- ----------------------------------------------------------------------------
PROSPECTUS AUGUST 21, 1995
DREYFUS CAPITAL VALUE FUND (A PREMIER FUND)
- ----------------------------------------------------------------------------
DREYFUS CAPITAL VALUE FUND(A PREMIER FUND) (THE "FUND") IS AN
OPEN-END, DIVERSIFIED, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND.
ITS GOAL IS TO MAXIMIZE TOTAL RETURN, CONSISTING OF CAPITAL APPRECIATION AND
CURRENT INCOME. THE FUND INVESTS IN A WIDE RANGE OF EQUITY AND DEBT
SECURITIES AND MONEY MARKET INSTRUMENTS.
BY THIS PROSPECTUS, THE FUND IS OFFERING FOUR CLASSES OF SHARES _
CLASS A, CLASS B, CLASS C AND CLASS R _ WHICH ARE DESCRIBED HEREIN. SEE
"ALTERNATIVE PURCHASE METHODS."
YOU CAN PURCHASE OR REDEEM ALL CLASSES OF SHARES BY TELEPHONE USING
DREYFUS TELETRANSFER.
THE DREYFUS CORPORATION ("DREYFUS") SERVES AS THE FUND'S INVESTMENT
ADVISER.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED AUGUST 21, 1995, WHICH
MAY BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN
AREAS IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. FOR A FREE COPY, WRITE TO THE FUND AT
144 GLENN CURTISS BOULEVARD, UNIONDALE, NEW YORK 11556-0144, OR CALL
1-800-645-6561. WHEN TELEPHONING, ASK FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
- ----------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Fee Table................................. 3
Condensed Financial Information........... 4
Alternative Purchase Methods.............. 5
Description of the Fund................... 6
Management of the Fund.................... 20
How to Buy Fund Shares.................... 22
Shareholder Services...................... 27
How to Redeem Fund Shares................. 32
Distribution Plan and Shareholder Services Plan... 35
Dividends, Distributions and Taxes............. 36
Performance Information........................ 37
General Information............................ 38
- ----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------
This Page Intentionally Left Blank
Page 2
<TABLE>
<CAPTION>
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C CLASS R
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................... 4.50% None None None
Maximum Deferred Sales Charge Imposed on Redemptions
(as a percentage of the amount subject to charge)..... None* 4.00% 1.00% None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees....................................... .75% .75% .75% .75%
12b-1 Fees............................................ None .75% .75% None
Other Expenses........................................ .85% .89% .85% .60%
Total Fund Operating Expenses......................... 1.60% 2.39% 2.35% 1.35%
EXAMPLE
You would pay the following
expenses on a $1,000 investment,
assuming (1) 5% annual return and
(2) except where noted, redemption at
the end of each time period:
CLASS A CLASS B CLASS C CLASS R
1 YEAR $ 61 $64/$24** $34/$24** $ 14
3 YEARS $ 93 $105/$75** $ 73 $ 43
5 YEARS $128 $148/$128** $126 $ 74
10 YEARS $226 $235*** $269 $162
- -------------------
* A contingent deferred sales charge of 1.00% may be assessed on certain
redemptions of Class A shares purchased without an initial sales charge as
part of an investment of $1 million or more.
** Assuming no redemption of shares.
*** Ten-year figures assume conversion of Class B shares to Class A shares at
end of sixth year following the date of purchase.
</TABLE>
- ----------------------------------------------------------------------------
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5%.
- ----------------------------------------------------------------------------
The purpose of the foregoing table is to assist you in understanding
the costs and expenses borne by the Fund and investors, the payment of which
will reduce investors' annual return. Other Expenses for Class C and Class R
are based on amounts for Class A for the Fund's last fiscal year. Long-term
investors in Class B or Class C shares could pay more in 12b-1 fees than the
economic equivalent of paying a front-end sales charge. The information in the
foregoing table does not reflect any fee waivers or expense reimbursement
arrangements that may be in effect. Certain Service Agents (as defined below)
may charge their clients direct fees for effecting transactions in Fund
shares; such fees are not reflected in the foregoing table. See "Management
of the Fund," "How to Buy Fund Shares" and "Distribution Plan and Shareholder
Services Plan."
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited (except where
noted) by Ernst & Young LLP, the Fund's independent auditors, whose report
thereon appears in the Statement of Additional Information. Further financial
data and related notes for Class A and Class B are included in the Statement
of Additional Information, available upon request. No financial information
is available for Class C or Class R shares, which had not been offered as of
the date of this Prospectus.
page 3
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for Class A
and Class B shares of common stock outstanding, total investment return,
ratios to average net assets and other supplemental data for each period
indicated. This information has been derived from the Fund's financial
statements.
CLASS A SHARES CLASS B SHARES
---------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS
ENDED ENDED ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31, 1995 SEPTEMBER 30, MARCH 31, 1995
--------------------------------------------------------------------- ------------- ------------- -------------
1986(1)(2) 1987(1) 1988(1) 1989(1) 1990(1) 1991 1992 1993 1994 (UNAUDITED) 1993(3) 1994 (UNAUDITED)
PER SHARE DATA: ----- ----- ----- ------ ----- ---- ---- ---- ---- --------- ----- ---- -------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of period.. $7.25 $9.54 $12.84 $12.68 $14.42 $15.08 $12.97 $12.41 $11.42 $11.88 $10.58 $11.32 $11.69
----- ----- ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment
income-net(4) .03 .07 .58 .90 .89 .73 .40 .24 .24 .17 .03 .23 .15
Net realized and
unrealized gain
(loss) on
investments(4) 2.26 3.59 (.18) 1.60 .61 (.89) (.39) (.62) .46 (.48) .71 .38 (.50)
----- ----- ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM
INVESTMENT
OPERATIONS 2.29 3.66 .40 2.50 1.50 (.16) .01 (.38) .70 (.31) .74 .61 (.35)
----- ----- ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS:
Dividends from investment
income-net(4) -- (.03) (.15) (.76) (.84) (.99) (.57) (.61) (.24) (.26) -- (.24) (.20)
Dividends from net realized
gain on
investments(4) -- (.33) (.41) -- -- (.96) -- -- -- -- -- -- --
----- ----- ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL
DISTRIBUTIONS -- (.36) (.56) (.76) (.84) (1.95) (.57) (.61) (.24) (.26) -- (.24) (.20)
----- ----- ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period $9.54 $12.84 $12.68 $14.42 $15.08 $12.97 $12.41 $11.42 $11.88 $11.31 $11.32 $11.69 $11.14
===== ====== ====== ===== ====== ====== ====== ====== ====== ====== ===== ====== ======
TOTAL INVESTMENT
RETURN (5) 31.59%(6) 39.72% 3.29% 20.95% 10.53% (.70%) (.02%) (2.70%) 6.14% (2.55%)(6) 6.99%(6) 5.35% (2.91%)(6)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses
to average
net assets 1.47%(6) 1.50% 1.24% 1.22% 1.20% 1.19% 1.19% 1.23% 1.21% .61%(6) 1.49%(6) 1.99% .98%(6)
Ratio of dividends and interest on
securities sold short
to average
net assets -- .15% .13% .03% .26% .49% .39% .45% .39% .26%(6) .31%(6) .40% .27%(6)
Ratio of net investment income
to average
net assets .45%(6) 2.25% 6.08% 6.93% 6.64% 5.58% 2.83% 1.94% 2.06% 1.75%(6) .83%(6) 1.39% 1.37%(6)
Decrease reflected in above
expense ratios due to
expense
reimbursements .84%(6) .29% -- -- -- -- -- -- -- -- -- -- --
Portfolio Turnover
Rate 140.99% 102.16% 56.31% 19.46% 62.84% 154.07% 344.29% 41.78% 45.57% 12.45%(6) 41.78% 45.57% 12.45%(6)
Net Assets, end of period
(000's Omitted) $9,444 $139,796 $502,442 $607,192 $741,267 $755,450 $537,392 $412,316 $402,708 $331,219 $30,378 $108,532 $98,618
- --------------------
(1) Per share data restated to reflect a 100% stock dividend at the close of business on February 16, 1990.
(2) From October 10, 1985 (commencement of operations) to September 30, 1986.
(3) From January 15, 1993 (commencement of initial offering) to September 30, 1993.
(4) Per share data for 1986 and 1987 has been restated for comparative purposes.
(5) Exclusive of sales load.
(6) Not annualized.
</TABLE>
Further information about the Fund's performance is contained in the
Fund's annual report which may be obtained without charge by writing to the
address or calling the number set forth on the cover page of this Prospectus.
Page 4
ALTERNATIVE PURCHASE METHODS
The Fund offers you four methods of purchasing Fund shares. Orders
for purchases of Class R shares, however, may be placed only for certain
eligible investors as described below. If you are not eligible to purchase
Class R shares, you may choose from Class A, Class B and Class C the Class of
shares that best suits your needs, given the amount of your purchase, the
length of time you expect to hold your shares and any other relevant
circumstances. Each Fund share represents an identical pro rata interest in
the Fund's investment portfolio.
Class A shares are sold at net asset value per share plus a maximum
initial sales charge of 4.50% of the public offering price imposed at the
time of purchase. The initial sales charge may be reduced or waived for
certain purchases. See "How to Buy Fund Shares _ Class A Shares." These
shares are subject to an annual service fee at the rate of .25 of 1% of the
value of the average daily net assets of Class A. See "Distribution Plan and
Shareholder Services Plan _ Shareholder Services Plan."
Class B shares are sold at net asset value per share with no initial
sales charge at the time of purchase; as a result, the entire purchase price
is immediately invested in the Fund. Class B shares are subject to a maximum
4% contingent deferred sales charge ("CDSC"), which is assessed only if you
redeem Class B shares within six years of purchase. See "How to Buy Fund
Shares _ Class B Shares" and "How to Redeem Fund Shares_Contingent Deferred
Sales Charge _ Class B Shares." These shares also are subject to an annual
service fee at the rate of .25 of l% of the value of the average daily net
assets of Class B. In addition, Class B shares are subject to an annual
distribution fee at the rate of .75 of 1% of the value of the average daily
net assets of Class B. See "Distribution Plan and Shareholder Services Plan."
The distribution fee paid by Class B will cause such Class to have a higher
expense ratio and to pay lower dividends than Class A. Approximately six
years after the date of purchase, Class B shares automatically will convert
to Class A shares, based on the relative net asset values for shares of each
such Class, and will no longer be subject to the distribution fee. Class B
shares that have been acquired through the reinvestment of dividends and
distributions will be converted on a pro rata basis together with other Class
B shares, in the proportion that a shareholder's Class B shares converting to
Class A shares bears to the total Class B shares not acquired through the
reinvestment of dividends and distributions.
Class C shares are sold at net asset value per share with no initial
sales charge at the time of purchase; as a result, the entire purchase price
is immediately invested in the Fund. Class C shares are subject to a 1% CDSC,
which is assessed only if you redeem Class C shares within one year of
purchase. See "How to Buy Fund Shares _ Class C Shares" and "How to Redeem
Fund Shares _ Contingent Deferred Sales Charge _ Class C Shares." These
shares also are subject to an annual service fee at the rate of .25 of 1%,
and an annual distribution fee at the rate of .75 of 1%, of the value of the
average daily net assets of Class C. See "Distribution Plan and Shareholder
Services Plan." The distribution fee paid by Class C will cause such Class to
have a higher expense ratio and to pay lower dividends than Class A.
Class R shares may not be purchased directly by individuals, although
eligible institutions may purchase Class R shares for certain accounts
maintained by individuals. Class R shares are sold at net asset value per
share only to institutional investors acting for themselves or in a
fiduciary, advisory, agency, custodial or similar capacity for qualified or
non-qualified employee benefit plans, including pension, profit-sharing,
SEP-IRAs and other deferred compensation plans, whether established by corpora
tions, partnerships, non-profit entities or state and local governments, but
not including IRAs or IRA "Rollover Accounts." Class R shares are not subject
to an annual service fee or distribution fee.
Page 5
The decision as to which Class of shares is more beneficial to you
depends on the amount and the intended length of your investment. If you are
not eligible to purchase Class R shares, you should consider whether, during
the anticipated life of your investment in the Fund, the accumulated
distribution fee and CDSC, if any, on Class B or Class C shares would be less
than the initial sales charge on Class A shares purchased at the same time,
and to what extent, if any, such differential would be offset by the return
of Class A. Additionally, investors qualifying for reduced initial sales
charges who expect to maintain their investment for an extended period of
time might consider purchasing Class A shares because the accumulated
continuing distribution fees on Class B or Class C shares may exceed the
initial sales charge on Class A shares during the life of the investment.
Finally, you should consider the effect of the CDSC period and any conversion
rights of the Classes in the context of your own investment time frame. For
example, while Class C shares have a shorter CDSC period than Class B shares,
Class C shares do not have a conversion feature, and, therefore, are subject
to an ongoing distribution fee. Thus, Class B shares may be more attractive th
an Class C shares to investors with longer term investment outlooks.
Generally, Class A shares may be more appropriate for investors who invest
$100,000 or more in Fund shares, but will not be appropriate for investors
who invest less than $50,000 in Fund shares.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE
The Fund's goal is to maximize total return, consisting of capital
appreciation and current income. The Fund's investment objective cannot be
changed without approval by the holders of a majority (as defined in the
Investment Company Act of 1940) of the Fund's outstanding voting shares.
There can be no assurance that the Fund's investment objective will be
achieved.
MANAGEMENT POLICIES
The Fund seeks to achieve its investment objective by following an
asset allocation strategy that contemplates shifts, which may be frequent,
among a wide range of investments and market sectors. The Fund will invest in
equity securities of domestic and foreign issuers, including common stocks,
preferred stocks, convertible securities and warrants; debt securities of
domestic and foreign issuers, including bonds, debentures and notes; and
domestic and foreign money market instruments. The Fund will not invest more
than 65% of its assets in securities of foreign issuers.
