DREYFUS NEW LEADERS FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
REVISED JUNE 15, 1999
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Dreyfus New Leaders Fund, Inc. (the "Fund"), dated May 1, 1999, 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 one of 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
The Fund's most recent Annual Report and Semi-Annual Report to
Shareholders are separate documents supplied with this Statement of
Additional Information, and the financial statements, accompanying notes and
report of independent auditors appearing in the Annual Report are
incorporated by reference in this Statement of Additional Information.
TABLE OF CONTENTS
Page
Description of the Fund.......................................2
Management of the Fund........................................12
Management Arrangements.......................................17
How to Buy Shares.............................................20
Shareholder Services Plan.....................................22
How to Redeem Shares..........................................23
Shareholder Services..........................................25
Determination of Net Asset Value..............................28
Dividends, Distributions and Taxes............................29
Portfolio Transactions........................................31
Performance Information.......................................32
Information About the Fund....................................33
Counsel and Independent Auditors..............................34
DESCRIPTION OF THE FUND
The Fund is a Maryland corporation that commenced operations on January
29, 1985. The Fund is an open-end management investment company, known as a
mutual fund. The Fund is a diversified fund, which 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.
Certain Portfolio Securities
The following information supplements and should be read in conjunction
with the Fund's Prospectus.
Convertible Securities. Convertible securities may be converted at
either a stated price or stated rate into underlying shares of common stock.
Convertible securities have characteristics similar to both fixed-income and
equity securities. Convertible securities generally are subordinated to
other similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority in right
of payment to all equity securities, and convertible preferred stock is
senior to common stock, of the same issuer. Because of the subordination
feature, however, convertible securities typically have lower ratings than
similar non-convertible securities.
Although to a lesser extent than with fixed-income securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion feature, the market value of convertible
securities tends to vary with fluctuations in the market value of the
underlying common stock. A unique feature of convertible securities is that
as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and so may not
experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the
prices of the convertible securities tend to rise as a reflection of the
value of the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less
risk than investments in common stock of the same issuer.
Convertible securities are investments that provide for a stable stream
of income with generally higher yields than common stocks. There can be no
assurance of current income because the issuers of the convertible
securities may default on their obligations. A convertible security, in
addition to providing fixed income, offers the potential for capital
appreciation through the conversion feature, which enables the holder to
benefit from increases in the market price of the underlying common stock.
There can be no assurance of capital appreciation, however, because
securities prices fluctuate. Convertible securities, however, generally
offer lower interest or dividend yields than non-convertible securities of
similar quality because of the potential for capital appreciation.
Foreign Equity Securities; Foreign Government Obligations; Securities
Of Supranational Entities. The Fund may invest up to 25% of its assets in
the equity securities of foreign companies. The Fund also may invest in
obligations issued or guaranteed by one or more foreign governments or any
of their political subdivisions, agencies or instrumentalities that are
determined by 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 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
the Fund desire to sell them when a ready buyer is not available at a price
the Fund deems representative of their value, the value of the Fund's net
assets could be adversely affected.
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. When the Manager determines that adverse
market conditions exist, the Fund may adopt a temporary defensive position
and invest some or all of its assets in money market instruments, including
U.S. Government securities, repurchase agreements, bank obligations and
commercial paper.
Investment Techniques
The following information supplements and should be read in conjunction
with the Fund's Prospectus.
Foreign Currency Transactions. The Fund may enter into foreign
currency transactions for a variety of purposes, including: to fix in U.S.
dollars, between trade and settlement date, the value of a security the Fund
has agreed to buy or sell; or to hedge the U.S. dollar value of securities
the Fund already owns, particularly if it expects a decrease in the value of
the currency in which the foreign security is denominated.
Foreign currency transactions may involve, for example, the Fund's
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Fund agreeing to
exchange an amount of a currency it did not currently own for another
currency at a future date in anticipation of a decline in the value of the
currency sold relative to the currency the Fund contracted to receive in the
exchange. The Fund's success in these transactions will depend principally
on the Manager's ability to predict accurately the future exchange rates
between foreign currencies and the U.S. dollar.
Currency exchange rates may fluctuate significantly over short periods
of time. They generally are determined by the forces of supply and demand
in the foreign exchange markets and the relative merits of investments in
different countries, actual or perceived changes in interest rates and other
complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by intervention by U.S. or
foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the United States or abroad.
Borrowing Money. The Fund is permitted to borrow to the extent
permitted under the Investment Company Act of 1940, as amended (the "1940
Act"), which permits an investment company to borrow in an amount up to 33-
1/3% of the value of its total assets. The Fund currently intends to borrow
money only for temporary or emergency (not leveraging) purposes, in an
amount up to 15% of the value of its total assets (including the amount
borrowed) valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of the Fund's total assets, the Fund will not make any
additional investments.
Short-Selling. In these transactions, the Fund sells a security it
does not own in anticipation of a decline in the market value of the
security. To complete the transaction, the Fund must borrow the security to
make delivery to the buyer. The Fund is obligated to replace the security
borrowed by purchasing it subsequently at the market price at the time of
replacement. The price at such time may be more or less than the price at
which the security was sold by the Fund, which would result in a loss or
gain, respectively.
Securities will not be sold short if, after effect is given to any such
short sale, the total market value of all securities sold short would exceed
25% of the value of the Fund's net assets. The Fund may not make a short
sale which results in the Fund having sold short in the aggregate more than
5% of the outstanding securities of any class of an issuer.
The Fund also may make short sales "against the box," in which the Fund
enters into a short sale of a security it owns. At no time will more than
15% of the value of the Fund's net assets be in deposits on short sales
against the box.
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. In connection with such
loans, the Fund continues to be entitled to payments in amounts equal to the
dividends, interest 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 10% 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. In connection with its securities lending
transactions, the Fund may return to the borrower or a third party which is
unaffiliated with the Fund, and which is acting as a "placing broker," a
part of the interest earned from the investment of collateral received for
securities loaned.
