" positions may be recharacterized as
long-term capital loss, and long-term capital gains may be treated as short-term
capital gains or ordinary income.
The Taxpayer Relief Act of 1997 included constructive sale provisions that
generally apply if the Fund either (1) holds an appreciated financial position
with respect to stock, certain debt obligations or partnership interests
("appreciated financial position") and then enters into a short sale, futures,
forward or offsetting notional principal contract (collectively, a "Contract")
respecting the same or substantially identical property or (2) holds an
appreciated financial position that is a Contract and then acquires property
that is the same as, or substantially identical to, the underlying property. In
each instance, with certain exceptions, the Fund generally will be taxed as if
the appreciated financial position were sold at its fair market value on the
date the Fund enters into the financial position or acquires the property,
respectively. Transactions that are identified hedging or straddle transactions
under other provisions of the Code can be subject to the constructive sale
provisions.
PORTFOLIO TRANSACTIONS
The Manager supervises the placement of orders on behalf of the Fund for
the purchase or sale of portfolio securities. Allocation of brokerage
transactions, including their frequency, is made in the best judgment of the
Manager and in a manner deemed fair and reasonable to shareholders. The primary
consideration is prompt execution of orders at the most favorable net price.
Subject to this consideration, the brokers selected include those that
supplement the Manager's research facilities with statistical data, investment
information, economic facts and opinions. Information so received is in addition
to and not in lieu of services required to be performed by the Manager and the
Manager's fee is not reduced as a consequence of the receipt of such
supplemental information. Such information may be useful to the Manager in
serving both the Fund and other funds which it manages and, conversely,
supplemental information obtained by the placement of business of other clients
may be useful to the Manager in carrying out its obligations to the Fund.
Sales of Fund shares by a broker may be taken into consideration, and
brokers also will be selected because of their ability to handle special
executions such as are involved in large block trades or broad distributions,
provided the primary consideration is met. Large block trades may, in certain
cases, result from two or more funds in the Dreyfus Family of Funds being
engaged simultaneously in the purchase or sale of the same security. Certain of
the Fund's transactions in securities of foreign issuers may not benefit from
the negotiated commission rates available to the Fund for transactions in
securities of domestic issuers. When transactions are executed in the
over-the-counter market, the Fund will deal with the primary market makers
unless a more favorable price or execution otherwise is obtainable. Foreign
exchange transactions are made with banks or institutions in the intrabank
market at prices reflecting a mark-up or mark-down and/or commission.
Portfolio turnover may vary from year to year, as well as within a year. In
periods in which extraordinary market conditions prevail, the Manager will not
be deterred from changing the Fund's investment strategy as rapidly as needed,
in which case, higher turnover rates can be anticipated which would result in
greater brokerage expenses. The overall reasonableness of brokerage commissions
paid is evaluated by the Manager based upon its knowledge of available
information as to the general level of commissions paid by other institutional
investors for comparable services.
PERFORMANCE INFORMATION
Current yield is computed pursuant to a formula which operates as follows:
The amount of the Fund's expenses accrued for the 30-day period (net of
reimbursements) is subtracted from the amount of the dividends and interest
earned by the Fund during the period. That result is then divided by the product
of: (a) the average daily number of shares outstanding during the period that
were entitled to receive dividends, and (b) the maximum offering price 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 Fund's net
asset value per share at the beginning of a stated period from the net asset
value per share at the end of the period (after giving effect to the
reinvestment of dividends and distributions during the period), and dividing the
result by the net asset value per share at the beginning of the period. From
time to time, advertising materials for the Fund may refer to Morningstar
ratings and related analysis supporting such ratings.
From time to time, advertising material for the Fund may include
biographical information relating to its portfolio managers and may refer to, or
include commentary by a portfolio manager relating to investment strategy, asset
growth, current or past business, political, economic or financial conditions
and other matters of general interest to investors. Fund advertisements also,
from time to time, may include statistical data or general discussions about the
growth and development of Dreyfus Retirement Services ( in terms of new
customers, assets under management, market share, etc.) and its presence in the
defined contribution plan market.
INFORMATION ABOUT THE FUND
Each Fund share has one vote and, when issued and paid for in accordance
with the terms of the offering, is fully paid and nonassessable. Fund 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
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.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Fund to hold annual meetings of shareholders. As a result,
Fund shareholders may not consider each year the election of Board members or
the appointment of auditors. However, the holders of at least 10% of the shares
outstanding and entitled to vote may require the Fund to hold a special meeting
of shareholders for purposes of removing a Board member from office. Fund
shareholders may remove a Board member by the affirmative vote of two-thirds of
the Fund's outstanding voting shares. In addition, the Board will call a meeting
of shareholders for the purpose of electing Board members if, at any time, less
than a majority of the Board members then holding office have been elected by
shareholders.