Dreyfus and Comstock Partners, Inc. ("Comstock Partners"), the Fund's
sub-investment adviser (collectively, the "Advisers"), have broad latitude in
selecting the class of investments and market sectors in which the Fund will
invest. The Fund will not be managed as a balanced portfolio and is not
required to maintain a portion of its investments in each of the Fund's
permitted investment types at all times. Thus, during the course of a
business cycle, for example, the Fund may invest solely in equity securities,
debt securities or money market instruments, or in a combination of these
classes of investments. The asset allocation mix for the Fund will be
determined by the Advisers at any given time in light of their assessment of
current economic conditions and investment opportunities. The asset
allocation mix selected will be a primary determinant of the Fund's
investment performance.
EQUITY AND DEBT SECURITIES _ The Fund intends to invest in domestic and
foreign equity and debt securities. The Fund generally seeks to invest in
securities that the Advisers have determined offer above average potential
for total return. In making this determination, they take into account
factors including price-earnings ratios, cash flow and the relationship of
asset value to market value of the securities. The Fund will be alert to
companies engaged in restructuring efforts, such as mergers, acquisitions and
divestitures of less profitable units.
The Fund typically purchases a debt security if the Advisers believe
that the yield and potential for capital appreciation of the security are
sufficiently attractive in light of the risks of ownership of the security.
In determining whether the Fund should invest in particular debt securities,
the Advisers consider
Page 6
factors such as: the price, coupon and yield to maturity; their assessment of
the credit quality of the issuer; the issuer's available cash flow and the
related coverage ratios; the property, if any, securing the obligation; and
the terms of the debt securities, including the subordination, default,
sinking fund and early redemption provisions. They also will review the
ratings, if any, assigned to the securities by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") or other recognized
rating agencies. The judgment of the Advisers as to credit quality of a debt
security may differ, however, from that suggested by the ratings published
by a rating service.
The Fund is not subject to any limit on the percentage of its assets
that may be invested in debt securities having a certain rating. Thus, it is
possible that a substantial portion of the Fund's assets may be invested in
debt securities that are unrated or rated in the lowest categories of the
recognized rating services (i.e., securities rated C by Moody's or D by S&P).
Low-rated and unrated securities have special risks relating to the ability
of the Fund to receive timely, or perhaps ultimate, payment of principal and
interest. They are considered to have speculative characteristics and to be
of poor quality; some obligations in which the Fund may invest, such as debt
securities rated D by S&P, may be in default. The Fund intends to invest less
than 35% of its assets in debt securities rated Ba or lower by Moody's and BB
or lower by S&P. See "Risk Factors_Lower Rated Securities" below for a
discussion of certain risks.
The Fund generally invests in United States equity and debt
securities, including convertible securities, that are listed on securities
exchanges or traded in the over-the-counter market. Foreign securities in
which the Fund may invest may be listed on foreign securities exchanges or
traded in the over-the-counter market. The Fund may invest in companies whose
principal activities are in, or governments of, emerging markets. For further
information about certain portfolio securities, see "Certain Portfolio
Securities" below.
The Fund also may purchase to a limited extent securities
representing the right to receive the capital appreciation above a certain
amount, and other securities representing the right to receive dividends and
all other attributes of beneficial ownership, in respect of an entity's
common stock or other similar instrument. These securities typically are sold
as shares in unit investment trusts. The percentage of the Fund's assets that
may be invested in shares of unit investment trusts is subject to the
limitations set forth in the Investment Company Act of 1940.
MONEY MARKET INSTRUMENTS _ The money market instruments in which the Fund
may invest include: U.S. Government securities; bank obligations, including
certificates of deposit, time deposits and bankers' acceptances and other
short-term obligations of domestic or foreign banks, domestic savings and
loan associations and other banking institutions having total assets in
excess of $1 billion; commercial paper of any rating; and repurchase
agreements involving U.S. Government securities. The Fund may invest up to
100% of its assets in money market instruments, but at no time will the
Fund's investments in bank obligations, including time deposits, exceed 25%
of its assets. See "Certain Portfolio Securities" below.
INVESTMENT TECHNIQUES
The Fund may engage in various investment techniques, such as
leveraging, short-selling, foreign exchange transactions, options and futures
transactions and lending portfolio securities, each of which involves risk.
See "Risk Factors" below. Options and futures transactions involve so-called
"derivative securities."
LEVERAGE THROUGH BORROWING _ The Fund may borrow for investment purposes up
to 331/3% of the value of its total assets. This borrowing, which is known as
leveraging, generally will be unsecured, except to the extent the Fund enters
into reverse repurchase agreements described below. Leveraging will
exaggerate the effect on net asset value of any increase or decrease in the
market value of the Fund's portfolio. Money borrowed for leveraging will be
subject to interest costs which may or may not be recovered by appreciation
of the securities purchased; in certain cases, interest costs may exceed the
return received on the securities purchased.
Page 7
Among the forms of borrowing in which the Fund may engage is the
entry into reverse repurchase agreements with banks, brokers or dealers.
These transactions involve the transfer by the Fund of an underlying debt
instrument in return for cash proceeds based on a percentage of the value of
the security. The Fund retains the right to receive interest and principal
payments on the security. At an agreed upon future date, the Fund repurchases
the security at principal, plus accrued interest.
SHORT-SELLING _ The Fund may make short sales, which are transactions in
which the Fund sells a security it does not own in anticipation of a decline
in the market value of that security. To complete such a transaction, the
Fund must borrow the security to make delivery to the buyer. The Fund then is
obligated to replace the security borrowed by purchasing it at the market
price at the time of replacement. The Fund will incur a loss as a result of
the short sale if the price of the security increases between the date of the
short sale and the date on which the Fund replaces the borrowed security. The
Fund will realize a gain if the security declines in price between those
dates.
The Fund may purchase call options to provide a hedge against an
increase in the price of a security sold short by the Fund. When the Fund
purchases a call option it has to pay a premium to the person writing the
option and a commission to the broker selling the option. If the option is
exercised by the Fund, the premium and the commission paid may be more than
the amount of the brokerage commission charged if the security were to be
purchased directly. See "Call and Put Options on Specific Securities" below.
No securities will be sold short if, after effect is given to any
such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Fund's net assets. The Fund may not sell short
the securities of any single issuer listed on a national securities exchange
to the extent of more than 5% of the value of the Fund's net assets. The Fund
may not sell short the securities of any class of an issuer to the extent, at
the time of the transaction, of more than 5% of the outstanding securities of
that class.
In addition to the short sales discussed above, the Fund may make
short sales "against the box," a transaction in which the Fund enters into a
short sale of a security which the Fund owns. The Fund at no time will have
more than 15% of the value of its net assets in deposits on short sales
against the box.
CALL AND PUT OPTIONS ON SPECIFIC SECURITIES _ The Fund may invest up to 5%
of its assets, represented by the premium paid, in the purchase of call and
put options in respect of specific securities (or groups or "baskets" of
specific securities) in which the Fund may invest. The Fund may write covered
call and put option contracts to the extent of 20% of the value of its net
assets at the time such option contracts are written. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell,
the underlying security at the exercise price at any time during the option
period. Conversely, a put option gives the purchaser of the option the right
to sell, and obligates the writer to buy, the underlying security at the
exercise price at any time during the option period. A covered call option
sold by the Fund, which is a call option with respect to which the Fund owns
the underlying security, exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of
the underlying security or to possible continued holding of a security or
securities which might otherwise have been sold to protect against
depreciation in its market price. The principal reason for writing covered
call options is to realize, through the receipt of premiums, a greater return
than would be realized on the Fund's portfolio securities alone. A covered
put option sold by the Fund exposes the Fund during the term of the option to
a decline in price of the underlying security. Similarly, the principal
reason for writing covered put options is to realize income in the form of
premiums. A put option sold by the Fund is covered when, among other things,
cash or liquid securities are placed in a segregated account with the Fund's
custodian to fulfill the obligation undertaken.
To close out a position when writing covered options, the Fund may
make a "closing purchase transaction" by purchasing an option on the same
security with the same exercise price and expiration date as the option it
has previously written. To close out a position as a purchaser of an option,
the Fund may make a "closing sale transaction," which involves liquidating
the Fund's position by selling
Page 8
the option previously purchased. The Fund will realize a profit or loss from
a closing purchase transaction depending upon the difference between the
amount paid to purchase an option and the amount received from the sale
thereof.
The Fund intends to treat certain options in respect of specific
securities that are not traded on a securities exchange and the securities
underlying covered call options written by the Fund as illiquid securities.
See "Certain Portfolio Securities _ Illiquid Securities" below.
The Fund will purchase options only to the extent permitted by the
policies of state securities authorities in states where shares of the Fund
are qualified for offer and sale.
STOCK INDEX OPTIONS _ The Fund may purchase and write call and put options
on stock indexes listed on national securities exchanges or traded in the
over-the-counter market as an investment vehicle for the purpose of realizing
its investment objective or for the purpose of hedging its portfolio. A stock
index fluctuates with changes in the market values of the stocks included in
the index.
The effectiveness of purchasing or writing stock index options will
depend upon the extent to which price movements in the Fund's portfolio
correlate with price movements of the stock index selected. Because the value
of an index option depends upon movements in the level of the index rather
than the price of a particular stock, whether the Fund will realize a gain or
loss from the purchase or writing of options on an index depends upon
movements in the level of stock prices in the stock market generally or, in
the case of certain indices, in an industry or market segment, rather than
movements in the price of a particular stock. Accordingly, successful use by
the Fund of options on stock indices will be subject to the Advisers' ability
to predict correctly movements in the direction of the stock market generally
or of a particular industry. This requires different skills and techniques
than predicting changes in the price of individual stocks.
When the Fund writes an option on a stock index, it will place in a
segregated account with its custodian cash or liquid securities in an amount
at least equal to the market value of the underlying stock index and will
maintain the account while the option is open or will otherwise cover the
transaction.
FUTURES TRANSACTIONS _ IN GENERAL _ The Fund is not a commodity pool.
However, as a substitute for a comparable market position in the underlying
securities or for hedging purposes, the Fund may engage in futures and
options on futures transactions, including those relating to indices, as
described below.
The Fund may trade futures contracts and options on futures contracts
in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange, or, to the
extent permitted under applicable law, on exchanges located outside the
United States, such as the London International Financial Futures Exchange
and the Sydney Futures Exchange Limited. Foreign markets may offer advantages
such as trading in commodities that are not currently traded in the United
States or arbitrage possibilities not available in the United States. Foreign
markets, however, may have greater risk potential than domestic markets. See
"Risk Factors _ Foreign Commodity Transactions" below.
The Fund's commodities transactions must constitute bona fide hedging
or other permissible transactions pursuant to regulations promulgated by the
Commodity Futures Trading Commission (the "CFTC"). In addition, the Fund may
not engage in such transactions if the sum of the amount of initial margin
deposits and premiums paid for unexpired commodity options, other than for
bona fide hedging transactions, would exceed 5% of the liquidation value of
the Fund's assets, after taking into account unrealized profits and
unrealized losses on such contracts it has entered into; provided, however,
that in the case of an option that is in-the-money at the time of purchase,
the in-the-money amount may be excluded in calculating the 5%. Pursuant to
regulations and/or published positions of the Securities and Exchange
Commission, the Fund may be required to segregate cash or high quality money
market instruments in connection with its commodities transactions in an
amount generally equal to the value of the underlying commodity. The
segregation of such assets will have the effect of limiting the Fund's
Page 9
ability to otherwise invest those assets. To the extent the Fund engages in
the use of futures and options on futures for other than bona fide hedging
purposes, the Fund may be subject to additional risk.
Initially, when purchasing or selling futures contracts the Fund will
be required to deposit with its custodian in the broker's name an amount of
cash or cash equivalents up to approximately 10% of the contract amount. This
amount is subject to change by the exchange or board of trade on which the
contract is traded and members of such exchange or board of trade may impose
their own higher requirements. This amount is known as "initial margin" and
is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Fund upon termination of the futures position,
assuming all contractual obligations have been satisfied. Subsequent
payments, known as "variation margin," to and from the broker will be made
daily as the price of the index or securities underlying the futures contract
fluctuates, making the long and short positions in the futures contract more
or less valuable, a process known as "marking-to-market." At any time prior
to the expiration of a futures contract, the Fund may elect to close the
position by taking an opposite position at the then prevailing price, which
will operate to terminate the Fund's existing position in the contract.
Although the Fund intends to purchase or sell futures contracts only
if there is an active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract at any particular
time. Many futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may
be made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could move
to the limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and potentially
subjecting the Fund to substantial losses. If it is not possible, or the Fund
determines not, to close a futures position in anticipation of adverse price
movements, the Fund will be required to make daily cash payments of variation
margin. In such circumstances, an increase in the value of the portion of the
portfolio being hedged, if any, may offset partially or completely losses on
the futures contract. However, no assurance can be given that the price of
the securities being hedged will correlate with the price movements in a
futures contract and thus provide an offset to losses on the futures
contract.
To the extent the Fund is engaging in a futures transaction as a
hedging device, because of the risk of an imperfect correlation between
securities in the Fund's portfolio that are the subject of a hedging
transaction and the futures contract used as a hedging device, it is possible
that the hedge will not be fully effective if, for example, losses on the
portfolio securities exceed gains on the futures contract or losses on the
futures contract exceed gains on the portfolio securities. For futures
contracts based on indices, the risk of imperfect correlation increases as the
composition of the Fund's portfolio varies from the composition of the index.
In an effort to compensate for the imperfect correlation of movements in the
price of the securities being hedged and movements in the price of futures
contracts, the Fund may buy or sell futures contracts in a greater or lesser
dollar amount than the dollar amount of the securities being hedged if the
historical volatility of the futures contract has been less or greater than
that of the securities. Such "over hedging" or "under hedging" may adversely
affect the Fund's net investment results if the market does not move as
anticipated when the hedge is established.
Successful use of futures by the Fund also is subject to the
Advisers' ability to predict correctly movements in the direction of the
market or interest rates. For example, if the Fund has hedged against the
possibility of a decline in the market adversely affecting the value of
securities held in its portfolio and prices increase instead, the Fund will
lose part or all of the benefit of the increased value of securities which it
has hedged because it will have offsetting losses in its futures positions.
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.
Page 10
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the option exercise
period. The writer of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a
long position if the option is a put). Upon exercise of the option, the
assumption of offsetting futures positions by the writer and holder of the
option will be accompanied by delivery of the accumulated cash balance in the
writer's futures margin account which represents the amount by which the
market price of the futures contract, at exercise, exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option
on the futures contract.