Derivatives. The Fund may invest in, or enter into, derivatives, such
as options and futures, for a variety of reasons, including to hedge certain
market risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide a
cheaper, quicker or more specifically focused way for the Fund to invest
than "traditional" securities would.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular derivative and
the portfolio as a whole. Derivatives permit the Fund to increase or
decrease the level of risk, or change the character of the risk, to which
its portfolio is exposed in much the same way as the Fund can increase or
decrease the level of risk, or change the character of the risk, of its
portfolio by 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.
Although the Fund will not be a commodity pool, certain derivatives
subject the Fund to the Commodity Futures Trading Commission which limit the
extent to which the Fund can invest in such derivatives. The Fund may
invest in futures contracts and options with respect thereto for hedging
purposes without limit. However, the Fund may not invest in such contracts
and options for other purposes if the sum of the amount of initial margin
deposits and premiums paid for unexpired options with respect to such
contracts, other than for bona fide hedging purposes, exceeds 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts and options; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
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.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, the Fund may be required to set aside permissible
liquid assets in a segregated account to cover its obligations relating to
its transactions in derivatives. To maintain this required cover, the Fund
may have to sell portfolio securities at disadvantageous prices or times
since it may not be possible to liquidate a derivative position at a
reasonable price. In addition, the segregation of such assets will have the
effect of limiting the Fund's ability otherwise to invest those assets.
Options--In General. The Fund may invest up to 5% of its assets,
represented by the premium paid, in the purchase of call and put options.
The Fund may write (i.e., sell) covered call and put option contracts to the
extent of 20% of the value of its net assets at the time such option
contracts are written. A call option gives the purchaser of the option the
right to buy, and obligates the writer to sell, the underlying security or
securities at the exercise price at any time during the option period, 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 stock indices listed on national securities
exchanges or traded in the over-the-counter market. An option on a stock
index is similar to an option in respect of specific securities, except that
settlement does not occur by delivery of the securities comprising the
index. Instead, the option holder receives an amount of cash if the closing
level of the stock index upon which the option is based is greater than, in
the case of a call, or less than, in the case of a put, the exercise price
of the option. Thus, the effectiveness of purchasing or writing stock index
options will depend upon price movements in the level of the index rather
than the price of a particular stock.
The Fund may purchase and sell call and put options on foreign
currency. These options convey the right to buy or sell the underlying
currency at a price which is expected to be lower or higher than the spot
price of the currency at the time the option is exercised or expires.
Successful use by the Fund of options will be subject to the Manager's
ability to predict correctly movements in the prices of individual stocks or
the stock market generally. To the extent the Manager's predictions are
incorrect, the Fund may incur losses.
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, or on
exchanges located outside the United States, such as the London
International Financial Futures Exchange, the Deutsche Termine Borse and the
Sydney Futures Exchange Limited. Foreign markets may offer advantages such
as trading opportunities or arbitrage possibilities not available in the
United States. Foreign market, however, may have greater risk potential
than domestic markets. For example, some foreign exchanges are principal
markets so that no common clearing facility exists and an investor may look
only to the broker for performance of the contract. In addition, any
profits that the Fund might realize in trading could be eliminated by
adverse changes in the exchange rate, or the Fund could incur losses as a
result of those changes. Transactions on foreign exchanges may include both
commodities which are traded on domestic exchanges and those which are not.
Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss to 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 trade 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 Manager's
ability 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 set aside permissible
liquid assets in a segregated account to cover its obligations relating to
its transactions in derivatives. To maintain this required cover, the Fund
may have to sell portfolio securities at disadvantageous prices or times
since it may not be possible to liquidate a derivative position at a
reasonable price. In addition, the segregation of such assets will have the
effect of limiting the Fund's ability otherwise to invest those assets.
Future Developments--The Fund may take advantage of opportunities in the
area of options 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.
Forward Commitments. The Fund may purchase securities on a forward
commitment or when-issued basis, which means that delivery and payment take
place a number of days after the date of the commitment to purchase. The
payment obligation and the interest rate receivable on a forward commitment
or when-issued security are fixed when the Fund enters into the commitment,
but the Fund does not make payment until it receives delivery from the
counterparty. The Fund will commit to purchase such securities only with
the intention of actually acquiring the securities, but the Fund may sell
these securities before the settlement date if it is deemed advisable. The
Fund will set aside in a segregated account permissible liquid assets at
least equal at all times to the amount of the Fund's purchase commitments.
Securities purchased on a forward commitment or when-issued basis are
subject to changes in value (generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when interest
rates rise) based upon the public's perception of the creditworthiness of
the issuer and changes, real or anticipated, in the level of interest rates.
Securities purchased on a forward commitment or when-issued basis may expose
the Fund to risks because they may experience such fluctuations prior to
their actual delivery. Purchasing securities on a when-issued basis can
involve the additional risk that the yield available in the market when the
delivery takes place actually may be higher than that obtained in the
transaction itself. Purchasing securities on a forward commitment or when-
issued basis when the Fund is fully or almost fully invested may result in
greater potential fluctuation in the value of the Fund's net assets and its
net asset value per share.
Investment Considerations and Risks
Foreign Securities. Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some
foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States.
Because evidences of ownership of foreign securities usually are held
outside the United States, the Fund will be subject to additional risks
which include possible adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental
restrictions which might adversely affect or restrict the payment of
principal, interest and dividends on the foreign securities to investors
located outside the country of the issuer, whether from currency blockage or
otherwise. Moreover, foreign securities held by the Fund may trade on days
when the Fund does not calculate its net asset value and thus affect the
Fund's net asset value on days when investors have no access to the Fund.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
Simultaneous Investments. Investment decisions for the Fund are made
independently from those of the other investment companies advised by the
Manager. If, however, such other investment companies desire to invest in,
or dispose of, the same securities as the Fund, available investment or
opportunities for sales will be allocated equitably to each investment
company. In some cases, this procedure may adversely affect the size of the
position obtained for or disposed of by the Fund or the price paid or
received by the Fund.
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 15 as fundamental
policies. Investment restrictions numbered 16 and 17 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. Purchase the securities of any issuer (other than a bank) if such
purchase would cause more than 5% of the value of its total assets to be
invested in securities of such issuer, or invest more than 15% of its assets
in the obligations of any one bank, 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 such limitations.