The Fund is intended to be a long-term investment vehicle. A pattern of
frequent purchases and exchanges can be disruptive to efficient portfolio
management and, consequently, can be detrimental to the Fund's performance and
its shareholders. Accordingly, if the Fund's management determines that an
investor is following a market-timing strategy or is otherwise engaging in
excessive trading, the Fund, with or without prior notice, may temporarily or
permanently terminate the availability of Fund Exchanges, or reject in whole or
part any purchase or exchange request, with respect to such investor's account.
Such investors also may be barred from purchasing other funds in the Dreyfus
Family of Funds. Generally, an investor who makes more than four exchanges out
of the Fund during a calendar year or who makes exchanges that appear to
coincide with a market-timing strategy may be deemed to be engaged in excessive
trading. Accounts under common ownership or control will be considered as one
account for purposes of determining a pattern of excessive trading. In addition,
the Fund may refuse or restrict purchase or exchange requests by any person or
group if, in the judgment of the Fund's management, the Fund would be unable to
invest the money effectively in accordance with its investment objective and
policies or could otherwise be adversely affected or if the Fund receives or
anticipates receiving simultaneous orders that may significantly affect the Fund
(e.g., amounts equal to 1% or more of the Fund's total assets). If an exchange
request is refused, the Fund will take no other action with respect to the
shares until it receives further instructions from the investor. The Fund may
delay forwarding redemption proceeds for up to seven days if the investor
redeeming shares is engaged in excessive trading or if the amount of the
redemption request otherwise would be disruptive to efficient portfolio
management or would adversely affect the Fund. The Fund's policy on excessive
trading applies to investors who invest in the Fund directly or through
financial intermediaries, but does not apply to any automatic investment or
withdrawal privilege described herein, or to participants in employer-sponsored
retirement plans.
During times of drastic economic or market conditions, the Fund may suspend
Fund Exchanges temporarily without notice and treat exchange requests based on
their separate components -- redemption orders with a simultaneous request to
purchase the other fund's shares. In such a case, the redemption request would
be processed at the Fund's next determined net asset value but the purchase
order would be effective only at the net asset value next determined after the
fund being purchased receives the proceeds of the redemption, which may result
in the purchase being delayed.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
COUNSEL AND INDEPENDENT AUDITORS
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 Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as independent auditors of the Fund.
<PAGE>
APPENDIX
Description of certain rating categories of Standard & Poor's Ratings Group
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch IBCA, Inc.
("Fitch"), and Duff & Phelps Credit Rating Co. ("Duff"):
S&P
BOND RATINGS
AAA
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB
Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B
Bonds rated B have a greater vulnerability to default but presently have
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC
Bonds rated CCC have a current identifiable vulnerability to default and
are dependent upon favorable business, financial and economic conditions to meet
timely payments of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
CC
The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating.
D
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus (+) or a
minus (-) sign designation, which is used to show relative standing within the
major rating categories, except in the AAA (Prime Grade) category.
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 that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
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.
A-3
Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B
Issues carrying this designation are regarded as having only speculative
capacity for timely payment.
C
This designation is assigned to short-term obligations with doubtful
capacity for payment.
D
Issues carrying this designation are in default, and payment of interest
and/or repayment of principal is in arrears.
CLAIMS PAYING ABILITY RATINGS
AAA
Superior financial security on an absolute and relative basis. Capacity to
meet policyholder obligations is overwhelming under a variety of economic and
underwriting conditions.
AA
Excellent financial security. Capacity to meet policyholder obligations is
strong under a variety of economic and underwriting conditions.
A
Good financial security, but capacity to meet policyholder obligations is
somewhat susceptible to adverse economic and underwriting conditions.
BBB
Adequate financial security, but capacity to meet policyholder obligations
is susceptible to adverse economic and underwriting conditions.
BB
Financial security may be adequate, but capacity to meet policyholder
obligations, particularly with respect to long-term or "long-tail" policies, is
vulnerable to adverse economic and underwriting conditions.
B
Vulnerable financial security. Currently able to meet policyholder
obligations, but capacity to meet policyholder obligations is particularly
vulnerable to adverse economic and underwriting conditions.
CCC
Extremely vulnerable financial security. Continued capacity to meet
policyholder obligations is highly questionable unless favorable economic and
underwriting conditions prevail.
R
Regulatory action. As of the date indicated, the insurer is under
supervision of insurance regulators following rehabilitation, receivership,
liquidation, or any other action that reflects regulatory concern about the
insurer's financial condition. Information on this status is provided by the
National Association of Insurance Commissioners and other regulatory bodies.
Although believed to be accurate, this information is not guaranteed. The "R"
rating does not apply to insurers subject only to nonfinancial actions such as
market conduct violations.
Plus (+) or minus (-) Ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
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 generally are referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what generally are known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and, therefore, not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca
Bonds which are rated Ca present obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and in
the categories below B. The modifier 1 indicates a ranking for the security in
the higher end of a rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of a rating
category.
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.