Call options sold by the Fund with respect to futures contracts will
be covered by, among other things, entering into a long position in the same
contract at a price no higher than the strike price of the call option, or by
ownership of the instruments underlying, or instruments the prices of which
are expected to move relatively consistently with the instruments underlying,
the futures contract. Put options sold by the Fund with respect to futures
contracts will be covered in the same manner as put options on specific
securities as described above.
STOCK INDEX FUTURES AND OPTIONS ON STOCK INDEX FUTURES _ The Fund
may purchase and sell stock index futures contracts and options on stock
index futures contracts as a substitute for a comparable market position in
the underlying securities or for hedging purposes.
A stock index future obligates the seller to deliver (and the
purchaser to take) an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of
the last trading day of the contract and the price at which the agreement is
made. No physical delivery of the underlying stocks in the index is made.
With respect to stock indices that are permitted investments, the Fund
intends to purchase and sell futures contracts on the stock index for which
it can obtain the best price with consideration also given to liquidity.
The price of stock index futures may not correlate perfectly with the
movement in the stock index because of certain market distortions. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which would distort the normal relationship between the index
and futures markets. Secondly, from the point of view of speculators, the
deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market also may cause temporary price distortions.
Because of the possibility of price distortions in the futures market and the
imperfect correlation between movements in the stock index and movements in
the price of stock index futures, a correct forecast of general market trends
by the Advisers still may not result in a successful hedging transaction.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST RATE FUTURES
CONTRACTS _ The Fund may invest in interest rate futures contracts and
options on interest rate futures contracts as a substitute for a comparable
market position or to hedge against adverse movements in interest rates.
To the extent the Fund has invested in interest rate futures
contracts or options on interest rate futures contracts as a substitute for a
comparable market position, the Fund will be subject to the investment risks
of having purchased the securities underlying the contract.
The Fund may purchase call options on interest rate futures contracts
to hedge against a decline in interest rates and may purchase put options on
interest rate futures contracts to hedge its portfolio securities against the
risk of rising interest rates.
The Fund may sell call options on interest rate futures contracts to
partially hedge against declining prices of portfolio securities. If the
futures price at expiration of the option is below the exercise price, the
Fund will retain the full amount of the option premium which provides a
partial hedge against any
Page 11
decline that may have occurred in the Fund's portfolio holdings. The Fund may
sell put options on interest rate futures contracts to hedge against
increasing prices of the securities which are deliverable upon exercise of the
futures contract. If the futures price at expiration of the option is higher
than the exercise price, the Fund will retain the full amount of the option
premium which provides a partial hedge against any increase in the price of
securities which the Fund intends to purchase. If a put or call option sold
by the Fund is exercised, the Fund will incur a loss which will be reduced by
the amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, the Fund's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
its portfolio securities.
The Fund also may sell options on interest rate futures contracts as
part of closing purchase transactions to terminate its options positions. No
assurance can be given that such closing transaction can be effected or that
there will be a correlation between price movements in the options on
interest rate futures and price movements in the Fund's portfolio securities
which are the subject of the hedge. In addition, the Fund's purchase of such
options will be based upon predictions as to anticipated interest rate
trends, which could prove to be inaccurate.
FUTURES CONTRACTS BASED ON AN INDEX OF DEBT SECURITIES AND OPTIONS ON
SUCH FUTURES CONTRACTS _ The Fund may purchase and sell futures contracts
based on an index of debt securities and options on such futures contracts to
the extent they currently exist and, in the future, may be developed to
correlate with price movements in certain categories of debt securities. The
Fund's investment strategy in employing futures contracts based on an index
of debt securities will be similar to that used by it in other financial
futures transactions. The Fund also may purchase and write call and put
options on such index futures and enter into closing transactions with
respect to such options.
CURRENCY FUTURES AND OPTIONS ON CURRENCY FUTURES _ The Fund may purchase and
sell currency futures contracts and options thereon. See "Futures
Transactions _ In General" and "Call and Put Options on Specific Securities"
above. By selling foreign currency futures, the Fund can establish the number
of U.S. dollars it will receive in the delivery month for a certain amount of
a foreign currency. In this way, if the Fund anticipates a decline of a
foreign currency against the U.S. dollar, the Fund can attempt to fix the
U.S. dollar value of some or all of the securities held in its portfolio that
are denominated in that currency. By purchasing foreign currency futures, the
Fund can establish the number of U.S. dollars it will be required to pay for
a specified amount of a foreign currency in the delivery month. Thus, if the
Fund intends to buy securities in the future and expects the U.S. dollar to
decline against the relevant foreign currency during the period before the
purchase is effected, the Fund can attempt to fix the price in U.S. dollars
of the securities it intends to acquire.
The purchase of options on currency futures will allow the Fund, for
the price of a premium it must pay for the option, to decide whether or not
to buy (in the case of a call option) or to sell (in the case of a put
option) a futures contract at a specified price at any time during the period
before the option expires. If the Fund, in purchasing an option, has been
correct in its judgment concerning the direction in which the price of a
foreign currency would move as against the U.S. dollar, it may exercise the
option and thereby take a futures position to hedge against the risk it had
correctly anticipated or close out the option position at a gain that will
offset, to some extent, currency exchange losses otherwise suffered by the
Fund. If exchange rates move in a way the Fund did not anticipate, the Fund
will have incurred the expense of the option without obtaining the expected
benefit. As a result, the Fund's profits on the underlying securities
transactions may be reduced or overall losses incurred.
FOREIGN CURRENCY TRANSACTIONS _ The Fund may engage in currency exchange
transactions to protect against uncertainty in the level of future exchange
rates in connection with hedging and other non-speculative strategies
involving specific settlement transactions. The Fund will conduct its
currency exchange transactions either on a spot (i.e., cash) basis at the
rate prevailing in the currency exchange
Page 12
market, or through entering into forward contracts to purchase or sell
currencies. A forward currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which must be more
than two days from the date of the contract, at a price set at the time of
the contract. Transaction hedging is the purchase or sale of forward currency
with respect to specific receivables or payables of the Fund generally
arising in connection with the purchase or sale of its portfolio securities.
These contracts are entered into in the interbank market conducted directly
between currency traders (typically commercial banks or other financial
institutions) and their customers.
OPTIONS ON FOREIGN CURRENCY _ The Fund may purchase and sell call and put
options on foreign currency for the purpose of hedging against changes in
future currency exchange rates. Call options convey the right to buy the
underlying currency at a price which is expected to be lower than the spot
price of the currency at the time the option expires. Put options convey the
right to sell the underlying currency at a price which is anticipated to be
higher than the spot prices of the currency at the time the option expires.
The Fund may use foreign currency options for the same purposes that it could
use currency forward and futures transactions as described herein. See also
"Call and Put Options on Specific Securities" above.
LENDING PORTFOLIO SECURITIES _ From time to time, the Fund may lend
securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions.
Such loans may not exceed 331/3% of the value of the Fund's total assets. In
connection with such loans, 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. The Fund can increase its income
through the investment of such collateral. The Fund continues to be entitled
to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned security and receives interest on the
amount of the loan. Such loans will be terminable at any time upon specified
notice. The Fund might experience risk of loss if the institution with which
it has engaged in a portfolio loan transaction breaches its agreement with
the Fund.
FUTURE DEVELOPMENTS _ The Fund may take advantage of opportunities in the
area of options and futures contracts and options on futures contracts and
any other derivative investments which are not presently contemplated for use
by the Fund or which are not currently available but which may be developed,
to the extent such opportunities are both consistent with the Fund's
investment 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 when-issued or
forward commitment 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 that will be received on a when-issued
security are fixed at the time the Fund enters into the commitment. The Fund
will make commitments to purchase such securities only with the intention of
actually acquiring the securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable. The Fund will not
accrue income in respect of a security purchased on a when-issued or forward
commitment basis prior to its stated delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other securities held in the Fund's portfolio are subject to changes
in value (both generally changing in the same way, i.e., appreciating when
interest rates decline and depreciating when interest rates rise) based upon
the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Securities purchased on
a when-issued or forward commitment basis may expose the Fund to risks
because they may experience such fluctuations prior to their actual delivery.
Purchasing securities on a when-issued or forward commitment basis can
involve the additional risk that the yield available in the market when the
delivery takes place actually may be higher than that obtained in the
transaction itself. A segregated account of the Fund consisting of cash, cash
equivalents or U.S. Government securities or other high quality liquid debt
securities at least equal at all times to the
Page 13
amount of the when-issued or forward commitments will be established and
maintained at the Fund's custodian bank. Purchasing securities on a
when-issued or forward commitment basis when the Fund is fully or almost fully
invested may result in greater potential fluctuations in the value of the
Fund's net assets and its net asset value per share.
CERTAIN PORTFOLIO SECURITIES
SECURITIES OF EMERGING MARKETS ISSUERS _ Emerging markets will include any
countries (i) having an "emerging stock market" as defined by the
International Finance Corporation; (ii) with low to middle-income economies
according to the World Bank; or (iii) listed in World Bank publications as
developing. Currently, the countries not included in these categories are
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Spain, Sweden,
Switzerland, the United Kingdom and the Unites States. Issuers whose
principal activities are in countries with emerging markets include issuers:
(1) organized under the laws of, (2) whose securities have their primary
trading market in, (3) deriving at least 50% of their revenues or profits
from goods sold, investments made, or services performed in, or (4) having at
least 50% of their assets located in, a country with an emerging market.
In emerging markets, the Fund may purchase debt securities issued or
guaranteed by foreign governments, including participations in loans between
foreign governments and financial institutions, and interests in entities
organized and operated for the purpose of restructuring the investment
characteristics of instruments issued or guaranteed by foreign governments
("Sovereign Debt Obligations"). These include Brady Bonds, Structured
Securities and Loan Participations and Assignments (as defined below).
BRADY BONDS. Brady Bonds are debt obligations created through the
exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructurings under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F.Brady.
Brady Bonds have been issued only relatively recently, and,
accordingly do not have a long payment history. They may be collateralized or
uncollateralized and issued in various currencies (although most are U.S.
dollar-denominated). They are actively traded in the over-the-counter
secondary market.
STRUCTURED SECURITIES. Structured Securities are interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of Sovereign Debt Obligations. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments (such as commercial bank loans
or Brady Bonds) and the issuance by that entity of one or more classes of
securities ("Structured Securities") backed by, or representing interests in,
the underlying instruments. The cash flow on the underlying instruments may
be apportioned among the newly-issued Structured Securities to create
securities with different investment characteristics such as varying
maturities, payment priorities and interest rate provisions, and the extent
of the payments made with respect to Structured Securities is dependent on
the extent of the cash flow on the underlying instruments. Because Structured
Securities of the type in which the Fund anticipates it will invest typically
involve no credit enhancement, their credit risk generally will be equivalent
to that of the underlying instruments.
The Fund is permitted to invest in a class of Structured Securities
that is either subordinated or unsubordinated to the right of payment of
another class. Subordinated Structured Securities typically have higher
yields and present greater risks than unsubordinated Structured Securities.
Certain issuers of Structured Securities may be deemed to be
"investment companies" as defined in the Investment Company Act of 1940. As a
result, the Fund's investment in these Structured Securities may be limited
by the restrictions contained in the Investment Company Act of 1940.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The Fund may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between
an issuer of Sovereign Debt Obligations and one or more financial
institutions ("Lenders"). The Fund's investments in Loans are expected in
most instances to be in the form of participations in Loans
("Participations") and assignments of all or a por-
Page 14
tion of Loans ("Assignments") from third parties. The government that is the
borrower on the Loan will be considered by the Fund to be the issuer of a
Participation or Assignment. The Fund's investment in Participations typically
will result in the Fund having a contractual relationship only with the
Lender and not with the borrower. The Fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only
from the Lender selling the Participation and only upon receipt by the Lender
of the payments from the borrower. In connection with purchasing
Participations, the Fund generally will have no right to enforce compliance
by the borrower with the terms of the loan agreement relating to the Loan,
nor any rights of set-off against the borrower, and the Fund may not directly
benefit from any collateral supporting the Loan in which it has purchased the
Participation. As a result, the Fund may be subject to the credit risk of
both the borrower and the Lender that is selling the Participation. In the
event of the insolvency of the Lender selling a Participation, the Fund may be
treated as a general creditor of the Lender and may not benefit from any
set-off between the Lender and the borrower. Certain Participations may be
structured in a manner designed to avoid purchasers of Participations being
subject to the credit risk of the Lender with respect to the Participation,
but even under such a structure, in the event of the Lender's insolvency, the
Lender's servicing of the Participation may be delayed and the assignability
of the Participation impaired. The Fund will acquire Participations only if
the Lender interpositioned between the Fund and the borrower is a Lender
having total assets of more than $25 billion and whose senior unsecured debt
is rated investment grade or higher (i.e., Baa/BBB or higher).
CONVERTIBLE SECURITIES _ A convertible security is a fixed-income security
that may be converted at either a stated price or stated rate into underlying
shares of common stock. Convertible securities have general characteristics
similar to both fixed-income and equity securities. Although to a lesser
extent than with fixed-income securities generally, the market value of
convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because
of the conversion feature, the market value of convertible securities tends
to vary with fluctuations in the market value of the underlying common stock,
and therefore, also will react to variations in the general market for equity
securities. 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 conver
tible securities generally entail less risk than investments in common stock
of the same issuer.
As fixed-income securities, convertible securities are investments
that provide for a stable stream of income with generally higher yields than
common stocks. Of course, like all fixed-income securities, there can be no
assurance of current income because the issuers of the convertible securities
may default on their obligations. Convertible securities, however, generally
offer lower interest or dividend yields than non-convertible securities of
similar quality because of the potential for capital appreciation. 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 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.
Page 15
WARRANTS _ A warrant is an instrument issued by a corporation which gives
the holder the right to subscribe to a specified amount of the corporation's
capital stock at a set price for a specified period of time.