2. Purchase the securities of any issuer if such purchase would cause
the Fund to hold more than 10% of the outstanding voting securities of such
issuer. This restriction applies only with respect to 75% of the Fund's
assets.
3. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) if such
purchase would cause the value of the Fund's investments in all such
companies to exceed 5% of the value of its total assets.
4. Purchase securities of closed-end investment companies, except (a)
in the open market where no commission except the ordinary broker's
commission is paid, which purchases are limited to a maximum of (i) 3% of
the total voting stock of any one closed-end investment company, (ii) 5% of
its net assets with respect to any one closed-end investment company and
(iii) 10% of its net assets in the aggregate, or (b) those received as part
of a merger or consolidation. The Fund has no present intention of
investing in securities of closed-end investment companies. The Fund may
not purchase or retain securities issued by open-end investment companies
other than itself.
5. Purchase or retain the securities of any issuer if the officers or
Board members of the Fund or of the Manager who individually own
beneficially more than 1/2 of 1% of the securities of such issuer together
own beneficially more than 5% of the securities of such issuer.
6. Purchase, hold or deal in commodities or commodity contracts or in
real estate, but this shall not prohibit the Fund from investing in
securities of companies engaged in real estate activities or investments.
7. 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).
8. Lend any funds or other assets, except through the purchase of a
portion of an issue of publicly distributed bonds, debentures or other debt
securities, or the purchase of bankers' acceptances and commercial paper of
corporations. However, the Fund may lend its portfolio securities in any
amount not to exceed 10% 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.
9. Act as an underwriter of securities of other issuers.
10. Invest in the securities of a company for the purpose of
exercising management or control, but the Fund will vote the securities it
owns in its portfolio as a shareholder in accordance with its views.
11. Purchase securities on margin, but the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and
sales of securities.
12. Engage in the purchase and sale of put, call, straddle or spread
options or in writing such options, except that the Fund (a) may purchase
put and call options to the extent that the premiums paid by it on all
outstanding options at any one time do not exceed 5% of its total assets and
may enter into closing sale transactions with respect to such options and
(b) may write and sell covered call option contracts on securities owned by
the Fund not exceeding 20% of the value of its net assets at the time such
option contracts are written. The Fund also may purchase call options
without regard to the 5% limitation set forth above to enter into closing
purchase transactions. In connection with the writing of covered call
options, the Fund may pledge assets to an extent not greater than 20% of the
value of its total assets at the time such options are written.
13. Invest more than 25% of its assets in investments in any
particular industry or industries, provided that, when the Fund has adopted
a temporary defensive posture, there shall be no limitation on the purchase
of obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, bankers' acceptances of domestic issuers, time deposits
and certificates of deposit.
14. Purchase warrants in excess of 2% of net assets. For purposes of
this restriction, such warrants shall be valued at the lower of cost or
market, except that warrants acquired by the Fund in units or attached to
securities shall not be included within this 2% restriction.
15. Invest in interests in oil, gas or mineral exploration or
development programs.
16. Pledge, mortgage, hypothecate or otherwise encumber 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 and forward contracts, including
those relating to indices, and options on indices.
17. 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.
While not a fundamental policy, the Fund will not invest in oil, gas,
and other mineral leases, or real estate limited partnerships.
If a percentage restriction is adhered to at the time an investment is
made, a later increase 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 is a
director of Noel Group, Inc., a venture capital company (for which,
from February 1995 until November 1997, he was Chairman of the Board),
The Muscular Dystrophy Association, 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 package and distributor,
Century Business Services, Inc., a provider of various outsourcing
functions for small and medium sized companies, and Career Blazers Inc.
(formerly, Staffing Resources, Inc.), a temporary placement agency.
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 and, until August
24, 1994, the Fund's distributor. From August 1994 to 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.
DAVID W. BURKE, Board Member. Board member of various funds in the Dreyfus
Family of Funds. Chairman of the Broadcasting Board of Governors, an
independent board within the United States Information Agency, from
August 1995 to November 1998. From August 1994 to December 31, 1994,
Mr. Burke was a Consultant to the Manager, and from October 1990 to
August 1994, he was Vice President and Chief Administrative Officer of
the Manager. From 1977 to 1990, Mr. Burke was involved in the
management of national television news, as Vice President and Executive
Vice President of ABC News, and subsequently as President of CBS News.
He is 63 years old and his address is197 Eighth Street, Charleston,
Massachusetts 02109.
HODDING CARTER, III, Board Member. Since February 1998, President and the
Chairman of the John S. and James L. Knight Foundation. From 1985 to
1998, he was President and Chairman of MainStreet TV. From 1995 to
1998, he was Knight Professor of Public Affairs Journalism at the
University of Maryland. From 1980 to 1991, he was "OpEd" Columnist for
the Wall Street Journal and from 1984 to 1986 he was Correspondent of
"Capital Journal," a weekly Public Broadcasting System ("PBS") series
on Congress. From 1981 to 1984, he was anchorman and chief
correspondent of PBS' "Inside Story," a regular scheduled half-hour
critique of press performance. From 1977 to July 1, 1980, Mr. Carter
served as Assistant Secretary of State for Public Affairs and as
Department of State spokesman. He is 64 years old and his address is
Knight Foundation, 2 South Biscayne Boulevard, Suite 3800, Miami, FL
33131.
EHUD HOUMINER, Board Member. Professor and Executive-in-Residence at the
Columbia Business School, Columbia University. Since January 1996,
Principal of Lear, Yavitz and Associates, a management consultant firm.
He also is a Director of Avnet Inc. and Super-Sol, Inc. He is 58 years
old and his address is c/o Columbia Business School, Columbia
University, Uris Hall, Room 526, New York, New York 10027.