Issuers (or related supporting institutions) rated Prime-3 (P-3) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirements for relatively
high financial leverage. Adequate alternate liquidity is maintained.
INSURANCE FINANCIAL STRENGTH RATINGS
Aaa
Exceptional financial security. While the financial strength of these
companies is likely to change, such changes as can be visualized are most
unlikely to impair their fundamentally strong position.
Aa
Excellent financial security. Together with the Aaa group they constitute
what are generally known as high grade companies. They are rated lower than Aaa
companies because long-term risks appear somewhat larger.
A
Good financial security. However, elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa
Adequate financial security. However, certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Ba
Questionable financial security. Often the ability of these companies to
meet policyholder obligations maybe very moderate and thereby not well
safeguarded in the future.
B
Poor financial security. Assurance of punctual payment of policyholder
obligations over any long period of time is small.
Caa
Very poor financial security. They may be in default on their policyholder
obligations or there may be present elements of danger with respect to punctual
payment of policyholder obligations and claims.
Ca
Extremely poor financial security. Such companies are often in default on
their policyholder obligations or have other marked shortcomings.
C
Lowest rated class of insurance company. Such companies can be regarded as
having extremely poor prospects of ever offering financial security.
Numeric modifiers; Numeric modifiers are used to refer to the ranking
within the group -- one being the highest and three being the lowest. However,
the financial strength of companies within a generic rating symbol (Aa, for
example) is broadly the same.
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. Plus and minus signs,
however, are not used in the AAA category covering 12-36 months.
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the existence
of liquidity necessary to meet the issuer's obligations in a timely manner.
F-1+
EXCEPTIONALLY STRONG CREDIT QUALITY. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
VERY STRONG CREDIT QUALITY. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2
GOOD CREDIT QUALITY. Issues carrying this rating have a satisfactory degree
of assurance for timely payments, but the margin of safety is not as great as
the F-1+ and F-1 categories.
F-3
FAIR CREDIT QUALITY. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate; however,
near-term adverse changes could cause these securities to be rated below
investment grade.
F-S
WEAK CREDIT QUALITY. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D
DEFAULT. Issues assigned this rating are in actual or imminent payment
default.
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. There may be considerable
variability in risk for bonds in this category 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 RATINGS
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. Paper rated Duff-2 is regarded as having good certainty
of timely payment, good access to capital markets and sound liquidity factors
and company fundamentals. Risk factors are small. Paper rated Duff 3 is regarded
as having satisfactory liquidity and other protection factors. Risk factors are
larger and subject to more variation. Nevertheless, timely payment is expected.
Paper rated Duff 4 is regarded as having speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation. Paper rated Duff 5 is in default. The issuer has failed to meet
scheduled principal and/or interest payments.
CLAIMS PAYING ABILITY RATINGS
AAA
Highest claims paying ability. Risk factors are negligible.
AA
Very high claims paying ability. Protection Factors are st4rong. Risk is
modest, but may vary slightly over time due to economic and/or underwriting
conditions.
A
High claims paying ability. Protection factors are average and there is an
expectation of variability in risk over time due to economic and/or underwriting
conditions.
BBB
Adequate claims paying ability. Protection factors are adequate. There is
considerable variability in risk over time due to economic and/or underwriting
conditions.
BB
Uncertain claims paying ability and less than investment grade quality.
However, the company is deemed likely to meet these obligations when due.
Protection factors will vary widely with changes in economic and/or underwriting
conditions.
B
Possessing risk that policyholder and contractholder obligations will not
be paid when due. Protection factors will vary widely with changes in economic
and underwriting conditions or company fortunes.
CCC
There is substantial risk that policyholder and contractholder obligations
will not be paid when due. Company has been or is likely to be placed under
state insurance department supervision.
DD
Company is under an order of liquidation.
<PAGE>
FINANCIAL STATEMENT AND REPORT OF INDEPENDENT AUDITORS
STATEMENT OF ASSETS AND LIABILITIES
________, 1998
<TABLE>
<CAPTION>
CLASS P CLASS S CLASS Q
ASSETS
<S> <C> <C> <C>
Cash $ $ $
Total Assets
LIABILITIES
Accrued organization
expenses $ $ $
NET ASSETS applicable to
the
shares of beneficial
interest ($.001 par value)
issued and outstanding
(unlimited number of
shares authorized) $ $ $
SHARES OUTSTANDING
NET ASSET VALUE PER SHARE $ $ $
</TABLE>
NOTE - Dreyfus STABLE VALUE Mutual Fund (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 _______ shares
of beneficial interest each of Class P, Class S and Class Q, respectively, to
Premier Mutual Fund Services, Inc. ("Initial Shares").
Pursuant to a management agreement with The Dreyfus Corporation, the
management fee is computed at the annual rate of .35 of 1% of the value of the
average daily net assets of the Fund and is payable monthly.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
[TO BE PROVIDED]