CLOSED-END INVESTMENT COMPANIES _ The Fund may invest in securities issued
by closed-end investment companies which principally will invest in
securities of foreign issuers. Under the Investment Company Act of 1940, the
Fund's investment in such securities, with certain exceptions, currently is
limited to (i) 3% of the total voting stock of any one investment company,
(ii) 5% of the Fund's net assets with respect to any one investment company
and (iii) 10% of the Fund's net assets in the aggregate. Investments in the
securities of other investment companies may involve duplication of advisory
fees and certain other expenses.
ILLIQUID SECURITIES _ The Fund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
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 options traded
in the over-the-counter market 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.
U.S. GOVERNMENT SECURITIES _ Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the Treasury; others, such as those issued
by the Federal National Mortgage Association, by discretionary authority of
the U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student Loan
Marketing Association, only by the credit of the agency or instrumentality.
These securities bear fixed, floating or variable rates of interest.
Principal and interest may fluctuate based on generally recognized reference
rates or the relationship of rates. While the U.S. Government provides
financial support to such U.S. Government-sponsored agencies and
instrumentalities, no assurance can be given that it will always do so since
it is not so obligated by law. The Fund will invest in such securities only
when it is satisfied that the credit risk with respect to the issuer is
minimal.
ZERO COUPON SECURITIES _ The Fund may invest in zero coupon U.S. Treasury
securities, which are Treasury Notes and Bonds that have been stripped of
their unmatured interest coupons, the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations and
coupons. The Fund also may invest in zero coupon securities issued by
financial institutions which constitute a proportionate ownership of the
issuer's pool of underlying U.S. Treasury securities. A zero coupon security
pays no interest to its holder during its life and is sold at a discount to
its face value at maturity. The amount of the discount fluctuates with the
market price of the security. The market prices of zero coupon securities
generally are more volatile than the market prices of securities that pay
interest periodically and are likely to respond to a greater degree to
changes in interest rates than non-zero coupon securities having similar
maturities and credit qualities.
REPURCHASE AGREEMENTS _ Repurchase agreements involve the acquisition by the
Fund of an underlying debt instrument, subject to an obligation of the seller
to repurchase, and the Fund to resell, the instrument at a fixed price,
usually not more than one week after its purchase. Certain costs may be
incurred by the Fund in connection with the sale of the securities if the
seller does not repurchase them in accordance with the repurchase agreement.
In addition, if bankruptcy proceedings are commenced with respect to the
seller of the securities, realization on the securities by the Fund may be
delayed or limited.
Page 16
BANK OBLIGATIONS _ Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time (in no event longer than
seven days) at a stated interest rate.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These and other
short-term instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. The other
short-term obligations may include uninsured, direct obligations bearing
fixed, floating or variable interest rates.
COMMERCIAL PAPER _ Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs.
CERTAIN FUNDAMENTAL POLICIES
The Fund may (i) borrow money to the extent permitted under the
Investment Company Act of 1940, which currently limits borrowing to no more
than 331/3% of the value of the Fund's total assets; (ii) pledge, mortgage
and hypothecate its assets, but only to secure permitted borrowings and to
the extent related to the deposit of assets in escrow in connection with
portfolio transactions; (iii) invest up to 5% of its total assets in the
obligations of any issuer, except that up to 25% of the value of the Fund's
total assets may be invested, and obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities may be purchased, without
regard to any such limitation; and (iv) invest up to 25% of its total assets
in the securities of issuers in any industry, provided that there shall be no
such limitation on investments in obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. This paragraph describes
fundamental policies that cannot be changed without approval by the holders
of a majority (as defined in the Investment Company Act of 1940) of the
Fund's outstanding voting shares. See "Investment Objective and Management
Policies _ Investment Restrictions" in the Statement of Additional
Information.
RISK FACTORS
CERTAIN INVESTMENT TECHNIQUES _ The use of investment techniques such as
short-selling, engaging in financial futures and options and currency
transactions, leverage through borrowing, purchasing securities on a forward
commitment basis and lending portfolio securities and the purchase of
Sovereign Debt Obligations involves greater risk than that incurred by many
other funds with a similar objective. These risks are described above under
"Investment Techniques" and "Certain Portfolio Securities." In addition,
using these techniques may produce higher than normal portfolio turnover and
may affect the degree to which the Fund's net asset value fluctuates. Higher
portfolio turnover rates are likely to result in comparatively greater
brokerage commissions or transaction costs. Short-term gains realized from
portfolio transactions are taxable to shareholders as ordinary income. See
"Portfolio Transactions" in the Statement of Additional Information.
The Fund's ability to engage in certain short-term transactions may
be limited by the requirement that, to qualify as regulated investment
company, it must earn less than 30% if its gross income from the disposition
of securities held for less than three months. This 30% test limits the
extent to which the Fund may sell securities held for less than three months,
effect short sales of securities held for less than three months, write
options expiring in less than three months and invest in certain futures
contracts, among other strategies. However, portfolio turnover will not
otherwise be a limiting factor in making investment decisions.
INVESTING IN FOREIGN SECURITIES _ In making foreign investments, the Fund
will give appropriate consideration to the following factors, among others.
Foreign securities markets generally are not as developed or
efficient as those in the United States. Securities of some foreign issuers
are less liquid and more volatile than securities of comparable U.S. issuers.
Similarly, volume and liquidity in most foreign securities markets are less
than in the United States and, at times, volatility of price can be greater
than in the United States. The issuers of some of
Page 17
these securities, such as foreign bank obligations, may be subject to less
stringent or different regulation than are U.S. issuers. In addition, there
may be less publicly available information about a non-U.S. issuer, and
non-U.S. issuers generally are not subject to uniform accounting and
financial reporting standards, practices and requirements comparable to
those applicable to U.S. issuers.
Many countries providing investment opportunities for the Fund have
experienced substantial, and in some periods extremely high, rates of
inflation for many years. Inflation and rapid fluctuations in inflation rates
have had and may continue to have adverse effects on the economies and
securities markets of certain of these countries. In an attempt to control
inflation, wage and price controls have been imposed in certain countries.
Because stock certificates and other evidences of ownership of such
securities usually are held outside the United States, the Fund will be
subject to additional risks which include possible adverse political and
economic developments, possible seizure or nationalization of foreign
deposits and possible adoption of governmental restrictions which might
adversely affect the payment of principal and interest on the foreign
securities or might restrict the payment of principal and interest to
investors located outside the country of the issuer, whether from currency
blockage or otherwise. Custodial expenses for a portfolio of non-U.S.
securities generally are higher than for a portfolio of U.S. securities.
By investing in Sovereign Debt Obligations, the Fund will be exposed
to the direct or indirect consequences of political, social and economic
changes in various countries. Political changes in a country may affect the
willingness of a foreign government to make or provide for timely payments of
its obligations. The country's economic status, as reflected, among other
things, in its inflation rate, the amount of its external debt and its gross
domestic product, will also affect the government's ability to honor its
obligations.
No established secondary markets may exist for many of the Sovereign
Debt Obligations in which the Fund may invest. Reduced secondary market
liquidity may have an adverse effect on the market price and the Fund's
ability to dispose of particular instruments when necessary to meet its
liquidity requirements or in response to specific economic events such as a
deterioration in the creditworthiness of the issuer. Reduced secondary market
liquidity for certain Sovereign Debt Obligations also may make it more
difficult for the Fund to obtain accurate market quotations for purposes of
valuing its portfolio. Market quotations are generally available on many
Sovereign Debt Obligations only from a limited number of dealers and may not
necessarily represent firm bids of those dealers or prices for actual sales.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations. Some currency exchange costs may be
incurred when the Fund changes investments from one country to another.
Furthermore, some of these securities may be subject to brokerage
taxes levied by foreign governments, which have the effect of increasing the
cost of such investment and reducing the realized gain or increasing the
realized loss on such securities at the time of sale. Income received by the
Fund from sources within foreign countries may be reduced by withholding and
other taxes imposed by such countries. Tax conventions between certain
countries and the United States, however, may reduce or eliminate such taxes.
All such taxes paid by the Fund will reduce its net income available for
distribution to shareholders.
FOREIGN CURRENCY EXCHANGE _ Currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by
the forces of supply and demand in the foreign exchange markets and the
relative merits of investments in different countries, actual or perceived
changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central banks
or the failure to intervene or by currency controls or political developments
in the U.S. or abroad.
The foreign currency market offers less protection against defaults
in the forward trading of currencies than is available when trading in
currencies occurs on an exchange. Since a forward currency contract is not
Page 18
guaranteed by an exchange or clearinghouse, a default on the contract would
deprive the Fund of unrealized profits or force the Fund to cover its
commitments for purchase or resale, if any, at the current market price.
FOREIGN COMMODITY TRANSACTIONS _ Unlike trading on domestic commodity
exchanges, trading on foreign commodity exchanges is not regulated by the
CFTC and may be subject to greater risks than trading on domestic exchanges.
For example, some foreign exchanges are principal markets so that no common
clearing facility exists and a trader may look only to the broker for
performance of the contract. In addition, unless the Fund hedges against
fluctuations in the exchange rate between the U.S. dollar and the currencies
in which trading is done on foreign exchanges, any profits that the Fund
might realize in trading could be eliminated by adverse changes in the
exchange rate, or the Fund could incur losses as a result of those changes.
Transactions on foreign exchanges may include both commodities which are
traded on domestic exchanges and those which are not.
LOWER RATED SECURITIES _ You should carefully consider the relative risks of
investing in the higher yielding (and, therefore, higher risk) debt
securities in which the Fund may invest without limitation when management
believes that such securities offer opportunities for capital growth.
Management's decision to invest in these securities is not subject to
shareholder approval. These are securities such as those rated Ba by Moody's
or BB by S&P or as low as the lowest rating assigned by Moody's or S&P. They
generally are not meant for short-term investing and may be subject to
certain risks with respect to the issuing entity and to greater market
fluctuations than certain lower yielding, higher rated fixed-income
securities. Obligations rated Ba by Moody's are judged to have speculative
elements; their future cannot be considered as well assured and often the
protection of interest and principal payments may be very moderate.
Obligations rated BB by S&P are regarded as having predominantly speculative
characteristics and, while such obligations have less near-term vulnerability
to default than other speculative grade debt, they face major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely interest
and principal payment. Obligations rated C by Moody's are regarded as having
extremely poor prospects of ever attaining any real investment standing.
Obligations rated D by S&P are in default and the payment of interest and/or
repayment of principal is in arrears. Such obligations, though high yielding,
are characterized by great risk. See "Appendix" in the Statement of
Additional Information for a general description of Moody's and S&P
securities ratings. The ratings of Moody's and S&P represent their opinions
as to the quality of the securities which they undertake to rate. It should
be emphasized, however, that ratings are relative and subjective and,
although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risk of these
securities. Therefore, although these ratings may be an initial criterion for
selection of portfolio investments, the Advisers also will evaluate these
securities and the ability of the issuers of such securities to pay interest
and principal. The Fund's ability to achieve its investment objective may be
more dependent on the Advisers' credit analysis than might be the case for a
fund that invested in higher rated securities. Once the rating of a portfolio
security has been changed, the Fund will consider all circumstances deemed
relevant in determining whether to continue to hold the security.
The market price and yield of debt securities rated Ba or lower by
Moody's and BB or lower by S&P are more volatile than those of higher rated
securities. Factors adversely affecting the market price and yield of these
securities will adversely affect the Fund's net asset value. In addition, the
retail secondary market for these securities may be less liquid than that of
higher rated securities; adverse market conditions could make it difficult at
times for the Fund to sell certain securities or could result in lower prices
than those used in calculating the Fund's net asset value.
The market values of certain lower rated debt securities tend to
reflect individual corporate developments to a greater extent than do higher
rated securities, which react primarily to fluctuations in the general level
of interest rates, and tend to be more sensitive to economic conditions than
are higher rated securities. Companies that issue such securities often are
highly leveraged and may not have avail-
Page 19
able to them more traditional methods of financing. Therefore, the risk
associated with acquiring the securities of such issuers generally is greater
than is the case with higher rated securities.
The Fund may invest in lower rated zero coupon securities and
pay-in-kind bonds (bonds which pay interest through the issuance of
additional bonds), which involve special considerations. These securities may
be subject to greater fluctuations in value due to changes in interest rates
than interest-bearing securities and thus may be considered more speculative
than comparably rated interest-bearing securities. See "Other Investment
Considerations" below, and "Investment Objective and Management Policies_Risk
Factors_Lower Rated Securities" and "Dividends, Distributions and Taxes" in
the Statement of Additional Information.
OTHER INVESTMENT CONSIDERATIONS _ The Fund's net asset value is not fixed
and should be expected to fluctuate. You should purchase Fund shares only as
a supplement to an overall investment program and only if you are willing to
undertake the risks involved.
For the portion of the Fund's portfolio invested in equity
securities, investors should be aware that equity securities fluctuate in
value, often based on factors unrelated to the value of the issuer of the
securities, and that fluctuations can be pronounced. Changes in the value of
the Fund's portfolio securities, regardless of whether the securities are
equity or debt, will result in changes in the value of a Fund share and thus
the Fund's yield and total return to investors.
For the portion of the Fund's portfolio invested in debt securities,
investors should be aware that even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The values
of fixed-income securities also may be affected by changes in the credit
rating or financial condition of the issuing entities. See "Lower Rated Securi
ties" above.
Federal income tax law requires the holder of a zero coupon security
or of certain pay-in-kind bonds to accrue income with respect to these
securities prior to the receipt of cash payments. To maintain its
qualification as a regulated investment company and avoid liability for
Federal income taxes, the Fund may be required to distribute such income
accrued with respect to these securities and may have to dispose of portfolio
securities under disadvantageous circumstances in order to generate cash to
satisfy these distribution requirements.
Investment decisions for the Fund are made independently from those
of the other investment companies or accounts advised by Dreyfus or Comstock
Partners. However, if such other investment companies or accounts are
prepared to invest in, or desire to dispose of, securities of the type in
which the Fund invests at the same time as the Fund, available investments or
opportunities for sales will be allocated equitably to each. In some cases,
this procedure may adversely affect the size of the position obtained for or
disposed of by the Fund or the price paid or received by the Fund.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER
Dreyfus, located at 200 Park Avenue, New York, New York 10166, was
formed in 1947 and serves as the Fund's investment adviser. Dreyfus is a
wholly-owned subsidiary of Mellon Bank, N.A., which is a wholly-owned
subsidiary of Mellon Bank Corporation ("Mellon"). As of August 2, 1995,
Dreyfus managed or administered approximately $79 billion in assets for more
than 1.8 million investor accounts nationwide.