RICHARD C. LEONE, Board Member. President of The Century Foundation,
formerly The Twentieth Century Fund, Inc., a tax-exempt research
foundation engaged in the study of economic, foreign policy and
domestic issues. From April 1990 to March 1994, he was Chairman and,
from April 1998 to March 1994, a Commissioner of The Port Authority of
New York and New Jersey. A member in 1985, and from January 1986 to
January 1989, Managing Director of Dillon, Read & Co., Inc. Mr. Leone
is also a director of Dynex, Inc. He is 59 years old and his address
is 41 East 70th Street, New York, New York 10021.
HANS C. MAUTNER, Board Member. Vice Chairman and a Director of Simon
Property, Inc., a real estate investment company, and a Trustee of
Cornerstone Properties. From 1977 to 1998, Chairman and Chief
Executive Officer of Corporate Property Investors, which merged into
Simon Property Group in September 1998. Since January 1986, a Director
of Julius Baer Investment Management, Inc., a wholly-owned subsidiary
of Julius Baer Securities, Inc. He is 60 years old and his address is
305 East 47th Street, New York, New York 10017.
ROBIN A. PRINGLE, Board Member. Vice President of The National Mentoring
Partnership and President of The Boisi Family Foundation, a private
family foundation devoted to youths and higher education located in New
York City. Since 1993, Vice President, and from March 1992 to October
1993, Executive Director, of One to One Partnership, Inc., a national
non-profit organization that seeks to promote mentoring and economic
empowerment for at-risk youths. From June 1986 to February 1992, she
was an investment banker with Goldman, Sachs & Co. She is 35 years old
and her address is 621 South Plymouth Court, Chicago, Illinois 60605.
JOHN E. ZUCCOTTI, Board Member. Since November 1996, Chairman of Brookfield
Financial Properties, Inc. From 1990 to November 1996, he was the
President and Chief Officer of Olympia & York Companies (U.S.A.) and a
member of its Board of Directors since the inception of a Board in
November, 1996. From 1986, a partner in the law firm of Tufo &
Zuccotti. He was first Deputy Mayor of the City New York from December
1975 to June 1977, and Chairman of the City Planning Commission for the
City of New York from 1973 to 1975.
Mr. Zuccotti has been a director or trustee of many boards, both
corporate and not-for-profit. He has recently been named Vice-Chairman
of Brookfield Properties Corporation headquartered in Toronto, Canada
(parent company of Brookfield Financial Properites). Mr. Zuccotti is
serving as a director of Applied Graphics Technologies, Inc. He is 61
years old and his address is 1 Liberty Plaza, 6th Floor, New York, New
York 10006.
.
The Fund typically pays its Board members an annual retainer and a per
meeting fee and reimburses them for their expenses. The Chairman of the
Board receives an additional 25% of such compensation. Emeritus Board
members are entitled to receive an annual retainer and a per meeting fee of
one-half the amount paid to them as Board members. The aggregate amount of
compensation paid to each Board member by the Fund and by all funds in The
Dreyfus Family of Funds for which such person was a Board member (the number
of which is set forth in parenthesis next to each Board member's total
compensation)* during the year ended December 31, 1998, is as follows:
Total Compensation from
Aggregate Fund and Fund
Name of Board Compensation from Complex Paid to
Member Fund** Board Member
Joseph S. DiMartino $7,500 $ 619,660 (187)
David W. Burke $6,000 $ 233,500 (62)
Hodding Carter, III $4,500 $ 32,500 (7)
Ehud Houminer $6,000 $ 62,250 (21)
Richard C. Leone $5,500 $ 35,500 (7)
Hans C. Mautner $4,500 $ 29,500 (7)
Robin A. Pringle $5,500 $ 38,500 (7)
John E. Zuccotti $5,000 $ 32,500 (7)
_________________
* Represents the number of separate portfolios comprising the investment
companies in the Fund complex, including the Fund, for which the Board
member serves.
** Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $1,876 for all Board members as a group.
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 41 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.
JOHN P. COVINO, Vice President and Assistant Treasurer. Vice President and
Treasury Group Manager of Treasury Servicing and Administration of
Funds Distributor, Inc., and an officer of other investment companies
advised or administered by the Manager. From December 1995 to November
1998, he was employed by Fidelity Investments where he held several
positions in its Institutional Brokerage Group. Prior to joining
Fidelity, he was employed by SunGard Brokerage systems where he was
responsible for the technology and development of the accounting
product group. He is 35 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 and Manager of Client Services and Director of Internal Audit
at The Boston Company, Inc. He is 43 years old.
JOSEPH F. TOWER, III, Vice President and Assistant Treasurer. Senior Vice
President, Treasurer, Chief Financial Officer and a director of the
Distributor and Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From July
1988 to August 1994, he was employed by The Boston Company, Inc. where
he held various management positions in the Corporate Finance and
Treasury areas. He is 36 years old.
FREDERICK C. DEY, Vice President, Assistant Treasurer, and Assistant
Secretary. Vice President of New Business Development for Funds
Distributor, Inc., and an officer of other investment companies advised
or administered by the Manager. He is 37 years old.
STEPHANIE D. PIERCE, Vice President, Assistant Secretary and Assistant
Treasurer. Vice President and Client Development Manager of Funds
Distributor, Inc., and an officer of other investment companies advised
or administered by the Manager. From April 1997 to March 1998, she was
employed as a Relationship Manager with Citibank, N.A. From August
1995 to April 1997, she was an Assistant Vice President with Hudson
Valley Bank, and from September 1990 to August 1995, she was Second
Vice President with Chase Manhattan Bank. She is 30 years old.
DOUGLAS C. CONROY, Vice President and Assistant Secretary. Assistant Vice
President of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
April 1993 to January 1995, he was a Senior Fund Accountant for
Investors Bank & Trust Company. He is 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. 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 26 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 37
years old.
KAREN JACOPPO-WOOD, Vice President and Assistant Secretary. Vice President
and Senior Counsel of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From June
1994 to January 1996, she was Manager of SEC Registration at Scudder,
Stevens & Clark, Inc. She is 32 years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166, except those officers indicated by an (*), whose address is
60 State Street, Boston, Massachusetts 02109.
The Fund's Board members and officers, as a group, owned less than 1%
of the Fund's outstanding voting securities outstanding on April 7, 1999.