Dreyfus supervises and assists in the overall management of the
Fund's affairs under an Investment Advisory Agreement with the Fund, subject
to the overall authority of the Fund's Board of Directors in accordance with
Maryland law.
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 pro-
Page 20
vides a comprehensive range of financial products and services in domestic
and selected international markets. Mellon is among the twenty-five largest
bank holding companies in the United States based on total assets. Mellon's
principal wholly-owned subsidiaries are Mellon Bank, N.A., Mellon Bank (DE)
National Association, Mellon Bank (MD), The Boston Company, Inc., AFCO Credit
Corporation and a number of companies known as Mellon Financial Services
Corporations. Through its subsidiaries, including Dreyfus, Mellon managed more
than $203 billion in assets as of June 30, 1995, including approximately $73
billion in mutual fund assets. As of June 30, 1995, Mellon, through various
subsidiaries, provided non-investment services, such as custodial and
administration services, for more than $707 billion in assets, including
approximately $71 billion in mutual fund assets.
Under the terms of the Investment Advisory Agreement, the Fund has
agreed to pay Dreyfus an annual fee, payable monthly, as set forth below:
ANNUAL FEE AS A PERCENTAGE OF
AVERAGE NET ASSETS AVERAGE DAILY NET ASSETS
------------------ --------------------------
0 up to $25 million............... .60 of 1%
$25 up to $75 million............. .50 of 1%
$75 up to $200 million............ .45 of 1%
$200 up to $300 million........... .40 of 1%
In excess of $300 million......... .375 of 1%
For the fiscal year ended September 30, 1994, the Fund paid Dreyfus a
monthly investment advisory fee at the effective annual rate of .42 of 1% of
the value of the Fund's average daily net assets.
Dreyfus may pay the Fund's distributor for shareholder services from
Dreyfus' own assets, including past profits but not including the investment
advisory fee paid by the Fund. The Fund's distributor may use part or all of
such payments to pay Services Agents in respect of these services.
SUB-INVESTMENT ADVISER
Comstock Partners, a registered investment adviser located at 10
Exchange Place, Suite 2010, Jersey City, New Jersey 07302-3913, was formed in
1986 and serves as the Fund's sub-investment adviser. As of December 31,
1994, Comstock Partners managed approximately $979 million in assets for
three investment companies and several discretionary accounts.
Comstock Partners, subject to the supervision and approval of
Dreyfus, provides investment advisory assistance and the day-to-day
management of the Fund's portfolio, as well as research and statistical
information under a Sub-Investment Advisory Agreement with the Fund, subject
to the overall authority of the Fund's Board of Directors in accordance with
Maryland law. Investment decisions for the Fund are made by the Investment
Policy Committee of Comstock Partners and no person is primarily responsible
for making recommendations to that committee. Comstock Partners and Dreyfus
also provide research services for the Fund as well as for other funds
advised by Comstock Partners or Dreyfus through their respective professional
staffs of portfolio managers and securities analysts.
Stanley Salvigsen, Chairman of the Board and Chief Executive Officer
of Comstock Partners and Charles L. Minter, Vice Chairman and Chief Operating
Officer of Comstock Partners are portfolio managers of the Fund. In the
October 1986 issue of Institutional Investor, Mr. Salvigsen was selected as
the leading portfolio strategist during the preceding 12-month period, as
determined by a survey of the opinions of research or investment managers at
a selected group of large money management organizations. Subsequent to 1986,
Mr. Salvigsen has not been evaluated in connection with this survey, which
considers only brokerage-firm analysts. Mr. Salvigsen's past performance, or
opinions of others as to the quality of such performance, is no guarantee of
future performance by the Fund.
Page 21
Under the terms of the Sub-Investment Advisory Agreement, the Fund
has agreed to pay Comstock Partners an annual fee, payable monthly, as set
forth below:
ANNUAL FEE AS A PERCENTAGE OF
AVERAGE NET ASSETS AVERAGE DAILY NET ASSETS
--------------- -------------------------
0 up to $25 million.................. .15 of 1%
$25 up to $75 million................ .25 of 1%
$75 up to $200 million............... .30 of 1%
$200 up to $300 million.............. .35 of 1%
In excess of $300 million............ .375 of 1%
For the fiscal year ended September 30, 1994, the Fund paid Comstock
Partners a monthly sub-investment advisory fee at the effective annual rate
of .33 of 1% of the value of the Fund's average daily net assets.
EXPENSES
The aggregate fee paid to the Advisers is higher than that paid by
most other investment companies. From time to time, Dreyfus and/or Comstock
Partners may waive receipt of their fees and/or voluntarily assume certain
expenses of the Fund, which would have the effect of lowering the overall
expense ratio of the Fund and increasing yield to investors at the time such
amounts are waived or assumed, as the case may be. The Fund will not pay
Dreyfus or Comstock Partners at a later time for any amounts which may be
waived, nor will the Fund reimburse Dreyfus and/or Comstock Partners for any
amounts which may be assumed.
DISTRIBUTOR
The Fund's distributor is Premier Mutual Fund Services, Inc. (the
"Distributor"), located at One Exchange Place, Boston, Massachusetts 02109.
The Distributor is a wholly-owned subsidiary of FDI Distribution Services,
Inc., a provider of mutual fund administration services, which in turn is a
wholly-owned subsidiary of FDI Holdings, Inc., the parent company of which is
Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN
The Shareholder Services Group, Inc., a subsidiary of First Data
Corporation, P.O. Box 9671, Providence, Rhode Island 02940-9671, is the
Fund's Transfer and Dividend Disbursing Agent (the "Transfer Agent"). The
Bank of New York, 90 Washington Street, New York, New York 10286, is the
Fund's Custodian.
HOW TO BUY FUND SHARES
GENERAL
Class A shares, Class B shares and Class C shares may be purchased
only by clients of certain financial institutions (which may include banks),
securities dealers ("Selected Dealers") and other industry professionals
(collectively, "Service Agents"), except that full-time or part-time
employees of Dreyfus or any of its affiliates or subsidiaries, directors of
Dreyfus, Board members of a fund advised by Dreyfus, including members of the
Fund's Board, or the spouse or minor child of any of the foregoing may
purchase Class A shares directly through the Distributor. Subsequent
purchases may be sent directly to the Transfer Agent or your Service Agent.
Class R shares are offered only to institutional investors acting for
themselves or in a fiduciary, advisory, agency, custodial or similar
capacity, for qualified or non-qualified employee benefit plans, including
pension, profit-sharing, SEP-IRAs and other deferred compensation plans,
whether established by corporations, partnerships, non-profit entities or
state and local governments ("Retirement Plans"). The term "Retirement Plans"
does not include IRAs or IRA "Rollover Accounts." Class R shares may be
purchased for a Retirement Plan only by a custodian, trustee, investment
manager or other entity autho-
Page 22
rized to act on behalf of such Plan. Institutions effecting transactions in
Class R shares for the accounts of their clients may charge their clients
direct fees in connection with such transactions.
When purchasing Fund shares, you must specify which Class is being
purchased. 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.
Service Agents may receive different levels of compensation for
selling different Classes of shares. Management understands that some Service
Agents may impose certain conditions on their clients which are different
from those described in this Prospectus, and, to the extent permitted by
applicable regulatory authority, may charge their clients direct fees which
would be in addition to any amounts which might be received under the
Distribution Plan or Shareholder Services Plan. Each Service Agent has agreed
to transmit to its clients a schedule of such fees. You should consult your
Service Agent in this regard.
The minimum initial investment is $2,500, or $1,000 if you are a
client of a Service Agent which has made an aggregate minimum initial
purchase for its customers of $2,500. Subsequent investments must be at least
$100. However, the minimum initial investment for Dreyfus-sponsored Keogh
Plans, IRAs, SEP-IRAs and 403(b)(7) Plans with only one participant is $750,
with no minimum for subsequent purchases. Individuals who open an IRA also
may open a non-working spousal IRA with a minimum initial investment of $250.
Subsequent investments in a spousal IRA must be at least $250. The initial
investment must be accompanied by the Fund's Account Application. For
full-time or part-time employees of Dreyfus, or any of its affiliates or
subsidiaries, directors of Dreyfus, Board members of a fund advised by
Dreyfus, including members of the Fund's Board, or the spouse or minor child
of any of the foregoing, the minimum initial investment is $1,000. For
full-time or part-time employees of Dreyfus or any of its affiliates or
subsidiaries who elect to have a portion of their pay directly deposited into
their Fund account, the minimum initial investment is $50. Full-time
employees of Comstock Partners may purchase Fund shares without regard to
minimum initial investment requirements. The Fund reserves the right to offer
Fund shares without regard to minimum purchase requirements to employees
participating in certain qualified or non-qualified employee benefit plans or
other programs where contributions or account information can be transmitted
in a manner and form acceptable to the Fund. The Fund reserves the right to
vary further the initial and subsequent investment minimum requirements at
any time.
The Internal Revenue Code of 1986, as amended (the "Code"), imposes
various limitations on the amount that may be contributed to certain
Retirement Plans. These limitations apply with respect to participants at the
plan level and, therefore, do not directly affect the amount that may be
invested in the Fund by a Retirement Plan. Participants and plan sponsors
should consult their tax advisers for details.
You may purchase Fund shares by check or wire, or, through the
Dreyfus TELETRANSFER Privilege described below. Checks should be made payable
to "The Dreyfus Family of Funds," or, if for Dreyfus retirement plan
accounts, to "The Dreyfus Trust Company, Custodian." Payments to open new
accounts which are mailed should be sent to The Dreyfus Family of Funds, P.O.
Box 9387, Providence, Rhode Island 02940-9387, together with your Account
Application indicating which Class of shares is being purchased. For
subsequent investments, your Fund account number should appear on the check
and an investment slip should be enclosed and sent to The Dreyfus Family of
Funds, P.O. Box 105, Newark, New Jersey 07101-0105. For Dreyfus retirement
plan accounts, both initial and subsequent investments should be sent to The
Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence, Rhode Island
02940-6427. Neither additional nor subsequent investments should be made by
third party check. Purchase orders may be delivered in person only to a
Dreyfus Financial Center. THESE ORDERS WILL BE FORWARDED TO THE FUND AND WILL
BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the nearest
Dreyfus Financial Center, please call one of the telephone numbers listed
under "General Information."
Page 23
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank having
a correspondent bank in New York City. Immediately available funds may be
transmitted by wire to The Bank of New York, together with the applicable
Class' DDA# as shown below, for purchase of Fund shares in your name:
DDA # 8900119551 Dreyfus Capital Value Fund/Class A shares;
DDA # 8900115181 Dreyfus Capital Value Fund/Class B shares;
DDA # 8900251980 Dreyfus Capital Value Fund/Class C shares; or
DDA # 8900252332 Dreyfus Capital Value Fund/Class R shares.
The wire must include your Fund account number (for new accounts, your
Taxpayer Identification Number ("TIN") should be included instead), account
registration and dealer number, if applicable. If your initial purchase of
Fund shares is by wire, please call 1-800-645-6561 after completing your wire
payment to obtain your Fund account number. Please include your Fund account
number on the Fund's Account Application and promptly mail the Account
Application to the Fund, as no redemptions will be permitted until the
Account Application is received. You may obtain further information about
remitting funds in this manner from your bank. All payments should be made in
U.S. dollars and, to avoid fees and delays, should be drawn only on U.S.
banks. A charge will be imposed if any check used for investment in your
account does not clear. The Fund makes available to certain large
institutions the ability to issue purchase instructions through compatible
computer facilities.
Fund shares also may be purchased through Dreyfus-AUTOMATIC Asset
Builder, the Dreyfus Government Direct Deposit Privilege and Dreyfus Payroll
Savings Plan 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.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House member. You must direct the
institution to transmit immediately available funds through the Automated
Clearing House to The Bank of New York with instructions to credit your Fund
account. The instructions must specify your Fund account registration and
your Fund account number PRECEDED BY THE DIGITS "1111."
Fund shares are sold on a continuous basis. Net asset value per share
is determined as of the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), on each day the New York Stock
Exchange is open for business. For purposes of determining net asset value,
options and futures contracts will be valued 15 minutes after the close of
trading on the floor of the New York Stock Exchange. Net asset value per
share of each Class is computed by dividing the value of the Fund's net
assets represented by such Class (i.e., the value of its assets less
liabilities) by the total number of shares of such Class outstanding. The
Fund's investments are valued based on market value, or where market
quotations are not readily available, based on fair value as determined in
good faith by the Board of Directors. For further information regarding the
methods employed in valuing Fund investments, see "Determination of Net Asset
Value" in the Fund's Statement of Additional Information.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes" and
the Fund's Account Application for further information concerning this
requirement. Failure to furnish a certified TIN to the Fund could subject you
to a $50 penalty imposed by the Internal Revenue Service (the "IRS").
If an order is received in proper form by the Transfer Agent or other
agent by the close of trading on the floor of the New York Stock Exchange
(currently 4:00 p.m., New York time) on any business day, Fund shares will be
purchased at the public offering price determined as of such close of trading
on the floor of the New York Stock Exchange on that day. Otherwise, Fund
shares will be purchased at the
Page 24
public offering price determined as of the close of trading on the floor of
the New York Stock Exchange on the next business day, except where shares
are purchased through a dealer as provided below.
Orders for the purchase of Fund shares received by dealers by the
close of trading on the floor of the New York Stock Exchange on any business
day and transmitted to the Distributor or its designee by the close of its
business day (normally 5:15 p.m., New York time) will be based on the public
offering price per share determined as of the close of trading on the floor
of the New York Stock Exchange on that day. Otherwise, the orders will be
based on the next determined public offering price. It is the dealers'
responsibility to transmit orders so that they will be received by the
Distributor or its designee before the close of its business day. 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 may pay dealers a fee of up to .5% 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 of Funds or certain other products made available by the Distributor
to such plans or programs exceeds one million dollars ("Eligible Benefit
Plans"). Plan sponsors, administrators or trustees, as applicable, are
responsible for notifying the Distributor when the relevant requirement is
satisfied. All present holdings of shares of funds in the Dreyfus Family of
Funds by Eligible Benefit Plans will be aggregated to determine the fee
payable with respect to each purchase of Fund shares. The Distributor
reserves the right to cease 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.
CLASS A SHARES
The public offering price for Class A shares is the net asset value
per share of that Class plus a sales load as shown below:
<TABLE>
<CAPTION>
TOTAL SALES LOAD
-------------------------------------
AS A % OF AS A % OF DEALERS' REALLOWANCE
OFFERING PRICE NET ASSET VALUE AS A % OF
AMOUNT OF TRANSACTION PER SHARE PER SHARE OFFERING PRICE
--------------------- ----------- --------------- -----------------
<S> <C> <C> <C>
Less than $50,000...... 4.50 4.70 4.25
$50,000 to less than $100,000 4.00 4.20 3.75
$100,000 to less than $250,000 3.00 3.10 2.75
$250,000 to less than $500,000 2.50 2.60 2.25
$500,000 to less than $1,000,000 2.00 2.00 1.75
$1,000,000 or more..... -0- -0- -0-
</TABLE>
A CDSC of 1% will be assessed at the time of redemption of Class A
shares purchased without an initial sales charge as part of an investment of
at least $1,000,000 and redeemed within two years after purchase. The terms
contained in the section of the Fund's Prospectus entitled "How to Redeem
Fund Shares _ Contingent Deferred Sales Charge" (other than the amount of the
CDSC and time periods) are applicable to the Class A shares subject to a
CDSC. Letter of Intent and Right of Accumulation apply to such purchases of
Class A shares.
If you were an actual beneficial owner of Fund shares held in a Fund
account on April 16, 1987, you may purchase Class A shares for that Fund
account without a sales load.
Page 25
Full-time employees of NASD member firms and full-time employees of
other financial institutions which have entered into an agreement with the
Distributor pertaining to the sale of Fund shares (or which otherwise have a
brokerage related or clearing arrangement with an NASD member firm or
financial institution with respect to the sale of Fund shares) may purchase
Class A shares for themselves directly or pursuant to an employee benefit
plan or other program, or for their spouses or minor children at net asset
value, provided that they have furnished the Distributor with such
information it may request from time to time in order to verify eligibility
for this privilege. This privilege also applies to full-time employees of
financial institutions affiliated with NASD member firms whose full-time
employees are eligible to purchase Class A shares at net asset value. In
addition, Class A shares are offered at net asset value to full-time
employees of Comstock Partners and full-time or part-time employees of
Dreyfus or any of its affiliates or subsidiaries, Board members of a fund
advised by Dreyfus, including members of the Fund's Board, or the spouse or
minor child of any of the foregoing. Class A shares purchased in connection
with the Dreyfus Managed Portfolio program will be purchased at net asset
value.
Class A shares will be offered at net asset value without a sales
load to employees participating in Eligible Benefit Plans. Class A shares
also may be purchased (including by exchange) at net asset value without a
sales load for Dreyfus-sponsored IRA "Rollover Accounts" with the
distribution proceeds from a qualified retirement plan or a Dreyfus-sponsored
403(b)(7) plan, provided that, at the time of such distribution, such
qualified retirement plan or Dreyfus-sponsored 403(b)(7) plan (a) met the
requirements of an Eligible Benefit Plan and all or a portion of such plan's
assets were invested in funds in the Dreyfus Family of Funds or certain other
products made available by the Distributor to such plans, or (b) invested all
of its assets in certain funds in the Dreyfus Family of Funds or certain
other products made available by the Distributor to such plans.
Class A shares may be purchased at net asset value through certain
broker-dealers and other financial institutions which have entered into an
agreement with the Distributor, which includes a requirement that such shares
be sold for the benefit of clients participating in a "wrap account" or a
similar program under which such clients pay a fee to such broker-dealer or
other financial institution.
Class A shares also may be purchased at net asset value, subject to
appropriate documentation, through a broker-dealer or other financial
institution with the proceeds from the redemption of shares of a registered
open-end management investment company not managed by Dreyfus or its
affiliates. The purchase of Class A shares of the Fund must be made within 60
days of such redemption and the shareholder must have either (i) paid an
initial sales charge or a contingent deferred sales charge or (ii) been obliga
ted to pay at any time during the holding period, but did not actually pay on
redemption, a deferred sales charge with respect to such redeemed shares.
Class A shares also may be purchased at net asset value, subject to
appropriate documentation, by (i) qualified separate accounts maintained by
an insurance company pursuant to the laws of any State or territory of the
United States, (ii) a State, county or city or instrumentality thereof, (iii)
a charitable organization (as defined in Section 501(c)(3) of the Code)
investing $50,000 or more in Fund shares, and (iv) a charitable remainder
trust (as defined in Section 501(c)(3) of the Code).
The dealer reallowance may be changed from time to time but will
remain the same for all dealers. The Distributor, at its expense, may provide
additional promotional incentives to dealers that sell shares of funds
advised by Dreyfus which are sold with a sales load, such as Class A shares.
In some instances, these incentives may be offered only to certain dealers
who have sold or may sell significant amounts of shares. Dealers receive a
larger percentage of the sales load from the Distributor than they receive
for selling most other funds. For the period from October 1, 1993 through
August 23, 1994, Dreyfus Service Corporation, a wholly-owned subsidiary of
Dreyfus and distributor of the Fund's shares until August 24, 1994, retained
$278,877 from sales loads on Class A shares.
Page 26
CLASS B SHARES
The public offering price for Class B shares is the net asset value
per share of that Class. No initial sales charge is imposed at the time of
purchase. A CDSC is imposed, however, on certain redemptions of Class B
shares as described under "How to Redeem Fund Shares." The Distributor
compensates certain Service Agents for selling Class B or Class C shares at
the time of purchase from the Distributor's own assets. The proceeds of the
CDSC and the distribution fee, in part, are used to defray these expenses.
For the period from October 1, 1993 through August 23, 1994, Dreyfus Service
Corporation, as former distributor, retained $204,660 from the CDSC on Class
B shares.
CLASS C SHARES
The public offering price for Class C shares is the net asset value
per share of that Class. No initial sales charge is imposed at the time of
purchase. A CDSC is imposed, however, on redemptions of Class C shares made
within the first year of purchase. See "Class B Shares" above and "How to
Redeem Fund Shares."
CLASS R SHARES
The public offering price for Class R shares is the net asset value
per share of that Class.
RIGHT OF ACCUMULATION _ CLASS A SHARES
Reduced sales loads apply to any purchase of Class A shares, shares
of certain other funds advised by Dreyfus which are sold with a sales load or
shares acquired by a previous exchange of shares purchased with a sales load
(hereinafter referred to as "Eligible Funds"), by you and any related
"purchaser" as defined in the Statement of Additional Information, where the
aggregate investment, including such purchase, is $50,000 or more. If, for
example, you previously purchased and still hold Class A shares of the Fund,
or of any other Eligible Fund or combination thereof, with an aggregate
current market value of $40,000 and subsequently purchase Class A shares of
the Fund or an Eligible Fund having a current value of $20,000, the sales
load applicable to the subsequent purchase would be reduced to 4% of the
offering price. All present holdings of Eligible Funds may be combined to
determine the current offering price of the aggregate investment in
ascertaining the sales load applicable to each subsequent purchase.
To qualify for reduced sales loads, at the time of a purchase you or
your Service Agent must notify the Distributor if orders are made by wire, or
the Transfer Agent if orders are made by mail. The reduced sales load is
subject to confirmation of your holdings through a check of appropriate
records.
DREYFUS TELETRANSFER PRIVILEGE
You may purchase shares (minimum $500, maximum $150,000 per day) by
telephone if you have checked the appropriate box and supplied the necessary
information on the Fund's Account Application or have filed a Shareholder
Services Form with the Transfer Agent. The proceeds will be transferred
between the bank account designated in one of these documents and your Fund
account. Only a bank account maintained in a domestic financial institution
which is an Automated Clearing House member may be so designated. The Fund
may modify or terminate this Privilege at any time or charge a service fee
upon notice to shareholders. No such fee currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
SHAREHOLDER SERVICES
The services and privileges described under this heading may not be
available to clients of certain Service Agents and some Service Agents may
impose certain conditions on their clients which are different from those
described in this Prospectus. You should consult your Service Agent in this
regard.
FUND EXCHANGES
You may purchase, in exchange for shares of a Class, shares of the
same Class of certain other funds managed or administered by Dreyfus, to the
extent such shares are offered for sale in your state of resi-
Page 27
dence. These funds have different investment objectives which may be of
interest to you. You also may exchange your Fund shares that are subject to a
CDSC for shares of Dreyfus Worldwide Dollar Money Market Fund, Inc. The
shares so purchased will be held in a special account created solely for this
purpose ("Exchange Account"). Exchanges of shares from an Exchange Account
only can be made into certain other funds managed or administered by Dreyfus.
No CDSC is charged when an investor exchanges into an Exchange Account;
however, the applicable CDSC will be imposed when shares are redeemed from an
Exchange Account or other applicable Fund account. Upon redemption, the
applicable CDSC will be calculated without regard to the time such shares were
held in an Exchange Account. See "How to Redeem Fund Shares." Redemption
proceeds for Exchange Account shares are paid by Federal wire or check only.
Exchange Account shares also are eligible for the Dreyfus Auto-Exchange
Privilege, Dreyfus Dividend Sweep and the Automatic Withdrawal Plan. To use
this service, you should consult your Service Agent or call 1-800-645-6561
to determine if it is available and whether any conditions are imposed on its
use. WITH RESPECT TO CLASS R SHARES HELD BY RETIREMENT PLANS, EXCHANGES MAY
BE MADE ONLY BETWEEN A SHAREHOLDER'S RETIREMENT PLAN ACCOUNT IN ONE FUND AND
SUCH SHAREHOLDER'S RETIREMENT PLAN ACCOUNT IN ANOTHER FUND.
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. Before any exchange, you must obtain and should review a copy of
the current prospectus of the fund into which the exchange is being made.
Prospectuses may be obtained by calling 1-800-645-6561. Except in the case of
Personal Retirement Plans, the shares being exchanged must have a current
value of at least $500; furthermore, when establishing a new account by
exchange, the shares being exchanged must have a value of at least the
minimum initial investment required for the fund into which the exchange is
being made. 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. The Telephone Exchange Privilege may be established for an
existing account by written request, signed by all shareholders on the
account or by a separate signed Shareholder Services Form, also available by
calling 1-800-645-6561. If you have established the Telephone Exchange
Privilege, you may telephone exchange instructions by calling 1-800-221-4060
or, if you are calling from overseas, call 1-401-455-3306. See "How to Redeem
Fund Shares_Procedures." Upon an exchange into a new account, the following
shareholder services and privileges, as applicable and where available, will
be automatically carried over to the fund into which the exchange is made:
Telephone Exchange Privilege, Dreyfus TELETRANSFER Privilege and the
dividend/capital gain distribution option (except for Dreyfus Dividend Sweep)
selected by the investor.
Shares will be exchanged at the next determined net asset value;
however, a sales load may be charged with respect to exchanges of Class A
shares into funds sold with a sales load. No CDSC will be imposed on Class B
or Class C shares at the time of an exchange; however, Class B or Class C
shares acquired through an exchange will be subject on redemption to the
higher CDSC applicable to the exchanged or acquired shares. The CDSC
applicable on redemption of the acquired Class B or Class C shares will be cal
culated from the date of the initial purchase of the Class B or Class C
shares exchanged. If you are exchanging Class A shares into a fund that
charges a sales load, you may qualify for share prices which do not include
the sales load or which reflect a reduced sales load, if the shares of the
fund from which you are exchanging were: (a) purchased with a sales load, (b)
acquired by a previous exchange from shares purchased with a sales load, or
(c) acquired through reinvestment of dividends or distributions paid with
respect to the foregoing categories of shares. To qualify, at the time of an
exchange you must notify the Transfer Agent or your Service Agent must notify
the Distributor. Any such qualification is subject to confirmation of your
holdings through a check of appropriate records. See "Shareholder Services"
in the Statement of Additional Information. No fees currently are charged
shareholders directly in connection with exchanges, although the Fund
reserves
Page 28
the right, upon not less than 60 days' written notice, to charge
shareholders a nominal fee in accordance with rules promulgated by the
Securities and Exchange Commission. The Fund reserves the right to reject any
exchange request in whole or in part. The availability of Fund Exchanges may
be modified or terminated at any time upon notice to shareholders.
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize, or an
exchange on behalf of a Retirement Plan which is not tax exempt may result
in, a taxable gain or loss.
DREYFUS AUTO-EXCHANGE PRIVILEGE
Dreyfus Auto-Exchange Privilege enables you to invest regularly (on a
semi-monthly, monthly, quarterly or annual basis), in exchange for shares of
the Fund, in shares of the same Class of certain other funds in the Dreyfus
Family of Funds of which you are currently an investor. WITH RESPECT TO CLASS
R SHARES HELD BY RETIREMENT PLANS, EXCHANGES PURSUANT TO THE DREYFUS
AUTO-EXCHANGE PRIVILEGE MAY BE MADE ONLY BETWEEN A SHAREHOLDER'S RETIREMENT
PLAN ACCOUNT IN ONE FUND AND SUCH SHAREHOLDER'S RETIREMENT PLAN ACCOUNT IN
ANOTHER FUND. The amount you designate, which can be expressed either in
terms of a specific dollar or share amount ($100 minimum), will be exchanged
automatically on the first and/or fifteenth of the month according to the
schedule you have selected. Shares will be exchanged at the then-current net
asset value; however, a sales load may be charged with respect to exchanges
of Class A shares into funds sold with a sales load. No CDSC will be imposed
on Class B or Class C shares at the time of an exchange; however, the Class B
or Class C shares acquired through an exchange will be subject on redemption
to the higher CDSC applicable to the exchanged shares or acquired shares. The
CDSC applicable on redemption of the acquired Class B or Class C shares will
be calculated from the date of the initial purchase of the Class B or Class C
shares exchanged. See "Shareholder Services" in the Statement of Additional
Information. The right to exercise this Privilege may be modified or
cancelled by the Fund or the Transfer Agent. You may modify or cancel your
exercise of this Privilege at any time by writing to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. The Fund may
charge a service fee for the use of this Privilege. No such fee currently is
contemplated. The exchange of shares of one fund for shares of another is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder and, therefore, an exchanging shareholder may
realize a taxable gain or loss. For more information concerning this
Privilege and the funds in the Dreyfus Family of Funds eligible to
participate in this Privilege, or to obtain a Dreyfus Auto-Exchange
Authorization Form, please call toll free 1-800-645-6561.