The following entities are known by the Fund to own 5% or more of the
Fund's outstanding voting securities as of April 7, 1999: Boston Safe
Deposit Trust Co., 1 Cabot Road, Medford, Massachusetts 02155-5191, was the
record owner of 17.0466% of the Fund's shares; and Charles Schwab & Co.
Inc., 101 Montgomery Street, San Francisco, California 94104-4122 was the
record owner of 5.96% of the Fund's shares.
MANAGEMENT ARRANGEMENTS
Investment Adviser. The Manager is a wholly-owned subsidiary of Mellon
Bank, N.A., which 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 August 24, 1994 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 shareholders on August 4, 1994, and was last
approved by the Fund's Board, including a majority of the Board members who
are not "interested persons" of any party to the Agreement, at a meeting
held on October 26, 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:
Christopher M. Condron, Chairman of the Board and Chief Executive Officer;
Stephen E. Canter, President, Chief Operating Officer, Chief Investment
Officer and a director; Thomas F. Eggers, Vice Chairman-Institutional and a
director; Lawrence S. Kash, Vice Chairman and a director; Ronald P.
O'Hanley III, Vice Chairman; J. David Officer, Vice Chairman and a director;
William T. Sandalls, Jr., Executive Vice President; Mark N. Jacobs, Vice
President, General Counsel and Secretary; Diane P. Durnin, Vice President-
Product Development; Patrice M. Kozlowski, Vice President-Corporate
Communications; Mary Beth Leibig, Vice President-Human Resources; Andrew S.
Wasser, Vice President-Information Systems; Theodore A. Schachar, Vice
President; Wendy Strutt, Vice President; Richard Terres, Vice President;
William H. Maresca, Controller; James Bitetto, Assistant Secretary; Steven
F. Newman, Assistant Secretary; and Mandell L. Berman, Burton C. Borgelt,
Steven G. Elliot, Martin C. McGuinn, Richard W. Sabo 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 Paul
Kandel, Elaine Rees and Hilary R. Woods. 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 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. The Manager also may make such advertising and
promotional expenditures using its own resources, as it from time to time
deems appropriate.
Under Dreyfus' personal securities trading policy (the "Policy"),
Dreyfus employees must preclear personal transactions in securities not
exempt under the Policy. In addition, Dreyfus employees must report their
personal securities transactions and holdings, which are reviewed for
compliance with the Policy. In that regard, Dreyfus portfolio managers and
other investment personnel also are subject to the oversight of Mellon's
Investment Ethics Committee. Dreyfus portfolio managers and other
investment personnel who comply with the Policy's preclearance and
disclosure procedures, and the requirements of the Committee, may be
permitted to purchase, sell or hold securities which also may be or are held
in fund(s) they manage or for which they otherwise provide investment
advice.
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
corporate 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, Fund shares are subject to an
annual service fee. See "Shareholder Services Plan."
As compensation for the Manager's services, the Fund pays the Manager a
monthly management fee at the annual rate of .75% of the value of the Fund's
average daily net assets. For the fiscal years ended December 31, 1996,
1997 and 1998, the management fees paid by the Fund to the Manager amounted
to $5,339,903, $6,000,885 and $5,968,082, respectively.
The Manager has agreed that if in any fiscal year the aggregate
expenses of the Fund, exclusive of taxes, brokerage fees, interest on
borrowings and (with the prior written consent of the necessary state
securities commissions) extraordinary expenses, but including the management
fee, exceed 1-1/2% the average value of the Fund's net assets for the fiscal
year, the Fund may deduct from the payment to be made to the Manager under
the Agreement, or the Manager will bear, such excess expense. Such
deduction or payment, if any, will be estimated daily, reconciled and
effected or paid, as the case may be, on a monthly basis.
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. The Distributor, 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.
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 "Custodian"), One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258, is the Fund's 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
General. Fund shares are sold without a sales charge. You may be
charged a fee if you effect transactions in Fund shares through a securities
dealer, bank or other financial institution (collectively, "Service
Agents"). Stock certificates are issued only upon your written request. No
certificates are issued for fractional shares. The Fund reserves the right
to reject any purchase order.
The minimum initial investment is $2,500, or $1,000 if you are a client
of a Service Agent which maintains an omnibus account in the Fund and has
made an aggregate minimum initial purchase for its customers of $2,500.
Subsequent investments must be at least $100. However, the minimum initial
investment is $750 for Dreyfus-sponsored Keogh Plans, IRAs (including
regular IRAs, spousal IRAs for a non-working spouse, Roth IRAs, IRAs set up
under a Simplified Employee Pension Plan ("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. The initial
investment must be accompanied by the Account Application. For full-time or
part-time employees of the Manager or any of its affiliates or subsidiaries,
directors of the Manager, Board members of a Fund advised by the Manager,
including members of the Fund's Board, or the spouse or minor child of any
of the foregoing, the minimum initial investment is $1,000. For full-time
or part-time employees of the Manager or any of its affiliates or
subsidiaries who elect to have a portion of their pay directly deposited
into their Fund account, the minimum initial investment is $50. The Fund
reserves the right to offer Fund shares without regard to minimum purchase
requirements to employees participating in certain qualified and non-
qualified employee benefit plans or other programs where contributions or
account information can be transmitted in a manner and form acceptable to
the Fund. The Fund reserves the right to vary further the initial and
subsequent investment minimum requirements at any time.
Fund shares are offered without regard to the minimum initial
investment requirements through Dreyfus-Automatic Asset Builderr, Dreyfus
Government Direct Deposit Privilege or Dreyfus Payroll Savings Plan pursuant
to the Dreyfus Step Program described under "Shareholder Services." These
services enable you to make regularly scheduled investments and may provide
you with a convenient way to invest for long-term financial goals. You
should be aware, however, that periodic investment plans do not guarantee a
profit and will not protect an investor against loss in a declining market.
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.