DREYFUS-AUTOMATIC ASSET BUILDERRegistration Mark
Dreyfus-AUTOMATIC Asset Builder permits you to purchase Fund shares
(minimum of $100 and maximum $150,000 per transaction) at regular intervals
selected by you. Fund shares are purchased by transferring funds from the
bank account designated by you. At your option, the bank account designated
by you will be debited in the specified amount, and Fund shares will be
purchased, once a month, on either the first or fifteenth day, or twice a
month, on both days. Only an account maintained at a domestic financial
institution which is an Automated Clearing House member may be so designated.
To establish a Dreyfus-AUTOMATIC Asset Builder account, you must file an
authorization form with the Transfer Agent. You may obtain the necessary
authorization form by calling 1-800-645-6561. You may cancel your
participation in this Privilege or change the amount of purchase at any time
by mailing written notification to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427, and the notification will be effective three
business days following receipt. The Fund may modify or terminate this
Privilege at any time or charge a service fee. No such fee currently is
contemplated.
Page 29
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE
Dreyfus Government Direct Deposit Privilege enables you to purchase
Fund shares (minimum of $100 and maximum of $50,000 per transaction) by
having Federal salary, Social Security, or certain veterans', military or
other payments from the Federal government automatically deposited into your
Fund account. You may deposit as much of such payments as you elect. To
enroll in Dreyfus Government Direct Deposit, you must file with the Transfer
Agent a completed Direct Deposit Sign-Up Form for each type of payment that
you desire to include in this Privilege. The appropriate form may be obtained
by calling 1-800-645-6561. Death or legal incapacity will terminate your
participation in this Privilege. You may elect at any time to terminate your
participation by notifying in writing the appropriate Federal agency.
Further, the Fund may terminate your participation upon 30 days' notice to
you.
DREYFUS PAYROLL SAVINGS PLAN
Dreyfus Payroll Savings Plan permits you to purchase Fund shares
(minimum of $100 per transaction) automatically on a regular basis. Depending
upon your employer's direct deposit program, you may have part or all of your
paycheck transferred to your existing Dreyfus account electronically through
the Automated Clearing House system at each pay period. To establish a
Dreyfus Payroll Savings Plan account, you must file an authorization form
with your employer's payroll department. Your employer must complete the
reverse side of the form and return it to The Dreyfus Family of Funds, P.O.
Box 9671, Providence, Rhode Island 02940-9671. You may obtain the necessary
authorization form by calling 1-800-645-6561. You may change the amount of
purchase or cancel the authorization only by written notification to your
employer. It is the sole responsibility of your employer, not the
Distributor, Dreyfus, the Fund, the Transfer Agent or any other person, to
arrange for transactions under the Dreyfus Payroll Savings Plan. The Fund may
modify or terminate this Privilege at any time or charge a service fee. No
such fee currently is contemplated.
DREYFUS DIVIDEND OPTIONS
Dreyfus Dividend Sweep enables you to invest automatically dividends
or dividends and capital gain distributions, if any, paid by the Fund in
shares of the same Class of another fund in the Dreyfus Family of Funds of
which you are a shareholder. Shares of the other fund will be purchased at
the then-current net asset value; however, a sales load may be charged with
respect to investments in Class A shares of a fund sold with a sales load. If
you are investing in a fund that charges a sales load, you may qualify for
share prices which do not include the sales load or which reflect a reduced
sales load. If you are investing in a fund or class that charges a CDSC, the
shares purchased will be subject on redemption to the CDSC, if any,
applicable to the purchased shares. See "Shareholder Services" in the
Statement of Additional Information. Dreyfus Dividend ACH permits you to
transfer electronically on the payment date 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 Automated Clearing House member may be so designated. Banks may charge
a fee for this service.
For more information concerning these privileges or to request a
Dividend Options Form, please call toll free 1-800-645-6561. You may cancel
these privileges by mailing written notification to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. To select a new
fund after cancellation, you must submit a new Dividend Options Form.
Enrollment in or cancellation of these privileges is effective three business
days following receipt. These privileges are available only for existing
accounts and may not be used to open new accounts. Minimum subsequent
investments do not apply for Dreyfus Dividend Sweep. The Fund may modify or
terminate these privileges at any time or charge a service fee. No such fee
currently is contemplated. Shares held under Keogh Plans, IRAs or other
retirement plans are not eligible for these privileges.
Page 30
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. Particular Retirement Plans,
including Dreyfus sponsored retirement plans, may permit certain participants
to establish an automatic withdrawal plan from such Retirement Plans.
Participants should consult their Retirement Plan sponsor and tax adviser for
details. Such a withdrawal plan is different than the Automatic Withdrawal
Plan. An application for the Automatic Withdrawal Plan can be obtained by
calling 1-800-645-6561. There is a service charge of 50cents for each
withdrawal check. The Automatic Withdrawal Plan may be ended at any time by
you, the Fund or the Transfer Agent. Shares for which stock certificates have
been issued may not be redeemed through the Automatic Withdrawal Plan.
Class B or Class C shares withdrawn pursuant to the Automatic
Withdrawal Plan will be subject to any applicable CDSC. Purchases of
additional Class A shares where the sales load is imposed concurrently with
withdrawals of Class A shares generally are undesirable. Any correspondence
with respect to the Automatic Withdrawal Plan should be addressed to The
Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671,
or, if for Dreyfus retirement plan accounts, to The Dreyfus Trust Company,
Custodian, P.O. Box 6427, Providence, Rhode Island 02940-6427.
RETIREMENT PLANS
The Fund offers a variety of pension and profit-sharing plans,
including Keogh Plans, IRAs, SEP-IRAs and IRA "Rollover Accounts," 401(k)
Salary Reduction Plans and 403(b)(7) Plans. Plan support services also are
available. You can obtain details on the various plans by calling the
following numbers toll free: for Keogh Plans, please call 1-800-358-5566; for
IRAs and IRA "Rollover Accounts," please call 1-800-645-6561; for SEP-IRAs,
401(k) Salary Reduction Plans and 403(b)(7) Plans, please call 1-800-322-7880.
LETTER OF INTENT _ CLASS A SHARES
By signing a Letter of Intent form, available by calling
1-800-645-6561, you become eligible for the reduced sales load applicable to
the total number of Eligible Fund shares purchased in a 13-month period
pursuant to the terms and under the conditions set forth in the Letter of
Intent. A minimum initial purchase of $5,000 is required. To compute the
applicable sales load, the offering price of shares you hold (on the date of
submission of the Letter of Intent) in any Eligible Fund that may be used
toward "Right of Accumulation" benefits described above may be used as a
credit toward completion of the Letter of Intent. However, the reduced sales
load will be applied only to new purchases.
The Transfer Agent will hold in escrow 5% of the amount indicated in
the Letter of Intent for payment of a higher sales load if you do not
purchase the full amount indicated in the Letter of Intent. The escrow will
be released when you fulfill the terms of the Letter of Intent by purchasing
the specified amount. If your purchases qualify for a further sales load
reduction, the sales load will be adjusted to reflect your total purchase at
the end of 13 months. If total purchases are less than the amount specified,
you will be requested to remit an amount equal to the difference between the
sales load actually paid and the sales load applicable to the aggregate
purchases actually made. If such remittance is not received within 20 days,
the Transfer Agent, as attorney-in-fact pursuant to the terms of the Letter
of Intent, will redeem an appropriate number of Class A shares held in escrow
to realize the difference. Signing a Letter of Intent does not bind you to
purchase, or the Fund to sell, the full amount indicated at the sales load in
effect at the time of signing, but you must complete the intended purchase to
obtain the reduced sales load. At the time you purchase Class A shares, you
must indicate your intention to do so under a Letter of Intent.
Page 31
HOW TO REDEEM FUND SHARES
GENERAL
You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form, the Fund will redeem the shares at the
next determined net asset value as described below. If you hold Fund shares
of more than one Class, any request for redemption must specify the Class of
shares being redeemed. If you fail to specify the Class of shares to be
redeemed or if you own fewer shares of the Class than specified to be
redeemed, the redemption request may be delayed until the Transfer Agent
receives further instructions from you or your Service Agent.
The Fund imposes no charges (other than any applicable CDSC) when
shares are redeemed. Service Agents may charge their clients a nominal fee
for effecting redemptions of Fund shares. Any certificates representing Fund
shares being redeemed must be submitted with the redemption request. The
value of the shares redeemed may be more or less than their original cost,
depending on the Fund's then-current net asset value.
Distributions from qualified Retirement Plans, IRAs (including IRA
"Rollover Accounts") and certain non-qualified deferred compensation plans,
except distributions representing returns of non-deductible contributions to
the Retirement Plan or IRA, generally are taxable income to the participant.
Distributions from such a Retirement Plan or IRA to a participant prior to
the time the participant reaches age 59-1/2 or becomes permanently disabled
may subject the participant to an additional 10% penalty tax imposed by the
IRS. Participants should consult their tax advisers concerning the timing and
consequences of distributions from a Retirement Plan or IRA. Participants in
qualified Retirement Plans will receive a disclosure statement describing the
consequences of a distribution from such a Plan from the administrator,
trustee or custodian of the Plan, before receiving the distribution. The Fund
will not report to the IRS redemptions of Fund shares by qualified Retirement
Plans, IRAs or certain non-qualified deferred compensation plans. The
administrator, trustee or custodian of such Retirement Plans and IRAs will be
responsible for reporting distributions from such Plans and IRAs to the IRS.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK, BY DREYFUS
TELETRANSFER PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDER AND
SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER AGENT, THE
REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK CLEARANCE
OF YOUR PURCHASE CHECK, DREYFUS TELETRANSFER PURCHASE OR DREYFUS-AUTOMATIC
ASSET BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN
ADDITION, THE FUND WILL REJECT REQUESTS TO REDEEM SHARES PURSUANT TO THE
DREYFUS TELETRANSFER PRIVILEGE FOR A PERIOD OF EIGHT BUSINESS DAYS AFTER
RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE CHECK, THE DREYFUS TELETRANSFER
PURCHASE OR THE DREYFUS-AUTOMATIC ASSET BUILDER ORDER AGAINST WHICH SUCH
REDEMPTION IS REQUESTED. THESE PROCEDURES WILL NOT APPLY IF YOUR SHARES WERE
PURCHASED BY WIRE PAYMENT, OR IF YOU OTHERWISE HAVE A SUFFICIENT COLLECTED
BALANCE IN YOUR ACCOUNT TO COVER THE REDEMPTION REQUEST. PRIOR TO THE TIME
ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH SHARES WILL ACCRUE AND BE
PAYABLE, AND YOU WILL BE ENTITLED TO EXERCISE ALL OTHER RIGHTS OF BENEFICIAL
OWNERSHIP. Fund shares will not be redeemed until the Transfer Agent has
received your Account Application.
The Fund reserves the right to redeem your account at its option upon
not less than 45 days' written notice if your account's net asset value is
$500 or less and remains so during the notice period.
CONTINGENT DEFERRED SALES CHARGE
CLASS B SHARES _ A CDSC payable to the Distributor is imposed on any
redemption of Class B shares which reduces the current net asset value of
your Class B shares to an amount which is lower than the
Page 32
dollar amount of all payments by you for the purchase of Class B shares of
the Fund held by you at the time of redemption. No CDSC will be imposed to
the extent that the net asset value of the Class B shares redeemed does not
exceed (i) the current net asset value of Class B shares acquired through
reinvestment of dividends or capital gain distributions, plus (ii) increases
in the net asset value of your Class B shares above the dollar amount of all
your payments for the purchase of Class B shares of the Fund held by you at
the time of redemption.
If the aggregate value of the Class B shares redeemed has declined
below their original cost as a result of the Fund's performance, a CDSC may
be applied to the then-current net asset value rather than the purchase
price.
In circumstances where the CDSC is imposed, the amount of the charge
will depend on the number of years from the time you purchased the Class B
shares until the time of redemption of such shares. Solely for purposes of
determining the number of years from the time of any payment for the purchase
of Class B shares, all payments during a month will be aggregated and deemed
to have been made on the first day of the month. The following table sets
forth the rates of the CDSC:
YEAR SINCE PURCHASE CDSC AS A % OF AMOUNT
PAYMENT WAS MADE INVESTED OR REDEMPTION PROCEEDS
----------------- ----------------------------
First..................... 4.00
Second.................... 4.00
Third..................... 3.00
Fourth.................... 3.00
Fifth..................... 2.00
Sixth..................... 1.00
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value of Class B shares
above the total amount of payments for the purchase of Class B shares made
during the preceding six years; then of amounts representing the cost of
shares purchased six years prior to the redemption; and finally, of amounts
representing the cost of shares held for the longest period of time within the
applicable six-year period.
For example, assume an investor purchased 100 shares at $10 per share
for a cost of $1,000. Subsequently, the shareholder acquired 5 additional
shares through dividend reinvestment. During the second year after the
purchase the investor decided to redeem $500 of his or her investment.
Assuming at the time of the redemption the net asset value had appreciated to
$12 per share, the value of the investor's shares would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to the value of the
reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260)
would be charged at a rate of 4% (the applicable rate in the second year
after purchase) for a total CDSC of $9.60.
CLASS C SHARES _ A CDSC of 1% payable to the Distributor is imposed on any
redemption of Class C shares within one year of the date of purchase. The
basis for calculating the payment of any such CDSC will be the method used in
calculating the CDSC for Class B shares. See "Contingent Deferred Sales
Charge _ Class B Shares" above.