Net asset value per share is determined as of the close of trading on the
floor of the New York Stock Exchange (currently 4:00 p.m., New York time),
on each day the New York Stock Exchange is open for business. Net asset
value per share is computed by dividing the value of the Fund's net assets
(i.e., the value of its assets less liabilities) by the total number of
shares outstanding. The Fund's investments are valued based on market
value, or where market quotations are not yet readily available, based on
fair value as determined in good faith by the Fund's Board. For further
information regarding the methods employed in valuing Fund investments, see
"Determination of Net Asset Value."
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.
The Distributor generally may pay dealers a fee up to 1% of the amount
invested through such dealers in Fund shares by employees participating in
qualified or non-qualified employee benefit plans or other programs where
(i) the employers or affiliated employers maintaining such plans or programs
have a minimum of 250 employees eligible for participation in such plans or
programs, or (ii) such plan's or program's aggregate investment in the
Dreyfus Family or Funds or certain other products made available by the
Distributor to such plan or programs exceeds $1,000,000 ("Eligible Benefit
Plans"). Shares of funds in the Dreyfus Family of Funds then held by
Eligible Benefit Plans will be aggregated to determine the fee payable. The
Distributor may pay dealers a higher fee and reserves the right to stop
paying these fees at any time. The Distributor will pay such fees from its
own funds, other than amounts received from the Fund, including past profits
or any other source available to it.
Dreyfus TeleTransfer Privilege. You may purchase Fund shares by
telephone if you have checked the appropriate box and supplied the necessary
information on the Account Application or have filed a Shareholder Services
Form with the Transfer Agent. The proceeds will be transferred between the
bank account designated in one of these documents and your Fund account.
Only a bank account maintained in a domestic financial institution which is
an Automated Clearing House ("ACH") member may be so designated.
Dreyfus TeleTransfer purchase orders may be made at any time. Purchase
orders received by 4:00 p.m., New York time, on any business day that the
Transfer Agent and the New York Stock Exchange are open for business will be
credited to your Fund account on the next bank business day following such
purchase order. Purchase orders made after 4:00 p.m., New York time, on any
business day the Transfer Agent and the New York Stock Exchange are open for
business, or orders made on Saturday, Sunday or any Fund holiday (e.g., when
the New York Stock Exchange is not open for business), will be credited to
your Fund account on the second bank business day following such purchase
order. To qualify to use the Dreyfus TeleTransfer Privilege, the initial
payment for purchase of shares must be drawn on, and redemption proceeds
paid to, the same bank and account as are designated on the Account
Application or Shareholder Services Form on file. If the proceeds of a
particular redemption are to be wired to an account at any other bank, the
request must be in writing and signature-guaranteed. See "How to Redeem
Shares--Dreyfus TeleTransfer Privilege."
Reopening an Account. You may reopen an account with a minimum
investment of $100 without filing a new Account Application during the
calendar year in which the account is closed or during the following
calendar year, provided the information on the old Account Application is
still applicable.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan, pursuant to which the
Fund pays the Distributor for the provision of certain services to Fund
shareholders a fee at the annual rate of .25% of the value of the Fund's
average daily net assets. The services provided may include personal
services relating to shareholder accounts, such as answering shareholder
inquiries regarding the Fund and providing reports and other information,
and services related to the maintenance of such shareholder accounts. Under
the Shareholder Services Plan, the Distributor may make payments to Service
Agents in respect of these services.
A quarterly report of the amounts expended under the Shareholder
Services Plan, and the purposes for which such expenditures were incurred,
must be made to the Fund's Board members for their review. In addition, the
Shareholder Services Plan provides that material amendments 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 Shareholder Services
Plan or in any agreements entered into in connection with the Shareholder
Services Plan, by vote cast in person at a meeting called for the purpose of
considering such amendments. The Shareholder Services Plan is subject to
annual approval by such vote of the Board members cast in person at a
meeting called for the purpose of voting on the Shareholder Services Plan.
The Shareholder Services Plan was last so approved on
July 30, 1998. The Shareholder Services Plan is terminable 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
Shareholder Services Plan or in any agreements entered into in connection
with the Shareholder Services Plan.
For the fiscal year ended December 31, 1998, the Fund paid $1,989,361
pursuant to the Shareholder Services Plan.
HOW TO REDEEM SHARES
Redemption Fee. The Fund will deduct a redemption fee equal to 1% of
the net asset value of Fund shares redeemed (including redemptions through
the use of the Fund Exchanges service) less than six months following the
issuance of such shares. The redemption fee will be deducted from the
redemption proceeds and retained by the Fund. For the fiscal year ended
December 31, 1998, the Fund retained $143,546 in redemption fees.
No redemption fee will be charged on the redemption or exchange of
shares (1) through the Fund's Automatic Withdrawal Plan or Dreyfus Auto-
Exchange Privilege, (2) through accounts that are reflected on the records
of the Transfer Agent as omnibus accounts approved by Dreyfus Service
Corporation, (3) through accounts established by Service Agents approved by
Dreyfus Service Corporation that utilize the National Securities Clearing
Corporation's networking system, or (4) acquired through the reinvestment of
dividends or capital gain distributions. The redemption fee may be waived,
modified or terminated at any time.
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 the investor. 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."
Dreyfus TeleTransfer Privilege. You may request by telephone that
redemption proceeds be transferred between your Fund account and your bank
account. Only a bank account maintained in a domestic financial institution
which is an ACH member may be designated. Holders of jointly registered
Fund or bank accounts may redeem through the Dreyfus TeleTransfer Privilege
for transfer to their bank account not more than $250,000 within any 30-day
period. You should be aware that if you have selected the Dreyfus
TeleTransfer Privilege, any request for a wire redemption will be effected
as a Dreyfus TeleTransfer transaction through the ACH system unless more
prompt transmittal specifically is requested. Redemption proceeds will be
on deposit in your account at an ACH member bank ordinarily two business
days after receipt of the redemption request. See "How to Buy
Shares--Dreyfus TeleTransfer Privilege."
Stock Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request.
Written redemption requests must be signed by each shareholder, including
each 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
Commission and is a fundamental policy of the Fund which may not be changed
without shareholder approval. 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 in case of an
emergency or any time a cash distribution would impair the liquidity of the
Fund to the detriment of the existing shareholders. In such event, the
securities would be valued in the same manner as the Fund's portfolio is
valued. If the recipient sold such securities, brokerage charges would be
incurred.