WAIVER OF CDSC _ The CDSC applicable to Class B and Class C shares may be
waived in connection with (a) redemptions made within one year after the
death or disability, as defined in Section 72(m)(7) of the Code, of the
shareholder, (b) redemptions by employees participating in Eligible Benefit
Plans, (c) redemptions as a result of a combination of any investment company
with the Fund by merger, acquisition of assets or otherwise and (d) a
distribution following retirement under a tax-
Page 33
deferred retirement plan or attaining age 70-1/2 in the case of an IRA or
Keogh plan or custodial account pursuant to section 403(b) of the Code. If
the Fund's Board determines to discontinue the waiver of the CDSC, the
disclosure in the Fund's prospectus will be revised appropriately. Any Fund
shares subject to a CDSC which were purchased prior to the termination of
such waiver will have the CDSC waived as provided in the Fund's prospectus at
the time of the purchase of such shares.
To qualify for a waiver of the CDSC, at the time of redemption you
must notify the Transfer Agent or your Service Agent must notify the
Distributor. Any such qualification is subject to confirmation of your
entitlement.
PROCEDURES
You may redeem shares by using the regular redemption procedure
through the Transfer Agent or the Dreyfus TELETRANSFER Privilege. If you have
given your Service Agent authority to instruct the Transfer Agent to
redeem shares and to credit the proceeds of such redemptions to a designated
account at your Service Agent, you may redeem shares only in this manner and
in accordance with the regular redemption procedure described below. If you
wish to use the other redemption methods described below, you must arrange
with your Service Agent for delivery of the required application(s) to the
Transfer Agent. Other redemption procedures may be in effect for investors
who effect transactions in Fund shares through Service Agents. The Fund makes
available to certain large institutions the ability to issue redemption
instructions through compatible computer facilities.
You may redeem shares by telephone if you have checked the
appropriate box on the Fund's Account Application or have filed a Shareholder
Services Form with the Transfer Agent. If you select the Dreyfus TELETRANSFER
Privilege or telephone exchange privilege (which is granted automatically
unless you refuse it), you authorize the Transfer Agent to act on telephone
instructions from any person representing himself or herself to be you, or a
representative of your Service Agent, and reasonably believed by the Transfer
Agent to be genuine. The Fund will require the Transfer Agent to employ
reasonable procedures, such as requiring a form of personal identification,
to confirm that instructions are genuine and, if it does not follow such
procedures, the Fund or the Transfer Agent may be liable for any losses due
to unauthorized or fraudulent instructions. Neither the Fund nor the Transfer
Agent will be liable for following telephone instructions reasonably believed
to be genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a Dreyfus TELETRANSFER redemption or exchange of Fund shares. In such
cases, you should consider using the other redemption procedures described
herein. Use of these other redemption procedures may result in your
redemption request being processed at a later time than it would have been if
Dreyfus TELETRANSFER redemption had been used. During the delay, the Fund's
net asset value may fluctuate.
REGULAR REDEMPTION _ Under the regular redemption procedure, you may redeem
shares by written request mailed to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427. Written redemption requests must specify the Class
of shares being redeemed. Redemption requests may be delivered in person only
to a Dreyfus Financial Center. THESE REQUESTS WILL BE FORWARDED TO THE FUND
AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the
nearest Dreyfus Financial Center, please call one of the telephone numbers
listed under "General Information." Redemption requests must be signed by
each shareholder, including each owner of a joint account, and each signature
must be guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations, as well as from participants in the New York Stock
Exchange Medallion Signature Program, the Securities Transfer Agents
Medallion
Page 34
Program ("STAMP"), and the Stock Exchanges Medallion Program. If
you have any questions with respect to signature-guarantees, please call one
of the telephone numbers listed under "General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
DREYFUS TELETRANSFER PRIVILEGE _ You may redeem Fund shares (minimum $500)
by telephone if you have checked the appropriate box and supplied the
necessary information on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. The proceeds will be
transferred between your Fund account and the bank account designated in one
of these documents. Only such an account maintained in a domestic financial
institution which is an Automated Clearing House member may be so designated.
Redemption proceeds will be on deposit in your account at an Automated
Clearing House member bank ordinarily two days after receipt of the
redemption request or, at your request, paid by check (maximum $150,000 per
day) and mailed to your address. Holders of jointly registered Fund or bank
accounts may redeem through the Dreyfus TELETRANSFER Privilege for transfer
to their bank account not more than $250,000 within any 30-day period. The
Fund reserves the right to refuse any request made by telephone, including
requests made shortly after a change of address, and may limit the amount
involved or the number of such requests. The Fund may modify or terminate
this Privilege at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call
1-401-455-3306. Shares of the Fund held under Keogh Plans, IRAs or other
Dreyfus retirement plans, and shares issued in certificate form, are not
eligible for this Privilege.
REINVESTMENT PRIVILEGE _ CLASS A
You may reinvest up to the number of Class A shares you have
redeemed, within 30 days of redemption, at the then-prevailing net asset
value without a sales load, or reinstate your account for the purpose of
exercising the Exchange Privilege. The Reinvestment Privilege may be
exercised only once.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
(CLASS A, CLASS B AND CLASS C ONLY)
Class B and Class C shares are subject to a Distribution Plan and
Class A, Class B and Class C shares only are subject to a Shareholder
Services Plan.
DISTRIBUTION PLAN
Under the Distribution Plan, adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor for
distributing the Fund's Class B and Class C shares at an annual rate of .75
of 1% of the value of the average daily net assets of Class B and Class C.
SHAREHOLDER SERVICES PLAN
Under the Shareholder Services Plan, the Fund pays the Distributor
for the provision of certain services to the holders of Class A, Class B and
Class C shares a fee at the annual rate of .25 of 1% of the value of the
average daily net assets of each such Class. The services provided may
include personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Fund and providing reports and other
information, and services related to the maintenance of shareholder accounts.
The Distributor may make payments to Service Agents in respect of these
services. The Distributor determines the amounts to be paid to Service
Agents.
Page 35
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund ordinarily pays dividends from net investment income and
distributes net realized securities gains, if any, once a year, but it may
make distributions on a more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent with the
provisions of the Investment Company Act of 1940. The Fund will not make
distributions from net realized securities gains unless capital loss
carryovers, if any, have been utilized or have expired. You may choose whether
to receive dividends and distributions in cash or to reinvest in additional
shares of the same class at net asset value without a sales load. Dividends
and distributions paid in cash to Retirement Plans, however, may be subject
to additional tax as described below. All expenses are accrued daily and are
deducted before the declaration of dividends. Dividends paid by each Class
will be calculated at the same time and in the same manner and will be of the
same amount, except that the expenses attributable solely to a particular
Class will be borne exclusively by such Class. Class B and Class C shares
will receive lower per share dividends than Class A shares which will receive
lower per share dividends than Class R shares because of the higher expenses
borne by the relevant Class. See "Fee Table."
Dividends paid by the Fund to qualified Retirement Plans, IRAs
(including IRA "Rollover Accounts") or certain non-qualified deferred
compensation plans ordinarily will not be subject to taxation until the
proceeds are distributed from the Retirement Plan. The Fund will not report
dividends paid to such Plans and IRAs to the IRS. Generally, distributions
from such Retirement Plans, except those representing returns of
non-deductible contributions thereto, will be taxable as ordinary income and,
if made prior to the time the participant reaches age 59-1/2, generally will
be subject to an additional tax equal to 10% of the taxable portion of the
distribution. If the distribution from such a Retirement Plan (other than
certain governmental or church plans) or IRA for any taxable year following
the year in which the participant reaches age 70-1/2 is less than the
"minimum required distribution" for that taxable year, an excise tax equal to
50% of the deficiency may be imposed by the IRS. The administrator, trustee
or custodian of such a Retirement Plan or IRA will be responsible for
reporting distributions from such Plans and IRAs to the IRS. Participants in
qualified Retirement Plans will receive a disclosure statement describing the
consequences of a distribution from such a Plan from the administrator,
trustee or custodian of the Plan prior to receiving the distribution.
Moreover, certain contributions to a qualified Retirement Plan or IRA in
excess of the amounts permitted by law may be subject to an excise tax.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund will be taxable to U.S. shareholders
as ordinary income whether received in cash or reinvested in additional Fund
shares. Distributions from net realized long-term securities gains of the
Fund will be taxable to U.S. shareholders as long-term capital gains, regardle
ss of how long shareholders have held their Fund shares and whether such
distributions are received in cash or reinvested in additional Fund shares.
The Code provides that the net capital gain of an individual generally will
not be subject to Federal income tax at a rate in excess of 28%. Dividends,
together with distributions may be subject to state and local taxes.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund to a foreign investor generally are
subject to U.S. nonresident withholding taxes at the rate of 30%, unless the
foreign investor claims the benefit of a lower rate specified in a tax
treaty. Distributions from net realized long-term securities gains paid by
the Fund to a foreign investor as well as the proceeds of any redemptions
from a foreign investor's account, regardless of the extent to which gain or
loss may be realized, generally will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Page 36
Notice as to the tax status of your dividends and distributions will
be mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
The Code provides for the "carryover" of some or all of the sales
load imposed on Class A shares, if you exchange your Class A shares for
shares in another Dreyfus fund within 91 days after purchase and the other
Dreyfus fund reduces or eliminates its otherwise applicable load charge for
the purpose of the exchange. In this case, the amount of sales load charged
the investor for Class A shares, up to the amount of the reduction of the
sales load charged, on the exchange, is not included in the basis of such
investor's Class A shares for purposes of computing gain or loss on the
exchange, and instead is added to the basis of the fund shares received in
the exchange.
With respect to individual investors and certain non-qualified
Retirement Plans, Federal regulations generally require the Fund to withhold
and remit to the U.S. Treasury 31%, of dividends, distributions from net
realized securities gains of the Fund and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN furnished
in connection with opening an account is correct, or that such shareholder has
not received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest income on
a Federal income tax return. Furthermore, the IRS may notify the Fund to
institute backup withholding if the IRS determines that a shareholder's TIN is
incorrect or if a shareholder has failed to properly report dividend and
interest income on a Federal income tax return.
A TIN is either the Social Security number or employer identification
number of the record owner of the account. Any tax withheld as a result of
backup withholding does not constitute an additional tax imposed on the
record owner of the account, and may be claimed as a credit on the record
owner's Federal income tax return.
Management of the Fund believes that the Fund has qualified for the
fiscal year ended September 30, 1994 as a "regulated investment company"
under the Code. The Fund intends to continue to so qualify if such
qualification is in the best interests of its shareholders. Such
qualification relieves the Fund of any liability for Federal income tax to
the extent its earnings are distributed in accordance with applicable
provisions of the Code. In addition, the Fund is subject to a non-deductible
4% excise tax, measured with respect to certain undistributed amounts of
taxable investment income and capital gains.
You should consult your tax adviser regarding specific questions as
to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance for each Class of shares may
be calculated on the basis of average annual total return and/or total
return. These total return figures reflect changes in the price of the shares
and assume that any income dividends and/or capital gains distributions made
by the Fund during the measuring period were reinvested in shares of the same
Class. These figures also take into account any applicable service and
distribution fees. As a result, at any given time, the performance of Class B
and Class C should be expected to be lower than that of Class A and the
performance of Class A, Class B and Class C should be expected to be lower
than that of Class R. Performance for each Class will be calculated
separately.
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment in the Fund was purchased with an
initial payment of $1,000 and that the investment was redeemed at the end of
a stated period of time, after giving effect to the reinvestment of dividends
and distributions during the period. The return is expressed as a percentage
rate which, if applied on a compounded annual basis, would result in the
redeemable value of the investment at the end of the period. Advertisements
of the Fund's performance will include the Fund's average annual total return
for one, five and ten year periods, or for shorter time periods depending
upon the length of time during which the Fund has operated.
Page 37
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value (or maximum offering price in the case of Class A) per share at the
beginning of the period. Advertisements may include the percentage rate of
total return or may include the value of a hypothetical investment at the end
of the period which assumes the application of the percentage rate of total
return. Total return also may be calculated by using the net asset value per
share at the beginning of the period instead of the maximum offering price
per share at the beginning of the period for Class A shares or without giving
effect to any applicable CDSC at the end of the period for Class B or Class C
shares. Calculations based on the net asset value per share do not reflect
the deduction of the applicable sales charge on Class A shares, which, if
reflected, would reduce the performance quoted.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Standard & Poor's 500 Composite Stock Price Index,
the Dow Jones Industrial Average, Morningstar, Inc. and other industry
publications.
GENERAL INFORMATION
The Fund was incorporated under Maryland law on December 3, 1983, and
commenced operations on October 10, 1985. On February 3, 1993, the Fund,
which is incorporated under the name Dreyfus Capital Value Fund, Inc., began
operating under the name Dreyfus Capital Value Fund (A Premier Fund). The
Fund is authorized to issue 400 million shares of Common Stock, par value
$.01 per share. The Fund's shares are classified into four classes _ Class
A, Class B, Class C and Class R. Each share has one vote and shareholders
will vote in the aggregate and not by class except as otherwise required by
law. However, only holders of Class B or Class C shares, as the case may be,
will be entitled to vote on matters submitted to shareholders pertaining to
the Distribution Plan.
Unless otherwise required by the Investment Company Act of 1940,
ordinarily it will not be necessary for the Fund to hold annual meetings of
shareholders. As a result, Fund shareholders may not consider each year the
election of Directors or the appointment of auditors. However, pursuant to
the Fund's By-Laws, the holders of at least 10% of the shares outstanding and
entitled to vote may require the Fund to hold a special meeting of
shareholders for purposes of removing a Director from office and the holders
of at least 25% of such shares may require the Fund to hold a special meeting
of shareholders for any other purpose. Fund shareholders may remove a
Director by the affirmative vote of a majority of the Fund's outstanding
voting shares. In addition, the Board of Directors will call a meeting of
shareholders for the purpose of electing Directors if, at any time, less than
a majority of the Directors then holding office have been elected by
shareholders.
The Transfer Agent maintains a record of your ownership and sends you
confirmations and statements of account.
Page 38
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll free
1-800-645-6561. In New York City, call 1-718-895-1206; outside the U.S.
and Canada, call 516-794-5452.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 39
DREYFUS
Capital
Value
Fund
Prospectus
Registration Mark
Copy Rights 1995 Dreyfus Service Corporation
107p17082195