Suspension of Redemptions. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b)
when trading in the markets the Fund ordinarily utilizes is restricted, or
when an emergency exists as determined by the Securities and Exchange
Commission so that disposal of the Fund's investments or determination of
its net asset value is not reasonably practicable, or (c) for such other
periods as the Securities and Exchange Commission by order may permit to
protect the Fund's shareholders.
SHAREHOLDER SERVICES
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. The Fund
will deduct a redemption fee equal to 1% of the net asset value of Fund
shares exchanged where the exchange occurs less than six months following
the issuance of such shares. 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
Touchr 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. No fees currently
are charged shareholders directly in connection with exchanges, although the
Fund reserves the right, upon not less than 60 days' written notice, to
charge shareholders a nominal administrative fee in accordance with rules
promulgated by the Securities and Exchange Commission.
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.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege
permits you to purchase, in exchange for shares of the Fund, shares of
another fund in the Dreyfus Family of Funds of which you are a shareholder.
This Privilege is available only for existing accounts. Shares will be
exchanged on the basis of relative net asset value as described above under
"Fund Exchanges." Enrollment in or modification or cancellation of this
Privilege is effective three business days following notification by the
investor. You will be notified if your account falls below the amount
designated to be exchanged under this Privilege. In this case, your account
will fall to zero unless additional investments are made in excess of the
designated amount prior to the next Auto-Exchange transaction. Shares held
under IRA and other retirement plans are eligible for this Privilege.
Exchanges of IRA shares may be made between IRA accounts and from regular
accounts to IRA accounts, but not from IRA accounts to regular accounts.
With respect to all other retirement accounts, exchanges may be made only
among those accounts.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Fund reserves the right to reject
any exchange request in whole or in part. Shares may be exchanged only
between accounts having identical names and other identifying designations.
The Fund Exchanges service or the Dreyfus Auto-Exchange Privilege may be
modified or terminated at any time upon notice to shareholders.
Dreyfus-Automatic Asset Builderr. Dreyfus-Automatic Asset Builder
permits you to purchase Fund shares (minimum of $100 and maximum of $150,000
per transaction) at regular intervals selected by you. Fund shares are
purchased by transferring funds from the bank account designated by you.
Dreyfus Government Direct Deposit Privilege. Dreyfus Government Direct
Deposit Privilege enables you to purchase Fund shares (minimum of $100 and
maximum of $50,000 per transaction) by having Federal salary, Social
Security, or certain veterans', military or other payments from the U.S.
Government automatically deposited into your fund account. You may deposit
as much of such payments as you elect.
Dreyfus Payroll Savings Plan. Dreyfus Payroll Savings Plan permits you
to purchase Fund shares (minimum of $100 per transaction) automatically on a
regular basis. Depending upon your employer's direct deposit program, you
may have part or all of your paycheck transferred to your existing Dreyfus
account electronically through the ACH system at each pay period. To
establish a Dreyfus Payroll Savings Plan account, you must file an
authorization form with your employer's payroll department. It is the sole
responsibility of your employer, not the Distributor, the Manager, the Fund,
the Transfer Agent or any other person, to arrange for transactions under
the Dreyfus Payroll Savings Plan.
Dreyfus Step Program. The Dreyfus Step Program enables you to purchase
Fund shares without regard to the Fund's minimum initial investment
requirements through Dreyfus-Automatic Asset Builderr, Dreyfus Government
Direct Deposit Privilege or Dreyfus Payroll Savings Plan. To establish a
Dreyfus Step Program account, you must supply the necessary information on
the Account Application and file the required authorization form(s) with the
Transfer Agent. For more information concerning this Program, or to request
the necessary authorization form(s), please call toll free 1-800-782-6620.
You may terminate your participation in this Program at any time by
discontinuing your participation in Dreyfus-Automatic Asset Builder, Dreyfus
Government Direct Deposit Privilege or Dreyfus Payroll Savings Plan, as the
case may be, as provided under the terms of such Privilege(s). The Fund may
modify or terminate this Program at any time. Investors who wish to
purchase Fund shares through the Dreyfus Step Program in conjunction with a
Dreyfus-sponsored retirement plan may do so only for IRAs, SEP-IRAs and
rollover IRAs.
Dreyfus Dividend Options. Dreyfus Dividend Sweep allows you to invest
automatically your dividends or dividends and capital gain distributions, if
any, from the Fund in shares of another fund in the Dreyfus Family of Funds
of which you are a shareholder. Shares of other funds purchased pursuant to
this privilege will be purchased on the basis of relative net asset value
per share as follows:
A. Dividends and distributions paid by a fund may be invested without
imposition of a sales load in shares of other funds that are offered without
a sales load.
B. Dividends and distributions paid by a fund which does not charge a
sales load may be invested in shares of other funds sold with a sales load,
and the applicable sales load will be deducted.
C. Dividends and distributions paid by a fund that charges a sales
load may be invested in shares of other funds sold with a sales load
(referred to herein as "Offered Shares"), provided that, if the sales load
applicable to the Offered Shares exceeds the maximum sales load charged by
the fund from which dividends or distributions are being swept, without
giving effect to any reduced loads, the difference will be deducted.
D. Dividends and distributions paid by a fund may be invested in
shares of other funds that impose a contingent deferred sales charge
("CDSC") and the applicable CDSC, if any, will be imposed upon redemption of
such shares.
Dreyfus Dividend ACH permits you to transfer electronically dividends
or dividends and capital gain distributions, if any, from the Fund to a
designated bank account. Only an account maintained at a domestic financial
institution which is an ACH member may be so designated. Banks may charge a
fee for this service.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits you
to request withdrawal of a specified dollar amount (minimum of $50) on
either a monthly or quarterly basis if you have a $5,000 minimum account.
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.
The 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.
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, SEP-IRAs, Education
IRAs and rollover IRAs and 403(b)(7) Plans. Plan support services are also
available.
If you wish to purchase Fund shares in conjunction with a Keogh Plan, a
403(b)(7) Plan or an IRA, including a SEP-IRA, you 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.
You 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. Portfolio securities, including
covered call options written, are valued at the last sale price on the
securities exchange or national securities market on which such securities
primarily are traded. Securities not listed on an exchange or national
securities market, or securities in which there were no transactions, are
valued at the average of the most recent bid and asked prices. Bid price is
used when no asked price is available. Short-term investments are carried
at amortized cost, which approximates value. Market quotations for foreign
securities in foreign currencies are translated into U.S. dollars at the
prevailing rates of exchange. Any securities or other assets for which
recent market quotations are not readily available are valued at fair value
as determined in good faith by the Fund's Board. Expenses and fees,
including the management fee and fees under the Shareholder Services Plan,
are accrued daily and taken into account for the purpose of determining the
net asset value of Fund shares.
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
Management believes that the Fund qualified for the fiscal year ended
December 31, 1998 as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). The Fund intends to continue
to so qualify as long as such qualification is in the best interests of its
shareholders. Such qualification relieves the Fund of any liability for
Federal income tax to the extent the Fund's net investment income and net
realized securities 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.
If the Fund did not qualify as a regulated investment company, it would be
treated for tax purposes as an ordinary corporation subject to Federal
income tax. The term "regulated investment company" does not imply the
supervision of management or investment practices or policies by any
government agency.
If you elect to receive dividends and distributions in cash, and your
dividend and distribution check is returned to the Fund as undeliverable or
remains uncashed for six months, the Fund reserves the right to reinvest
such dividend or distribution and all future dividends and distributions
payable to you in additional Fund shares at net asset value. No interest
will accrue on amounts represented by uncashed distribution or redemption
checks.
Any dividend or distribution paid shortly after your purchase may have
the effect of reducing the aggregate net asset value of your shares below
the cost of the investment. Such a dividend or distribution would be a
return on investment in an economic sense, although taxable as stated under
"Distributions and Taxes" 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.
Depending upon the composition of the Fund's income, the entire amount
or a portion of the dividends paid by the Fund from net investment income
may qualify for the dividends received deduction allowable to certain U.S.
corporate shareholders ("dividends received deduction"). In general,
dividend income from the Fund distributed to qualifying corporate
shareholders will be eligible for the dividends received deduction to the
extent that the Fund's income consists of dividends paid by U.S.
corporations. However, Section 246(c) of the Code provides that if a
qualifying corporate shareholder has disposed of Fund shares held for less
than 46 days, which 46 days generally must be during the 90 day period
commencing 45 days before the shares become ex-dividend, and has received a
dividend from net investment income with respect to such shares, the portion
designated by the Fund as qualifying for the dividends received deduction
will not be eligible for such shareholder's dividends received deduction.
In addition, the Code provides other limitations with respect to the ability
of a qualifying corporate shareholder to claim the dividends received
deduction in connection with holding Fund shares.
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 contracts or
options 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 988 and 1256 of the Code. As such, all
or a portion of any short- or long-term capital gain from certain "straddle"
and/or conversion transactions may be recharacterized as ordinary income.
If a 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 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." 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 related offsetting position. Moreover, as a result
of the "straddle" and the conversion transaction rules, short-term capital
loss on "straddle" positions may be recharacterized as long-term capital
loss, and long-term capital gain may be treated as short-term capital gain
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
interest ("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 as hedging or straddle transactions under other provisions of the
Code can be subject to the constructive sale provisions.
If the Fund invests in an entity that is classified as a "passive
foreign investment company" ("PFIC") for federal income tax purposes, the
operation of certain provisions of the Code applying to PFICs could result
in the imposition of certain Federal income taxes on the Fund. In addition,
gain realized from the sale or other disposition of PFIC securities may be
treated as ordinary income under Section 1291 of the Code and, with respect
to PFIC securities that are marked-to-market, Section 1296 of the Code.
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 Manager's best
judgment and in a manner deemed fair and reasonable to shareholders. The
primary consideration is prompt execution of orders at the most favorable
net price. Subject to this consideration, the brokers selected 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.
Brokers also will be selected based upon their sales of shares of the
Fund or other funds advised by the Manager or its affiliates, as well as
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 managed by the Manager 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.
In connection with its portfolio securities transactions for the fiscal
years ended December 31, 1996, 1997 and 1998, the Fund paid brokerage
commissions of $1,602,234, $1,449,529 and $1,958,414, respectively, none of
which was paid to the Distributor. The above figures for brokerage
commissions paid do not include gross spreads and concessions on principal
transactions, which, where determinable, amounted to $3,835,482, $4,096,849
and $1,501,407 in 1996, 1997 and 1998, respectively, none of which was paid
to the Distributor.
The aggregate amount of transactions during the fiscal year ended
December 31, 1998 in securities effected on an agency basis through a broker
in consideration of, among other things, research services provided, was $
36,894,906, and the commissions and concessions related to such transactions
were $ 81,556.
PERFORMANCE INFORMATION
The Fund's average annual total return for the 1- 5- and 10-year
periods ended December 31, 1998, was -3.95%, 11.79% and 14.17%,
respectively. 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.
The Fund's total return for the period January 29, 1985 (commencement
of operations) to December 31, 1998 was 564.60%. 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.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Standard & Poor's 500 Composite Stock Price
Index, Russell 2500 Index, Russell 2000 Index, the Dow Jones Industrial
Average, the NASDAQ Index of Over-The-Counter Stocks, Morningstar, Inc.,
Value Line, Inc. and other industry reporting services and publications.
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, investment style and market capitalization concentration, 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. From time
to time, advertising materials may refer to studies performed by The Dreyfus
Corporation or its affiliates, such as "The Dreyfus Tax Informed Investing
Study" or The Dreyfus Gender Investment Comparison Study (1996 & 1997)" or
other such studies.
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 are of one class and have equal rights as to dividends and in
liquidation. Shares have no preemptive, subscription or conversion rights
and are freely transferable.
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 a majority 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 and is not
designed to provide investors with a means of speculation on short-term
market movements. 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 the Dreyfus Auto-Exchange Privilege, 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.
